When Glen Burke and Dusty Baker invented the high five on October 2, 1977, it was a moment of pure spontaneity.
Baker hit a ding-dong to Houston Astros pitcher JR Richard. Burke raised his hand. Baker hit it. Journalist John Mualem story:
“Burke, who had been waiting on deck, enthusiastically put his hand up over his head to greet his friend at the plate. Baker, unsure of what to do, slapped his hand. ‘His hand was in the air, and he was bent back. So I reached out and slapped his hand. That seemed like the right thing to do.’
“Burke came out and hit his first major league home run. And when he came back to the dugout, Baker gave him a high five. The story goes that the high five took the world by storm.”
But high fives weren’t the only thing that was popping up around the world in the fall of 1977. Consumer prices were also soaring. Over the past decade, spending on guns and butter has rivaled paper dollars.
The Consumer Price Index (CPI) reached 61.6 in October 1977. In 1964, when LBJ launched the War on Poverty, the CPI was only 30.94. For 13 years, the CPI Double up – 100% increase.
To put it in perspective, over the past 13 years (2011 to present), consumer prices as measured by the CPI have risen by about 42%.
It wasn’t until late 1981, when the 10-year Treasury yield was 15.32%, that consumer price inflation finally eased. That doesn’t mean prices fell after 1981. They didn’t. They continued to rise. The rise was just a little more gradual.
Dead end
The important thing to understand about inflation is that it starts with inflation of the money supply. And in a debt-based monetary system like our current US dollar system, inflation of the money supply is achieved by inflating debt.
Latest Monthly Finance name Published this week, this edition contains a cumulative tally of U.S. government revenues and expenditures through July 2024.
With two months left in the fiscal year, the Treasury is already holed up with a $1.5 trillion deficit, and spending is projected to hit a $1.9 trillion deficit in fiscal 2024.
Net interest on the debt already stands at $763 billion, the second-highest expense after Social Security, surpassing health, Medicare, and defense. Net interest on the debt was $561 billion for the same period in fiscal 2023.
Net interest on the $763 billion debt has consumed about half of the deficit spending so far. So for every $2 Washington borrows, $1 goes toward paying net interest on the debt. And as of July, total interest on Treasury bonds has exceeded $956 billion.
Borrowing money to pay off debt is a foolhardy way to stick to a budget. Anyone can see that this is a dead end.
Over time, as you borrow more and more, your total interest increases and takes up a larger and larger portion of your budget. Eventually, paying off debt interest crowds out all other budget items.
Unless radical spending cuts are made, the federal government will face two choices: default on its debt or runaway inflation.
High five
After decades of cheating, kicking the can, and raising the debt ceiling, the U.S. government is in dire financial straits. You might think that this imminent crisis of such magnitude would be the centerpiece of this year’s presidential election.
But neither Trump nor Harris says a word about it. In fact, both want to spend more. Welfare. War. And everything in between.
Voters also want to get their hands on the checkout counter. Some want their college loans forgiven. Others don’t want to pay taxes on tips.
There are also those who want to see foreign wars expanded so that they can produce more bombs and fighter planes. And everyone wants to reap the promises that are owed to them in the form of social security and health insurance.
No one seems to notice or care that the country is bankrupt.
All of this will culminate in the next recession, which may already be underway. The standard response from Washington will be, as always, to try to stimulate growth with massive deficit spending.
But since deficit spending is already running at a rate of $1.9 trillion a year, further deficit spending would be downright suicidal for the remaining value of the dollar. Still, Congress and future presidents will high-five and pass emergency spending bills.
In this sense, the choice between default and massive inflation is not really a choice. Central planners and policymakers made up their minds long ago. Their choice is massive inflation.
Hard landing ahead
The next step in this direction is for the Federal Reserve to lower the federal funds rate, which would ease Washington’s fiscal situation. Interest rates must be artificially lowered to curb the rising net interest on debt spending.
By holding down interest rates, the Fed will better fund Washington’s massive $35 trillion debt, and in return, consumers will be rewarded with higher prices.
The Fed’s stated inflation target is an arbitrary 2%. Will it hit that target? Will it overshoot downward? Or will inflation get out of the Fed’s way again?
This week’s CPI Report The consumer price index rose 0.2% in July, up 2.9% over the past 12 months. Last month’s CPI report showed that the consumer price index rose. 3.0 percent Over the past 12 months.
Policymakers and Wall Street are desperate for a rate cut, comparing 2.9% to 3.0% and saying inflation has fallen 0.1%. They point to this as a cover, and to the decline in employment data. They see this as a signal for a rate cut at the September FOMC meeting.
But just because the CPI in July was one-tenth of a percent lower than in June doesn’t mean that prices are falling. They’re not falling. Prices are rising at a 2.9 percent annual rate, well above the Fed’s 2 percent inflation target.
In fact, the Fed will end the fight against inflation before it has even finished its mission.
Wall Street may celebrate the upcoming rate cut. The U.S. Treasury may breathe a sigh of relief.
But there is a dark cloud hanging over their expectations. The Fed’s rate cut signals that a recession is closer than many realize, and a 0.25% rate cut will do little to prevent it.
There isn’t much time left to prepare for the difficult landing ahead.
[Editor’s note: It really is amazing how just a few simple contrary decisions can lead to life-changing wealth. And right now, at this very moment, I’m preparing to make a contrary decision once again. >> And I’d like to show you how you can too.]
thank you,
minnesota gordon
For Economic Prism
Returning to the economic prism from hard landings
