We know the state of our economy is the worst it has been since the financial collapse of 2008. We know we are having record inflation with no end in sight, and we also know that interest rates are being raised to combat the high inflation with no end in sight. What we are not being told is how to fix this, which I find as odd as the answers are all right in front of us, but it seems like it is taboo to talk about the right way to fix things. We know that gas prices are the highest in history which affects the delivery costs of goods and services. So why is it so hard for our elected leaders to figure out how to solve this problem in these modern times?
We need to explore the reasons why we have record inflation, high gas prices, and high interest rates. We know that the Federal Reserve has only one tool to fight inflation, and that is to raise interest rates. But the big question is why is inflation so high? This can be answered by analyzing where the inflation is coming from and how to fix it. We know that over the last several years since the pandemic started, the government has shut down the economy and paid it’s citizens to basically stay home. All this extra money that has flooded into the economy has devalued the dollar and that has caused some inflation. We also know that Americans have been at the mercy of other countries to deliver goods, pharmaceuticals, computer chips, and oil. This dependency on foreign suppliers has been a challenge as other countries were also under shutdown orders and some far longer than the US. We have all heard about the “supply chain” issues, which is really the big issue that is not being addressed by our elected officials.
We know that when there is a low supply of goods with the same amount of people trying to get these goods that the price of the goods will rise and we have seen this occur in 2022. To compound this issue when the United States slows its domestic production of oil this causes a decrease in the domestic supply of oil and more dependency on foreign oil and when foreign suppliers of oil slow their delivery of oil to the U.S. prices have to go up to slow demand of oil that is not there. With oil prices going to the highest in history this dramatically affects the cost of diesel that is used by the trucking industry to deliver goods to stores for Americans. With higher delivery costs you see higher prices on the shelf for consumer goods and commercial goods. In addition, farmers will have higher costs to run their machines to get the seeds in the ground and when then harvest the food for Americans. Thus, high prices for food as a result of higher costs to produce and deliver our food. Higher fuel prices also affect the individual consumer’s monthly budget as with high gas prices Americans have less money to spend on other goods and services that have raised due to the above.
Knowing this you would think you would have heard more about fixing the underlying problems with the supply of oil, and foreign goods that we are dependent on. It seems all we hear about is how oil use is bad for “climate change” and the Government’s desire to fix this. Granted the Earth is going through changes, but it has been going through changes from the beginning of time. To think that mankind has any control over it is just stupid and is a good excuse for globalists to try and control the masses with control over our basic needs. The proof, for those that live in a city and rarely go out into the world, would be to look at the Grand Canyon and there you can see firsthand how that climate has been changing long before mankind was even present. But I digress for the purpose of proving my point about the control of the masses and this is exactly why Russia and China formed BRICS to stay independent of Globalist's agenda, a topic for others to debate, but the “supply chain” is dramatically affected by all of this.
The way to fix our current economic dilemma is multi-faceted but the overall idea is to focus on the supply side of the economy and not so much on the demand side. The reason for not focusing primarily on demand, like the current administration is, is simply because there will always be a certain amount of demand for basic goods and services, and we are currently really close to a basic demand market. You see the Federal Reserve trying to curve demand by raising interest rates only can go so far then the high interest rates kill the entire market as capital is not readily available for expansion or even normal business activities putting the whole economy into a recession or worse a depression. If the supply side of the economy was being addressed properly, we would see more investment into the expansion of US supplies and farmers. Yes, we must stop being as dependent on foreign goods and oil. We should bring computer chip manufacturing back to the US and we should bring manufacturing back to the US most importantly we need to open up new oil exploration and pipelines to deliver oil more efficiently. We need to look to Hydrogen (the most plentiful element on the planet) as an alternate fuel source and explore other technologies that will curve our oil dependency. Electric cars are good for the short term, but long term they create as much waste as fossil-fueled vehicles. Investing in America and American engineering will be the key moving forward and education of our youth must be paramount for the US to stay independent and take the indoctrination to a certain set of beliefs out of our education system and focus on productivity not emotions as emotions don’t pay the bills. If the supply side of the economy is not focused on the economy will continue to spiral out of control with higher and higher prices for everything.
As most of you know Mortgage interest rates have been rising at a speed at which most people alive today in the home buying market have never seen before. Some of us old timers have seen this before and it is very true that history repeats itself and we should all learn from it. We are going to explore why rates are moving up so rapidly and then we will look at the future and where rates are heading and why. When I say history repeats itself all you must look to is the early 1970s through the early 1980s and see how monetary policy was run. I was a kid in the early 1970s and remember the gas lines and high inflation and interest rates that topped out right around 20% for a 30-year fixed-rate mortgage. During this, the government also set the interest rates for FHA and VA loans and put ceilings on gas prices.
