Sir, I’m sorry your plan to defer the economic harm from all the overspending in the pandemic has not worked out; we thought perhaps if we didn’t raise interest rates aggressively a few months ago we might get through November’s elections first. Sadly that didn’t work. — POTUS Economic Advisors.
Why?
Several reasons, with the simplest explanation being this: Nobody seems to remember their mathematics from middle and High School, which included exponents.
Shortly we will have the new CPI release; it will not include most of the wild rampjob in gasoline and diesel prices, which will show up in the March report. And boy, will it show up.
If you recall the last time oil spiked higher it led to an immediate and deep recession. No, the housing bubble blowing up didn’t really do all that much of it; if you think about it while the speculators got reamed what really set it off into overdrive wasn’t that; it was energy prices, which skyrocketed on short time just as they’re doing now. That’s the problem with “easy money”; you can control how much of it is sloshing around but not where it gets bet, and eventually it always winds up producing an exponential spike somewhere. When that gets into a critical supply area (e.g. energy) recession is inevitable.
Oil is in everything, like it or not, which is why all the hollering about “getting off it” is stupid. Sit in your car (whether a Tesla or otherwise) and virtually everything you can touch from and the seat itself was made with petroleum. Then it was moved from the manufacturing point to where it was assembled with petroleum. Then the final product was moved with…. you guessed it…. petroleum.
Food requires oil. What, you say? What do you think the tractor runs on? The truck that brings the food to the store? The fertilizer without which the crop yields are a half to a fifth of what we produce today is made with natural gas to fix the nitrogen, which is a fossil fuel. Can we actually have a modern civilization without this? Not in our lifetimes, nor in those of our children.
But when the price of all of this skyrockets as it has, up by some sixty percent in the last couple of months, the result is an immediate and dramatic slowdown of the economy. There is no way around this, and what’s worse is that the Fed has already used up its policy measures by refusing to retract them in the years after 2009 and through the pandemic; if it tries to further stimulate the economy it simply makes the price of energy go up more….
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