The spendiholics in Washington DC (aka, Biden and Congress) have passed yet another inflationary legislation, this time the sadly misnamed “The Inflation Reduction Act” since it will likely lead to a furthering recession of the US economy. Well, that is one way to reduce inflation: cause a recession and job loss.
An analysis by the National Association of Manufacturers says the tax in 2023 alone will reduce real GDP by $68.5 billion and cut labor income by $17.1 billion. One well-known economic truth is that corporations don’t really pay taxes (they pass on taxes to consumers in the form of higher prices). They are essentially tax collectors, as the corporate tax rate ultimately falls on some combination of workers, shareholders and customers. Raise the corporate tax rate, and you’re cutting wages and salaries for workers.
“Americans are already experiencing the consequences of Democrats’ reckless economic policies. The mislabeled ‘Inflation Reduction Act’ will do nothing to bring the economy out of stagnation and recession, but it will raise billions of dollars in taxes on Americans making less than $400,000,” said Sen. Mike Crapo, an Idaho Republican who sits on the Senate Finance Committee as a ranking member, and who requested the analysis.
“The more this bill is analyzed by impartial experts, the more we can see Democrats are trying to sell the American people a bill of goods,” Crapo added.
According to Schumer and Manchin, “The Inflation Reduction Act of 2022 will make a historic down payment on deficit reduction to fight inflation, invest in domestic (green) energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030. The bill will also finally allow Medicare to negotiate for prescription drug prices and extend the expanded Affordable Care Act program for three years, through 2025.”
No wonder House Speaker Nancy Pelosi took her extensive entourage on a paid vacation to Singapore, Malaysia and perhaps Taiwan. Its called “Getting out of Dodge.” If Pelosi believed in this legislation, she could have “saved the environment” by simply doing a Zoom call. Then again, Biden’s Climate Envoy, John Kerry, still travels the globe trying to sell green energy and carbon reductions in his private carbon-spewing jet. But I forget, Biden, Pelosi, Schumer and Kerry are our elites who deserve platinum treatment, not lowly serfs like 99% of the US population.
So, here we go loop-de-loop. Politicians want to spend money on their friends and donors and then raise taxes on the rest of us.
On the recession front, the 10Y-2Y US Treasury yield curve just flattened another -6.015 basis points to an inverted -30.195 basis points.
After breaking the 6% barrier back in June 2022, Bankrate’s 30-year mortgage rate has backed-off to 5.28% despite Federal Reserve rate hikes.
The reason for the decline in the US Treasury 10-year is, amongst other things, a global economic slowdown (partly due to the US and Europe “going green” and cutting the supply of fossil fuel-based energy). Instead of “The Great Reset,” I call it “The Great Economic Suicide.” The 10-year US Treasury yield and Bankrate’s 30-year mortgage rate are declining with declining global GDP.
My former colleague at Deutsche Bank, Joe Carson, said recently that the US economy is not in a recession, but corporate profits are in a recession. While I cling to the traditional definition of recession (two consecutive quarters of negative real GDP growth), there is another component of the US economy that is in recession: consumer sentiment.
The University of Michigan Consumer Sentiment Index rose slightly in the latest release, but remains depressed at 51.5. University of Michigan Buying Conditions for House also rose to 47.0, also a depressed reading.
While unemployment remains low, the price of gasoline is crushing the wallets of American households helping to cause a recession in consumer sentiment.
Biden feebly attempts to explain why 2 consecutive quarters of negative real GDP growth (better known as contraction) is NOT a recession.
The May Case-Shiller home price indices are out and they’re a doozy. The national home price index rose 19.75% YoY. Why? You can thank The Fed’s “slowhand” approach to withdrawing the Covid-related stimulypto.
Where are home prices booming? Everywhere.
Miami, Tampa, Dallas and Phoenix (red states) are growing at over 30% YoY. Boston, Chicago, Cleveland, Detroit, Minneapolis, New York, Portland and Washington DC (blue states) are all growing at over 10% YoY. Cleveland is a blue city in a mostly red state while San Diego is a red city in an almost blue state.
Jerome “Slowhand” Powell is not shrinking The Fed’s balance sheet.
Just remember, the US economy had strong employment figures just prior to the 2008 Great Recession and financial crisis, so US Treasury Secretary Yellen, Biden’s economic cheerleader Bernstein and Obama’s economic cheerleader Sperling are all relying on a bad indicator of economic health to justify that the US economy is in great shape.
(Bloomberg) — Treasury Secretary Janet Yellen expressed confidence in the Federal Reserve’s fight against inflation and said she doesn’t see any sign that the US economy is in a broad recession.
