“What the hell?!” – President Joe Biden, June 16, 2021
Out of Control
The landscape of the American economy is increasingly challenging for workers, who find themselves navigating a system rigged against their success. This article revisits that assertion, drawing upon the latest developments from influential economic entities.
This week, after a two-day meeting, the Federal Open Market Committee (FOMC) issued a statement revealing that no significant changes were made. The Fed will maintain the federal funds rate near zero while continuing to create at least $120 billion each month to purchase Treasuries and mortgage-backed securities.
Consequently, bond yields surged and gold prices fell as 13 Fed officials indicated they anticipate two federal funds rate hikes by 2023. Fed Chair Jay Powell also hinted that the Fed is “talking about talking about” tapering bond purchases. While they recognize the situation, the underlying truth is they’ve likely lost control.
Consumer price inflation is officially reported at an annualized rate of 5 percent, yet the unofficial rate, calculated using methods from 1980, sits at approximately 13 percent. This discrepancy severely impacts household budgets.
Discussions about future tapering or rate hikes will likely do little to rein in inflation, which has already escalated beyond control. Observations suggest gas prices may surpass $5 per gallon in California this summer, and many families remain unprepared for persistent inflationary pressures.
To illustrate the financial strain, consider the following calculations faced by an average family.
Sour Grapes
For dinner, a box of Hamburger Helper—including flavors like Four Cheese Lasagna and Cheesy Ranch Burger—costs around $1.24, while a pound of 80/20 ground beef is about $5. Adding a can of green beans brings the total to roughly $10 for a family of four. But the question arises: what about the meals for the rest of the week?
It’s easy for food expenses for a family of four to reach $1,000 per month. However, when compared to housing costs, food remains relatively cheap. For example, renting a modest two-bedroom apartment in Long Beach can easily cost $2,000 monthly. When including utilities, internet, transportation, and insurance, basic expenses can reach approximately $1,000 more.
This results in a staggering $48,000 yearly just to cover the essentials. Unexpected expenses, such as car repairs, home maintenance, or medical bills, can add significant burdens.
The median household income in Los Angeles County is around $73,000. After accounting for taxes and deductions, the net pay is approximately $53,653, leaving merely $5,653—or about $471 a month—for entertainment and savings.
This financial layout reveals minimal room for flexibility, explaining why households often carry an average credit card debt of $6,270. Rising inflation, now at an annualized rate of 5 percent, exacerbates these challenges.
With a 5 percent inflation rate, the purchasing power of $53,653 decreases by $2,682 annually—equating to a loss of $223 monthly. This translates to a 47 percent reduction in the limited funds available for savings, entertainment, and unexpected expenses. An inflation rate of 13 percent would push monthly costs even further out of reach.
The projections of future rate hikes by the Fed are ultimately insufficient—merely a feeble response to an already dire situation.
How to Buffer the Fallout from America’s Third World Death Spiral
The ongoing struggle of American workers hinges on reconciling the rising costs of living with a stagnant wage growth. The irony is stark: the economy has expanded for nearly a decade, yet the average worker has seen little improvement in their income. How did this perplexing scenario unfold?
The reality is that America’s centrally planned economy fails to reward the typical worker. The dual challenges of inflated currency and excessive regulations extract value from their labor long before they ever realize its benefits.
This manipulated economic system causes the rewards of labor to flow primarily to Washington and Wall Street, where they are misallocated, leaving workers to simply scrape by.
American workers have tirelessly pursued stability and reward, yet their efforts have often proven fruitless. The ramifications of the 2020 pandemic lockdowns saw many laid off, replaced by temporary government-funded unemployment benefits.
Ironically, some found themselves better off during this period, receiving about $600 per week in federal benefits. As the economy reopens, however, a labor shortage is developing—a clear indication of the failures inherent in centrally planned economies. Government interventions lead to complex problems requiring further misguided solutions.
This cycle of intervention appears unending, culminating in certainty that a significant economic disaster looms ahead. How about exploring principles like sound money, private property rights, rule of law, and individual freedoms?
Currently, the outlook for such solutions seems bleak. Multiple cities across America have begun descending into a third-world-like crisis, and many others are eagerly following suit.
Possessing assets such as gold, silver, and potentially cryptocurrencies could provide some cushioning against the fallout, should luck favor you.
Sincerely,
MN Gordon
for Economic Prism
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