Stagflation: Is This the End of Abundance?

As the world descends into an inflationary recession, governments have difficult choices to make. On one hand, they can opt for austerity and higher interest rates. On the other hand, they can pick stimulus and try to outgrow inflation. It should be obvious from recent events in the US that the Biden administration rejects austerity. And this is bad news, really bad news. More stimulus will surely exacerbate inflation and accelerate the debt spiral facing the US government.

Meanwhile, Europe prepares for a winter without heat. In what can only be described as an on-goal, EU sanctions against Russia threaten to derail their own economies and inflict great suffering on their populations. Fuel prices are skyrocketing and inflations is out of control. One bank predicts a whopping 18.6% inflation rate through 2023 for the UK¹. And French President, Emmanuel Macron, thinks that France is witnessing the end of abundance².

Biden Hands Out Money: You Foot the Bill

Since my last post on the economy, the US officially fell into recession. At least, we are in a recession when measured by traditional metrics. When measured by ice cream cones and lollipops, the economy is doing just fine. In fact, the Biden administration believes that denying the recession exists will simply make it go away³. Unfortunately, both Congress and the President are only making it worse.

As I anticipated, the well-connected will get bailed out. They always do. But I didn’t anticipate bailouts for millions of student-debt laden voters⁴. Biden’s executive order will likely cost the government $500 billion dollars or more. But no worries, as long as those receiving debt forgiveness vote Democrat, there is no cost too big for them.

The move is terrible for long term stability, but is brilliant from a political perspective. However, now that the precedence is set, I expect subsequent administrations to out do previous ones with even larger student loan bailouts. Further, as long as the “little guy” gets money, nobody will care when the next round of bank bailouts send trillions to bankers.

You’ve Lost that Magic Feeling

America continues to loses its global competitiveness. And nothing accentuates the underlying rot more than the so-called Inflation Reduction act⁵. The recently passed bill will more than double the size of the IRS⁶. Just as the middle class is squeezed with double digit inflation and a recession, the government unleashes an army of new IRS agents to punish individuals and small companies.

If the IRS follows the trends of the FBI, you can be sure their focus will be directed towards Trump supporters and/or anybody that has sponsors dissident movements. As corruption expands in Washington, politicians are increasingly using federal agencies to go after political opponents. But unlike acts against Trump or the Republican party, this army of tax collectors will attack everyday, regular Americans.

If this sounds crazy, I implore you to reconsider. Canada is not a banana republic. Instead, it is a first-world, liberal democracy. But that didn’t stop the Trudeau regime from turning the awesome power of the state against its people. Even citizens with donations as small as $50 were penalized for supporting the heroic Trucker Convoy⁷. And there is no question the FBI is politicized, so why would Biden’s swarm of new IRS agents be any different?

What’s Next?

It is clear to me that the clowns running Washington are ill prepared to handle a recession, yet alone an inflationary recession. To truly fix the economy, interest rates should be higher than inflation and taxes should go down. Instead, they want endless stimulus. They hired an army of tax agents to squeeze more money out of the productive sector and the Federal Reserve drags its feet. Interest rates are going up, but not nearly fast enough to tackle inflation.

And as America goes, so goes the world. China recently announced a stimulus package to counteract the enormous bust in its property bubble⁸. Europe is a complete basket case: the Euro is garbage and they suffer from a self-inflicted energy crises. I guess somebody forgot to tell their politicians that energy is the life blood of an economy. There are only so many cold showers people can endure (even Europeans). Europe faces a harsh winter of riots and protests.

So, I expect the recession to get deeper and inflation to remain high. Further, there is no evidence to think otherwise. I predict the economy will flatten out by “official numbers”, but continue to shrink in real terms as inflation eats away at salaries and fixed incomes. The only thing that would stop our current trajectory is some sort of crisis. Who knows what form it will take? Usually it’s the failure of some large financial institution, hedge fund or large manufacturer (like GM). Unfortunately, if that happens, I expect the Fed to bail them out and lower rate, sending inflation to record levels.

Conclusion

The ruling class has lost its touch. Everything they do is transparently done to keep themselves in power. Not only do they not care about ‘the people’, they openly mock and ridicule them. As a result, the political elites will protect themselves during this recession and hand you and I the bill. Sure, they’ll handout some money to select classes of voters, but everybody else will suffer from their short-sighted and self-interested policies.

I’ve argued before that America needs a renewal. We need a new ruling elite and we need massive decentralization. Unless that occurs, we will continue down the path of increased corruption and authoritarian policies. Bankruptcy and collapse are the logical conclusions. And the current batch of elites are indifferent. They’ll be fine. Their billions are already spread across the globe, some on islands where children never return the same⁹.