“We’re likely to see some slowing of job creation,” Yellen said on NBC’s “Meet the Press” on Sunday. “I don’t think that that’s a recession. A recession is broad-based weakness in the economy. We’re not seeing that now.”
With US consumer prices rising at the fastest rate in four decades, a growing number of analysts say it will take a recession and higher joblessness to ease price pressures significantly. The Federal Reserve raised rates in June by the most since 1994 and is expected to approve another 75 basis-point hike this week.
Inflation is “way too high,” Yellen said, while renewing the Biden administration’s argument that it’s also high in many other advanced economies.
“The Fed is charged with putting in place policies that will bring inflation down,” said Yellen, a former Fed chair. “And I expect them to be successful.”
Dammit, Janet. All of Biden’s anti-fossil fuel orders are still in place and Biden/Pelosi/Schumer are still trying to pass the highly-inflationary Build Back (Inflation) Better bill. And The Fed still has not shrunk it massive balance sheet yet.
But Janet, the US Treasury 10Y-2Y yield curve remains inverted (historically ahead of a recession) while the Atlanta Fed GDPNow Q2 tracker is at -1.6% which would make the second quarter in a row of negative real GDP growth in a row (historically a definition of recession).
My preferred 10Y-2Y chart shows the yield curve more inverted than even prior to The Great Recession!
But in Yellen’s defense, The Fed’s preferred yield curve (implied yield on 3-month T-Bills in 18 month – 3 month T-Bill yield) is still positive, though crashing like a paralyzed falcon.
So, the Biden administration is sticking to the strong labor market story. But what the Biden Administration (and Yellen) fail to acknowledge is 1) unemployment is a lagged indicator of a recession (unemployment was low prior to the 2008 GREAT recession, then exploded and 2) there is still a tremendous amount of monetary stimulus outstanding that The Fed has taken away … yet.
Essentially, the Biden Administration is panicking over the coming mid-year election and will say anything at this point to stay in power. So, I would probably ignore anything said by Biden, Yellen and their talking heads before the midterms elections. But when Biden’s economic advisor says that the US economy is strong, I want to ask him how having NEGATIVE wage growth is a good thing,
Let’s see if Yellen is correct and The Fed’s Fireball will tame inflation. Frankly, I think the global slowdown is the only thing that will tame inflation.
Hold on, The Fed is coming! To raise their target rate by 75 basis points at Wednesday’s FOMC meeting. Will this stem the tide of rising inflation?
Under Biden, we have seen regular gasoline prices rise 82% despite recent declines. Diesel fuel is up 121% and foodstuffs are up 46%. And house rents keep rising at a staggering 14.75% YoY. The recent declines is more due to the global economic slowdown and central bank rate increases than anything Washington DC is doing.
(Bloomberg) Investors are skeptical that the Federal Reserve can tame the worst inflation in four decades without driving the economy into a recession.
That’s bad news for Americans, who face the prospect of a downturn as their bills for food, rent and fuel swell. But to bond investors hit by deep losses this year, it may mean any further pain will be short-lived, as a recession will spark the US central bank to cut rates next year. That’s according to the results of the latest MLIV Pulse survey.
Over 60% of 1,343 respondents in the survey said there’s a low or zero probability that the US central bank can rein in consumer-price pressures without causing an economic contraction. The survey was conducted July 18-22 and included retail and professional investors.
US inflation may be close to a peak, but it’s very likely to stay above 8% through year-end. Bloomberg Economics’ model assigns zero probability to a drop below 4% in 2023. Taken together with increasing recession risks, the Fed faces a tough balancing act as it attempts to bring stubborn price pressures under control without tipping the economy into contraction.
Of course, The Federal Reserve doesn’t really consider energy or food inflation, which are typically higher than core inflation. But going into Wednesday’s meeting, we see the US Treasury 10Y-2Y curve remains inverted (a signal of impending recession) and the Atlanta Fed GDPNow Q2 tracker at -1.6% after a negative Q1 reading.
Will raising the target rate (or ACTUALLY shrinking their balance sheet) reduce inflation? We shall see, but it has got to be better than Lawrence Summer’s suggestion to reduce inflation: raise taxes. Wait a minute, Larry. Inflation was caused by 1) overstimulus by The Fed combined with 2) massive Covid spending by Biden, Pelosi, Schumer and 3) Biden’s anti-fossil fuel policies. So instead of suggesting a decrease in Federal spending, Summer’s wants to give MORE of your money to Biden and Congress to spend. What an unbelievable nitwit.
Here is a picture of Larry Summers, Jay Powell and Janet Yellen attending the FOMC meeting in Washington DC.
Confounded Interest - Anthony B. Sanders 
You must be logged in to post a comment.