Senator Elizabeth Warren seems to think she can fool the public with her rhetoric. Recently, she voiced her concerns to CNN regarding the Federal Reserve’s interest rate increases, which she believes could lead to an economic recession.
But what is Warren truly scared of? Her concerns may already be a reality.
The U.S. economy is currently experiencing a recession. Data reflecting GDP indicates that the economy shrank in both the first and second quarters of 2022.
By the traditional definition, a recession involves two consecutive quarters of declining GDP. Therefore, the economy is undeniably in a recession—a fact seemingly acknowledged by everyone except President Biden and Senator Warren.
Recessions are not ideal, but they are essential. In fact, the current recession may serve as a necessary corrective to the rampant consumer price inflation that Warren and her colleagues helped to create. There are consequences to excessive money printing, and those consequences must be faced.
The undeniable truth is that the ongoing inflation crisis stems directly from government spending policies. The COVID-19 pandemic provided an easy excuse for flooding the economy with printed money, a strategy heavily supported by Warren herself.
The Federal Reserve merely complied with Congressional requests, creating credit out of thin air and lending it to the Treasury for Treasury note purchases.
In turn, the Treasury allocated these funds to fulfill Congressional mandates, financing stimulus checks, the Paycheck Protection Program (PPP), and generous federal unemployment benefits—all in accordance with the demands made by Warren and others in Congress.
The Destruction of Money
There’s never an opportune moment to inject excessive money into the economy. However, the years 2020-21 were particularly reckless, primarily because governments worldwide imposed unnecessary lockdowns.
In response to the pandemic, nearly every government drew inspiration from Communist China’s approach. While the coronavirus curve was not flattened, the global economy certainly was.
Politicians like Warren worsened an already bad situation by unleashing waves of printed money, possibly believing they were providing assistance. Perhaps they were hopeful that Modern Monetary Theory (MMT) would fulfill their wish for a socialist utopia.
Nevertheless, their choices were catastrophic. Now, we are left navigating the disarray they have crafted.
A crucial point to grasp is that simply increasing the money supply by central planners does not necessarily expand the availability of goods and services. The arrival of newly created money does not automatically lead to a corresponding increase in production.
In a similar vein, the creation of more money does not inherently enhance people’s access to goods and services or their ability to consume. Instead, it dilutes the value of each monetary unit, leading to rising prices.
Consumer price inflation is born from money supply inflation, a direct result of central banking actions. As money supply inflation takes precedence, consumer prices inevitably rise, especially when this newly printed money is funneled into the economy via government distributions.
Disrupted Supply Chains
The government-mandated lockdowns of 2020-21 caused significant disruptions in global supply chains. Many connections that had taken decades to build were permanently severed.
There’s no returning to the pre-March 2020 status quo. Moreover, in addition to the fallout from government lockdowns and reckless money printing, the world is undergoing significant transformations.
Geopolitical changes since the onset of the Russia-Ukraine conflict are profound. Sanctions against Russia have left Europe unable to access its previously plentiful supply of affordable natural gas.
This represents a definitive breakdown in a vital supply chain that is unlikely to be restored. The repercussions of this new reality are beginning to be felt as winter approaches.
Germany finds itself particularly vulnerable to disruptions in Russian gas supplies. Prior to the conflict, over half of its gas imports came from Russia. Now, Germany is racing to devise alternative solutions.
One of the options being considered is to reactivate coal plants that were previously shut down as part of a plan to phase out coal by 2030. However, even coal supplies are facing shortages.
In Poland, for instance, individuals are lining up at the Lubelski Wegiel Bogdanka coal mine, waiting days to secure heating fuel as the winter season nears. The high demand for coal has forced Bogdanka and other mines to ration their sales.
What’s going on? How did things become so disordered? Have we entered a new dark age?
Are We Facing a New Dark Age?
Unless a miracle occurs, this winter could be catastrophic for Europe. French President Emmanuel Macron has recently articulated the challenges to his cabinet.
“What we are currently living through is a kind of major tipping point or a great upheaval. We are experiencing the end of what may have seemed like an era of abundance, including widespread technological availability and natural resources,” he stated.
Spanish Defense Minister Margarita Robles echoed a similar sentiment, stating that, “We [Europeans] are going to endure a winter of great suffering.”
Both Macron and Robles neglect to mention the source of this upheaval and impending suffering, which stems from elitist policies implemented in the U.S. and Europe.
The truth is that there is plenty of resources available and the skills necessary to distribute them efficiently. Yet, government-imposed lockdowns, climate policies, and misguided sanctions obstruct progress.
An example of this absurdity was highlighted by ZeroHedge, detailing how Europe is paying inflated prices for Russian liquified natural gas (LNG) that is being relayed through China. Oddly, LNG from Russia is deemed ‘clean’ once it’s brokered through China.
In the U.S., disruptions aren’t as apparent at the moment, but the country is not free from these challenges. With the current set of elitist lawmakers attempting to stymie productivity and counter those effects with printed money cloaked in misleading titles like the Inflation Reduction Act, the U.S. is not immune to these trends.
As previously noted, the U.S. is already in a recession. A bear market rally has stalled, coinciding with September, a historically challenging month for U.S. stocks. October, which has seen some of the most significant stock market crashes, follows shortly thereafter.
As the market enters fall and the economy continues to shrink, elevated consumer prices are likely to persist. This outcome seems inevitable due to elitist policies.
There is, however, a potential path forward—but it won’t be easy. If the Federal Reserve withdraws its cheap money policies, the recession could deepen into a prolonged depression.
If that strategy fails to rectify the situation, we may very well find ourselves in a new dark age.
In conclusion, the current state of the economy and geopolitical tensions invite questions about the stability of our future. While certain elite policies seem to set us on a perilous path, kindred spirits may still find a way out—albeit a difficult one.
Sincerely,
MN Gordon
for Economic Prism
