Perfect Storms – Colliding

Posted on Thursday, May 26, 2022
by AMAC, Robert B. Charles

A “perfect storm” is the unexpected intersection of a bad things, creating a really bad thing. What happens when a “perfect storm” meets a “perfect storm?”  In math, they might cancel, but in reality – you get a really, really bad thing. While we may avoid it, one is headed our way.

“Storm One.” Imagine the first intersection of bad things, largely created by bad policies. We face – by the numbers, – a Biden-driven “perfect storm” in our economy, accelerating inflation caused by shutting down chunks of the US energy sector, reversing energy independence, and inexcusable federal overspending.

We also have record debt at $30 trillion. Not all that debt was Biden’s doing – but he and congressional Democrats added trillions of dollars over the past year that we do not have. Tax revenues do not get close. 

Now, watch what happens next. Wages – artificially high as people took federal benefits and left the labor pool – will push up. Why? Unions know workers are paying more, so demand more.

Not surprisingly, that wage-inflation reinforces price-inflation. Why? Because employers must make more to pay more, so they charge more to cover wages. What do you think that does? You get the point.

Now, add another factor to “Storm One.” The Federal Reserve, thinking inflation is from wild growth which it is not, is raising interest rates on borrowing – yours, mine, corporate, and federal. That includes higher interest on that $30 trillion debt – paid by who? You and me.

But that is not all, as these rates rise, our economy will slow. We will enjoy high inflation, combined with big job cuts as companies struggle to grow with these rates, so cut costs. 

As they do that, what happens? Unemployment rises. That means consumer spending – by people who now have less to spend – also begins to fall, so we get more layoffs. This is called a “vicious cycle” – and whether two successive quarters or any other definition, also a “recession.”

When you add upward spiraling inflation and interest rates to downward spiraling employment, spending and confidence, you get “stagflation” or Jimmy Carter 2.0. That is “Storm One.”

“Storm Two.” This one is blowing from the East but big. Because of Putin’s Ukraine war, which was likely deterrable, but Biden missed the signals and window, did not believe Putin, encouraged a “minor incursion,” the world faces a major hit in grain and corn production. Ukraine is rightly known as Europe’s “breadbasket” – and is being destroyed.

Zelensky just indicated a 25 to 30 percent drop in grain supply, creating an imminent food crisis – in 10 weeks – for much of the world. The price of everything from bread to cereals will rise.

So, on top of high inflation, energy cost, interest rates, and unemployment, plus falling consumer confidence, we will now see shortage-driven food price spikes. These will hit other parts of the world harder, but we will be affected. That food crisis is “Storm Two.”

What is the good news? Well, there is some. First, on food, we produce our own, and will continue doing so, even if world demand forces up prices. The US could feed 10 billion people, we just do not always plant. We are a 21 trillion-dollar economy, historically self-sufficient.

Other good news? Inflation causes are reversible. We can cut excess federal spending, reduce taxes – which under John F Kennedy, Ronald Reagan, and Donald Trump, elevated overall wealth, raising the net federal revenues.

To lower inflation, create hiring, restore energy independence, and boost consumer confidence, we need only re-start the US fossil fuel sector. Not surprisingly, no other nation has shut theirs down, and we should not.

The day we regain energy independence, much of the world will respect us more, falling into line again. And we will see cheap gas and heating oil again, along with jobs and export revenue.

So, there are answers. Another is to help allies by letting free markets rip, individual citizens prosper, food and energy be produced, and federal revenues rise – as under Kennedy, Reagan, and Trump. With that, we will see stronger defense and more resources for domestic needs.

We face two “perfect storms.” We will survive if we hold on and think smart. A big political voice must be heard – ours, the American people. We have weathered storms, but wisdom is knowing how to avoid or mitigate “perfect storms,” in this case, “stagflation” and a food crisis. Let’s look for clearer air, better leadership, and from November onward calmer seas.