Despite prior warnings, the 39-year high in U.S. inflation was still received as a “surprise” by many. “The pace of inflation escalated to 6.8% from 6.2% in the prior month… more than triple the Federal Reserve’s 2% target… the highest rate since July 1982,” per MarketWatch.
Using the inflation formula that was used in the 1970s, inflation is above 13 percent. The formula was changed in 1980 to downplay the inflation risk and to manipulate public opinion. In addition, “soaring inflation is outstripping the biggest worker wage increases in decades. Inflation-adjusted hour pay was 1.9 percent lower in November compared to a year ago”.
The unfortunate part of this story is that inflationary rates were the worst in the areas that hit the poorest of Americans that hardest: “Energy prices are up 33.3% year over year. Gasoline is a stunning 58.1% higher than it was a year ago. Used car and truck prices…are up 31%,” per Fox Business. At the same time, “all of the six major grocery store food group indexes increased. The index for meats, poultry, fish, and eggs increased 12.8% (in November) with the index for beef rising 20.9%,” according to AG Web.
In October 2021, President Biden stated he had no immediate solution to the problem of spiking gas prices and suggested that Americans “would not start seeing relief at the pump until next year”.
In a desperate move, Biden released approximately 50 million barrels of oil from the Strategic Petroleum Reserve in late November.Unfortunately, this publicity stunt released the equivalent of less than three days’ consumption.The result: a short-lived, whopping 1.9 percent reduction in the price of a barrel of oil.
In my home state of Illinois, the average price of regular unleaded gas is $3.497/gallon, up $1.26 from one year ago. This means that if you purchase 20 gallons of gas per week, you are spending an extra $1,310 per year on gas. That may not seem to be a big impact until you realize that the increase represents 3.7 percent of the gross income of our hypothetical family of four making $35,000 per year. If both parents commute for work using the same amount of gas, 7.4 percent of their gross income is gone, just to commute to work and shuttle their children to and from activities. This is the equivalent of a $37,000 hit to a family earning $500,000 per year.
What is driving this unprecedented inflation and what can be done to arrest it?
Inflation is the result of too many dollars chasing too few goods and services. Today we have a situation where the government has pumped massive amounts of money into the economy; they have paid people to stay home and not work; and the global supply chain is in total disarray.
The federal government had pumped $5.2 trillion into the economy during the pandemic, through July 2021. Between “December 2019 and August 2021, the US money supply, measured by M2, grew by $5.5 trillion, a stunning 35.7% increase in only a year and a half.” Why is this important? According to the quantity theory of money, “if the amount of money in an economy doubles, all else equal, price levels will also double.”
The key phrase above is “all else equal.”
Unfortunately, “all else” is not equal. “American workers are quitting their jobs in record numbers. In September, 4.4 million people left their jobs, according to the US Bureau of Labor Statistics,” per WTTW. This comes at a time when there are almost 10.5 million job openings in the United States. The result: labor productivity in the United States fell 5.2 percent in the third quarter of 2021, the steepest decline since the second quarter of 1960. “Unit labor costs climbed at an annual rate of 9.6% in the third quarter, reflecting a 3% increase in hourly compensation and the 5.2% decrease in productivity,” per CNN.
To add insult to injury, there is a global supply chain crisis impacting everything from tennis shoes to new cars.
“The rapid spread of the virus in 2020 prompted shutdowns of industries around the world and…there was lower consumer demand and reduced industrial activity.” As we have recovered, demand has skyrocketed, and the supply chain simply cannot keep up.
As a result, the cost of shipping materials from overseas has increased in a never-imagined fashion. “The spot price per container on the China-U.S. East coast route – one of the world’s busiest container lanes – has climbed over 500% from a year ago to $20,804… compared to $11,000 on July 27, 2021.”
To make matters worse, the “logjam of container ships outside of the California ports of Los Angeles and Long Beach swelled to…17 days. The queue, both at anchor and in a holding zone, rose to 83 ships,” on Friday, November 12th. Couple this with a truck driver shortage of 80,000 drivers, and even once containers are unloaded, it is difficult to get them picked-up and delivered. I can attest to this from personal experience. One of my clients had a container arrive at anchorage off the Port of Long Beach on October 14th. The ship docked on November 30th and was not unloaded until December 7th. A container ship sat idle for seven-and-a-half weeks. No wonder shipping costs have risen so much, with so many ships sitting idle and unproductive for weeks at a time.
Three Things. Right Now.
What can be done? How do we get out of this death spiral? The answers are not that difficult. First, stop printing money and injecting it into the economy. Stimulus must stop and “Build Back Better,” must not pass Congress.
Second, people have to get back to work. The December jobs report was a disaster, with the economy adding only 210,000 jobs vs. an estimate of 573,000, per CNBC. This, at a time when there are more than 10 million open jobs in the US economy. Labor productivity simply cannot recover with this many people sitting at home, out of the workforce.
Third, DRILL, BABY, DRILL.
While the President claims that there is little he can do to reduce the price of gas, perhaps he should simply run the playbook of former President Trump and return America to energy independence, and not rely on begging OPEC nations to produce more oil. The Trump administration issued several orders that removed unnecessary regulations from energy exploration, lifted the ban on Federal leasing for coal production, gave a Presidential permit to clear roadblocks to construct the Keystone XL Pipeline, and issued a Presidential Memorandum declaring that the Dakota Access Pipeline serves the national interest and initiated the process to complete its construction. The Biden regime reversed all these policies and the price of gas has doubled.
Last, we must fix the supply chain and decongest our ports. The rate at which the supply chain can recover is directly correlated to getting people back to work. We simply do not have enough truck drivers and warehouse workers to process containers once they are unloaded from a container ship in a port. In fact, “the Port of Los Angeles has remained mostly closed between 3 AM and 8 AM, despite technically being open 24/7. There aren’t enough trucks calling on the port in those hours to make it worth it for the port’s privately owned and operated terminals to stay open around the clock,” per CNN.
Unfortunately, given the current administration’s policies, inflation is here to stay for the foreseeable future, and a recession is looming in Q3 of 2022. They want to continue to pump money into the economy, funding pet social projects that will disincentivize people from returning to work, compounding the current supply chain problems. Energy policy will continue to favor “green energy” to the detriment of fossil fuels, and the cleanest energy of all, nuclear power; which will continue to drive the price of oil up.
It is ironic that the policies of the billionaire President did more to improve the lives of America’s working poor than have the policies of “Lunch bucket Joe.”