Inflation Is Back?

 Popular Economics Weekly

“Kentuckians can’t afford the high cost of Trump’s tariffs,” which could cost the average Kentucky resident $1,200 a year. “[P]reserving the long-term prosperity of American industry and workers requires working with our allies, not against them.” Senator Mitch McConnell

FREDconsumerpriceindex

Senator Mitch McConnell’s op-ed in the Louisville Courier Journal (thanks to Heather Cox Richardson) tells us why the former head of the Republican Senate voted against Pete Hegseth for Defense Secretary and Tulsi Gabbard for Director of National Intelligence. He considers their history of incompetence a threat to our national security.

And it looks like that will happen, if President Trump and his Oligarchs get their way with tariffs. But signs of higher inflation are beginning to appear in the New Year that may hinder their implementation of higher tariffs.

Senator McConnell had been the Democrat’s biggest thorn until now, including stonewalling Presidents Obama’s pick of Merrick Garland for the Supreme Court, but of late has been more concerned with the damage that President Trump may do to national security.

Most of the tariffs Trump has announced are targeting our closest allies, thereby weakening them economically. Our closest allies are also our largest trading partners, so they have the low-hanging fruit that Trump first wants to pick by collecting taxes on their exports.

This, of course, increases his wealth and that of his supporters, almost all billionaires in their own right. But a budget battle is looming in March over annual expenditures and the debt ceiling that must be raised to pay for the tax cuts they want, and little room to maneuver with Republicans’ thin House majority.

This also endangers just how Republicans have increased their wealth exponentially since the 1980s while chiseling away at the benefits (such as Medicaid) that increase the wellbeing of the less wealthy—many of whom live in the red states they control.

It is unfortunate that President Trump’s wave of tariff announcements have occurred at the same time as inflation is beginning to rise again. This is incredibly bad timing when he said that he would bring down inflation on ‘Day 1’ of his presidency.

For instance, the retail Consumer Price Index for prices that directly affect consumers is back up to 3 percent y/y after hitting its low point of 2.4 percent last September. The rise in prices was mostly due to soaring food prices (eggs/bird flu) and energy prices (gas and oil)—probably because of the very cold winter.

McConnell’s main worry seemed to be how the tariffs would weaken relationships with our closest allies that help to protect us from the likes of Putin’s Russia or China’s Xi. Trump is using tariffs as a blunt weapon to bring down the budget deficit, while disregarding national security concerns that tariffs are supposed to enhance, which should be to increase the sourcing of strategic raw materials, such as steel and aluminum.

But we don’t really have a problem with aluminum and steel sourcing because our current alliances already supply what we need. That’s why we know Trump’s real reason is not to enhance national security, but to enhance his own financial security enriching himself and the billionaire class by taxing more imports to bridge the huge budget deficit gap.

So how in fact can we reduce the current inflation surge? We must reduce the demand side of the equation, which the Fed is helping to do by keeping short term interest rates slightly higher (4.25% to 4.50%) than current inflation. It makes credit more expensive for investments as well as consumer spending.

Reducing government investments will also reduce demand, because it flows into the private sector where it’s spent by consumers and businesses. But the Oligarchs want only to reduce the size of government expenditures that don’t directly benefit them, such as healthcare, environmental protection, and consumer protection by reducing regulations they don’t like that also reduce their profit margins.

Why otherwise fire so many Inspector Generals who monitor financial misbehavior? Or, why fire so many FBI agents who protect our national security, which is a sign they care little about our national security.

The problem is how to make government more efficient, but that also benefits the less wealthy? Everyone agrees there’s a lot of waste, but also necessary public investments that improve infrastructure, protect the climate, and national Research and Development that the private sector won’t do.

But Oligarchs want only to cut the benefits of everyone else.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Republicans Just Don’t Get It

Financial FAQs

There is a reason why it has taken so long to emerge from the Great Recession. And the Republican leaders of the House and Senate with their new majorities exemplify why we have barely emerged from it.

They continue to attempt to downsize government and regulations of any kind, including Dodd-Frank, when it was the lack of adequate regulation during Republican GW Bush’s term that caused the financial meltdown and Great Recession. This is while the lack of government spending on basic public works projects has been a major drag on economic growth.

There was a consequent output decline of more than 6 percent of GDP from the Great Recession—that’s 6 percent of the now $16 trillion in goods and services that were never produced, while some 8 million workers lost their jobs causing incalculable damage to families and communities.

Yet Republicans still intone the same rote messages that regulation of any kind is harmful.

"The administration's biggest hit on the economy has been the aggressive over-regulation that has descended on virtually all of American private enterprise and that's the reason we've had such a slow recovery after the Great Recession of 2008," said new Senate Majority Leader Mitch McConnell. "It's reasonable to assume that we'll be pushing back against this bureaucratic excess across the board."

And House Speaker John Boehner quickly listed his major priorities--“Fix our broken Tax Code, address the debt that’s hurting our economy and imprisoning the future of our kids and grandkids, reform our legal system, reshape our regulatory policy to make bureaucrats more accountable, and give parents more choices in a system that isn’t educating enough of America’s children.”

But Republicans haven’t helped. They have fought almost every growth stimulus program, and tanked the economy to boot, with the debt ceiling debacle that shut down government and downgraded the government debt.

Now they want to do it again with their new majorities. In an attempt to keep their diminishing power base, they restrict voters’ right, collective bargaining and oppose minimum wage programs of any kind that would increase household incomes.

They believe supply stimulates demand, which is supply-side economics, when it is exactly the opposite. Producing ever more things without the means to buy them depresses prices, which depresses profits.

Whereas boosting incomes increases the demand for goods and services that stimulates supply and profits, which comes from increased household incomes. So when they oppose raising the minimum wages and collective bargaining, they are literally restricting the growth of household incomes, and so growth.