If this sounds familiar it should be as the government has been involved since the beginning of time with free markets and it has never really worked out. In the 1970’s President, Nixon put gas price ceilings in place in hopes to make gas prices go down or at least stabilize them. This failed miserably as when you try to put a ceiling or a cap on prices that de-incentivizes producers from producing. During this time the government was also spending and expanding the government and services the government felt would help the common American. Then to pay for all the spending they were forced to raise taxes across the board and the Federal Income tax rate got as high as 60%. So, Government spending caused inflation, and the taxing of the citizens meant less money the average worker could take home on every paycheck thus they did spend less, and the economy was basically stagnant. During this time the term “Stagflation” was coined meaning a stagnant economy with high inflation. If this sounds familiar, then open your eyes and look around with the Government spending Trillions of dollars on “COVID relief”, the Ukraine war, AKA money being sent to the United Nations. Then we have all heard about the 87,000 IRS Agents they are hiring to make sure they get their money from the average American after they raise taxes on all of us. This type of economics is called tax and spending or Keynesian Economics.
This is poor Monetary Policy from an economic point of view. I can say without one doubt in my mind that if Monetary Policy continues down this road then we are in for many years of high inflation and high-interest rates. The government has totally neglected the economic curve's supply side and focused only on the demand side. The evidence is seen at the gas pump, the grocery store, at the automaker's showrooms, and the list goes on. Current monetary policy is to raise interest rates with the hopes that with high-interest rates consumers will slow their demand for goods and services, which has held true, however, when staples like food, fuel, transportation (automobiles), and housing prices have risen due to normal demand interest rates can’t slow the basic demand for these goods. Couple the fact that we have just come out of an economy that was shut down for basically 2 years the supply of the goods consumers need has been diminished as there were fewer workers to build or produce these basic goods. Since this has caused a shortage in supply and with the same amount or more consumers going after the same amount of goods and services with the same or less ability to produce more goods due to lack of labor and now high-interest rates or a high cost of money to pay for these workers to produce a normal amount of goods you get supply side inflation. If you have heard of this before you are not wrong, Ronald Ragan was the first to look at the supply side of the economic curve and after that was addressed in the mid-1980s the economy was more manageable. Also, with more workers working the government was getting more tax dollars by taxing the workers less and having more workers paying lower rates but more workers paying those lower rates made the government more money. This is a concept that has been lost by our current Monetary Policies which are only looking at the demand side of the demand and supply curve.
I think you now have the knowledge to see where this is all going unless some drastic changes are made. The economy has no feelings and reacts only to what is given to it. I will say without a doubt in my mind that if the supply side of the global economic and American economic curve is not addressed soon interest rates have to continue to rise. The Federal Reserve or our Central Bank only has interest rates to fight inflation with they do not have the ability to address the supply side of the demand and supply curve and without the Government’s policies changing to address this we will continue to see high inflation and high-interest rates. The way out of all of this is to actually do the opposite of what is going on currently. I agree with the Federal Reserve in raising interest rates as inflation is high, however, high-interest rates will not curve the demand and it will only hurt the supply side of the curve as it is costing companies more to have workers with high taxes and high-interest rates. Until the Government addresses the supply side of the curve this will continue to spiral upward out of control, and I am truly convinced that our current government leaders do not understand this basic economic concept. In fact, they have gone so far the other way spending money to “protect the environment” they have basically stopped the expansion of oil production in the United States, and with a low supply of oil you get higher gas prices. Oil is not only used for our automobiles but our roads, plastics, fertilizer, and so many goods are produced from oil that people don’t even realize. The price of fuel is directly related to our food prices, as well, and people may not realize that it cost more to deliver the food on a truck, it also costs more for the fertilizer to grow the food. It also costs more for the farmers to till the fields and harvest the food as that is all done with fuel. We are nowhere close to using electric vehicles for all of this and then you have to ask the question, are we going to need fuel to power generators to make the electricity to power all the electric vehicles? I agree we should be more environmentally friendly, but not at the expense of our way of life, and our economy invest more time to come up with real solutions not a knee-jerk to some environmentalists. The real solution to clean power is Hydrogen as 2/3 of the Earth is covered in water and when you burn Hydrogen the byproduct is water, why we have not gone down this road baffles me, but I digress.
So, I will conclude this by saying if we stay on the current course the interest rates will be around 8% by the end of the year, and by the first quarter of 2023, we will have interest rates at or above 10%. You might think this is a crazy prediction but look at the history of this type of Monetary Policy and see what happened last time. I am not a Doom and Gloomer, I consider myself a realist and everything to this point under the current Monetary policy has not worked or has made things worse. If you read some of my earlier blog posts and the dates, I wrote them you will see I have been dead on. Remember the economy has no feelings it does what it is told to do, all you have to do is look to see what it is being told to do and you will come to the same conclusion I have. Unfortunately, I have no say in how the government creates its policies and if I did I fear I would be called an “Extremist” in my views. We will see sagging housing prices, but the rub will be that no one will be able to afford them with rates as high as they are headed without some income inflation to match the current inflation rate, however, if you make more income but are taxed at a higher rate your net income will have gone down. We live in a world with cause and effect and if the elected people can’t see the cause and effect of their policies then We the People pay the price. If you are a first-time home buyer don’t be discouraged by all this as there are only 2 things you should be concerned about and that is “What is my payment going to be and what is it going to cost me to get the house?” Once you own the home and you can make the payment then it should not matter to you what your rate is if you are comfortable making the payment. When the rates come down you can always refinance to a lower mortgage payment. So now is a great time to buy your first home, but it is now before the rates go even higher because they will be worse before they get better.