The story of how the high five was born on October 2, 1977, reflects a moment of spontaneity shared between Glenn Burke and Dusty Baker.
Baker had just hit a home run off Houston Astros pitcher J.R. Richard. As he approached home plate, Burke raised his hand in an enthusiastic greeting, leading Baker to reciprocate with a slap. Journalist Jon Mooallem details the event:
“Burke, waiting on deck, thrust his hand enthusiastically over his head to greet his friend at the plate. Baker, not knowing what to do, smacked it. ‘His hand was up in the air, and he was arching way back. So, I reached up and hit his hand. It seemed like the thing to do.’”
“Burke then stepped up and launched his first major league home run. As he returned to the dugout, Baker high-fived him. From there, the story goes, the high five went ricocheting around the world.”
Meanwhile, the autumn of 1977 wasn’t just about celebratory gestures; consumer price inflation was also on the rise. Years of government spending had weakened the value of the dollar.
The consumer price index (CPI) reached 61.6 in October 1977. When the War on Poverty was initiated by LBJ in 1964, the CPI stood at just 30.94. Over the following 13 years, consumer prices doubled, showing a staggering 100 percent increase.
To provide some context, over the last 13 years—from 2011 to the present—consumer prices, as indicated by the CPI, have risen by approximately 42 percent.
It wasn’t until late 1981, when the 10-Year Treasury yielded a staggering 15.32 percent, that inflation began to stabilize. Prices didn’t actually decline after 1981; they simply continued to rise, albeit at a slower pace.
Dead End Street
A key factor to understand about inflation is that it originates from an increase in the money supply. In a debt-based monetary system like that of the U.S. dollar, this inflation is achieved by inflating the debt itself.
The latest monthly Treasury statement highlights the receipts and expenditures of the U.S. government through July 2024.
With just two months remaining in the fiscal year, the Treasury is facing a $1.5 trillion deficit, with projections indicating a total deficit of $1.9 trillion for FY2024.
Net interest on the debt has already soared to $763 billion, making it the government’s second-largest expenditure, following Social Security and surpassing expenses related to health, Medicare, and national defense. During the same period in FY2023, this figure was $561 billion.
Currently, net interest on the debt absorbs about half of the deficit spending. For every two dollars borrowed by Washington, one dollar is allocated to interest payments. Furthermore, total interest on Treasury securities has exceeded $956 billion through July.
Relying on borrowed money to meet interest obligations is a perilous path for budget management. It’s evident this is a dead-end street.
As borrowing continues, the total interest progressively increases, consuming an ever-larger portion of the budget. Eventually, funding interest payments may overshadow all other budget line items.
Unless substantial spending cuts are implemented, the federal government will face a grim choice: default or widespread inflation.
High Fives
After decades of expediency, culminating in rising debt limits, the U.S. government finds itself in a precarious fiscal state. One would expect this impending crisis to dominate the current presidential election discourse.
Yet, neither Trump nor Harris addresses the topic, both advocating for increased spending across welfare, military, and other sectors.
Voters, too, seem eager to benefit from government funds. Some advocate for student loan forgiveness, while others resist taxes on tips. Meanwhile, many call for escalations in foreign military engagements, hoping for further production of armaments. Almost everyone appears to expect the benefits promised through Social Security and Medicare.
However, there’s a glaring lack of awareness or concern regarding the nation’s financial frailty.
This situation is set to escalate during the next recession, which may already be in motion. Washington’s usual strategy will be to attempt to stimulate growth through significant deficit spending.
With deficit spending already hitting $1.9 trillion annually, any increase will be disastrous for the dollar’s remaining value. Still, Congress and the next president will likely push through an emergency spending bill, complete with celebratory high fives.
In this context, the choice between default and rampant inflation feels less like a real choice and more like a predetermined outcome. The central planners and policy makers made their decision long ago: they opted for mass inflation.
Hard Landing Ahead
The subsequent move in this direction will involve the Federal Reserve reducing the federal funds rate, aiming to alleviate the fiscal burden on Washington. Interest rates must be lowered artificially to manage the escalating net interest on debt payments.
By suppressing interest rates, the Fed seeks to make the servicing of the federal government’s $35 trillion debt more manageable, ultimately leading to higher prices for consumers.
The Fed’s inflation target is a fixed 2 percent. Will it be able to achieve this goal? Will it overshoot in the opposite direction? Or could inflation spiral out of control once again?
This week’s CPI report indicated a 0.2 percent increase in consumer prices for July and a yearly growth rate of 2.9 percent. The prior month’s report had shown a 3.0 percent increase over the last year.
Market analysts, eager for rate cuts, compare the new 2.9 percent to the 3.0 percent figure from the previous month and claim that inflation has decreased by 0.1 percent. They interpret this along with softening employment data as justification for potential rate cuts in the upcoming September FOMC meeting.
However, just because the CPI is a tenth of a percentage point lower in July than it was in June doesn’t imply that prices are declining. They continue to rise at an annual rate of 2.9 percent, significantly above the Fed’s target.
This suggests the Fed could prematurely end its battle against inflation before it’s truly resolved.
Wall Street might celebrate the anticipated rate cuts, and the U.S. Treasury might exhale a sigh of relief. However, a shadow looms over this optimism; Federal Reserve rate cuts often indicate an approaching recession, one that may be closer than many recognize. A mere 0.25 percent reduction will not suffice to avert this impending crisis.
It is crucial to prepare for the challenging landing that lies ahead.
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Sincerely,
MN Gordon
for Economic Prism