And the result is a very deflationary environment that becomes a vicious circle. Falling prices that in turn mean falling incomes and rising unemployment. It’s as simple as that, yet Republicans don’t seem to get it.

It has also led to the greatest income and wealth inequality since 1928--the last time we had a Great Depression.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

No ‘Double-Dip’ (In Spite of Republican Efforts)

Financial FAQs

There will be no double-dip recession, in spite of the wild rumors and the S&P downgrade of U.S. debt to AA+. So what are the markets worried about? It is the lack of political leadership, which means government support of jobs’ and other growth programs.With corporations’ record profits over the past 2 years plus a $2 trillion cash hoard, and banks’ $1 trillion in excess reserves, there is no way the U.S. economy can sink back into recession territory. No, but Republicans efforts to stymie further stimulus spending could slow growth enough to upset Obama in 2012.

In other words, Republicans are purposely blocking any new efforts to stimulate growth. They want the economy to fail, so that President Obama will fail. They hate Barack Hussein Obama so much, in other words, they are willing to blatantly lie about the effectiveness of government stimulus spending. Obama’s problem is he doesn’t’ welcome their hate, as did President Roosevelt, and thus hasn’t unmasked their blatant hyprocrisy.

It is not new news, unfortunately, that Republicans’ words have not matched their actions. They love government stimulus when it is spent in their districts, and they even know it creates jobs—in their districts, of course.

Rachel Maddow has been talking about this for some time, and Huffington Post’s Sam Stein reported on leading Tea Partier Michelle Bachman’s many requests for some of the Obama stimulus $$ to be spent in her Minnesota district.

“A Freedom of Information Act request filed by The Huffington Post with three separate federal agencies reveals that on at least 16 separate occasions, Bachmann petitioned the federal government for direct financial help or aid”, says Stein. “A large chunk of those requests were for funds set aside through President Obama's stimulus program, which Bachmann once labeled "fantasy economics." Bachmann made two more of those requests to the Environmental Protection Agency, an institution that she has suggested she would eliminate if she were in the White House.”

Rachel’s ‘They’re Not Embarassed Hall of Fame’ includes 110 Republicans who have touted the success of the Obama stimulus spending in their districts in 2009-10, while saying publicly it wasn’t a success. Her Blog links to research by such as the Center For Public Integrity.

“Individually, over half of the entire Republican caucus has hailed nearly every aspect of the stimulus as a success — from infrastructure funds, to food programs, to education grants,” said the Center in joint research on their past record. “But politically, admitting its success might harm the GOP’s chances in November (2010). So with Republicans fixated on winning politically, they have focused on deceiving the public by calling the stimulus a failure, while pretending successful programs aren’t stimulus funded.”

Then, “Rep. Pete Sessions, the firebrand conservative from Dallas, Texas, who has relentlessly assailed the Democratic-passed stimulus law as a wasteful "trillion dollar spending spree", said the Center For Public Integrity, didn’t prevent him from asking for stimulus funds in 2010 that “…will create jobs, stimulate the economy, improve regional mobility and reduce pollution,” in his district.

In fact, the list is huge. Those asking for money before the 2010 election included “Tea Party favorites like freshman Massachusetts Sen. Scott Brown and Rep. Michele Bachmann, R-Minn., former presidential candidates Ron Paul and John McCain and Republican congressional leaders like Senate Minority Leader Mitch McConnell of Kentucky and Rep. Mike Pence of Indiana,” said the Center for Public Integrity.

But the economy is in fact reviving, as lower initial jobless claims and the Labor Department’s JOLT survey point to more hiring in the second half of 2011. For instance, Bond Trader Wrightson-ICAP said the June report on job openings and labor turnover (JOLTS) was a little less sluggish than expected. Total job openings climbed to 3.11 million, which is just below the March peak of 3.12 million.

“The pace of new hires and separations both fell modestly in June, as expected, but did so from upwardly-revised May levels. While the labor market remains less dynamic in terms of gross worker flows than was the case prior to the recession, the data for May and June were not quite as soft as anticipated.”

Wrightson ICAP has also taken issue, as has this reporter, with the recent downward revisions to GDP growth that were one of the causes for alarm that a double-dip was immanent. (The BEA had released revisions for GDP that showed the recession was significantly worse than originally estimated, mostly because consumers had cut back.) Hiring during the first 3 months of 2011 totaled more then 200,000 per month, with 1.96 million nonfarm private payroll jobs created in just the past 13 months. And 154,000 private payroll jobs were added in July, with expectations it will be revised upward. In fact, quarter GDP growth numbers are notoriously inaccurate. For instance, last year’s Q2 growth was revised upward from 1.8 percent to 3.8 percent, largely due to the government stimulus spending.

But consumers aren’t cutting back, as the Fed’s consumer credit report cited a huge surge in consumer borrowing. Though personal consumption was reported to have contracted in June (a lagging indicator?), you'd never know it from June consumer credit data, which show a $15.5 billion surge for the largest gain in more than four years. This is in part because auto sales are surging again, as well as back to school sales.

The gain is led by a $10.3 billion surge for non-revolving credit, less of a surprise given June's strength in motor vehicle sales, says Econoday. But the best news may be revolving credit which rose $5.2 billion for a second straight solid gain.

The result is that retail sales have surged to more than 8 percent—a number from the boom times. So look for higher GDP growth ahead, and no double-dip. The question is why haven’t Democrats called the ‘They’re Not Embarassed Hall of Famers’ on their incredibly blatant hypocrisy that gained the Republicans so many seats in 2010? Why can’t Democrats welcome the hate of their enemies, as did President Franklin D Roosevelt?

Harlan Green © 2011