The ongoing debate around COVID-19 vaccinations has taken a significant turn, with Dr. Fauci expressing his frustration over individuals who refuse the vaccine. His desire for a stronger push to persuade those hesitant to vaccinate reflects a broader conversation about public health responsibility.
In a society built on mutual dependence, skepticism can feel out of place. Many argue that getting vaccinated is a civic duty, with an expectation that individuals prioritize the common good. The promise of returning to normal life seems tantalizing close—if only everyone would comply.
Currently, there is widespread optimism regarding the economy. The first quarter of the year recorded a GDP growth of 6.4 percent, and many economists are forecasting a continuation of this trend. The rationale is straightforward: the economy is reopening, businesses are hiring, summer is approaching, and pent-up demand, combined with government stimulus funds, is fueling a spending spree.
It’s evident as neighbors rush to purchase new patio furniture and grills. Co-workers are embarking on weekend getaways, and sports fans are returning to stadiums to cheer for their teams.
The reopening era is characterized by its peculiarities. Even if vaccinated, one may still need to wear a mask in public spaces. Restaurants can welcome diners indoors, provided partitions are in place. Although safety protocols can seem excessive, they are currently part of the landscape.
But who’s complaining? You can now enjoy a basket of delicious Buffalo wings and fries while seated comfortably indoors at your favorite restaurant.
Very Substantial, Very Interesting
The lockdowns during COVID-19 allowed for an unprecedented increase in government spending, flooding the economy with massive amounts of liquidity. However, simply inflating the money supply without a matching increase in goods and services is bound to lead to challenges.
The current imbalance means there isn’t enough supply to meet the surge in demand, which is causing prices to soar.
It shouldn’t come as a surprise that reviving an economy after a forced shutdown is more complex than simply flipping a switch.
Across the supply chain—from raw materials to finished products—there are broken links. With an influx of cash, production struggles to meet rising demand. From computer chips to lumber and steel, prices are on the rise.
Warren Buffett, the legendary investor, described the current recovery as “red hot,” yet he voiced concerns about inflation during a recent Berkshire Hathaway conference:
“We’re seeing very substantial inflation—it’s very interesting. Prices are rising across the board, and this is being accepted. Take home-building, for example, where costs are soaring.”
“Steel prices, for instance, keep increasing every day, and wage inflation is imminent.”
While price hikes might be intriguing to someone at Buffett’s level, for the average worker, they represent a significant reduction in purchasing power.
And now, the central planners seem to be backtracking on their narratives.
The Fed’s Two Disagreeable Choices
Federal Reserve Chair Jay Powell maintains that current inflation is temporary and not a cause for concern, attributing rising prices to statistical anomalies from last year’s low inflation rates.
However, on a recent day, Treasury Secretary Janet Yellen, stepping slightly off script, acknowledged that interest rates may need to increase to prevent the economy from overheating. Later, possibly after a conversation with Powell, she reassured that inflation was not a significant threat.
What does this inconsistency signify?
Both Powell and Yellen can make statements that contradict observable trends, but such contradictions only serve to undermine their credibility. Many informed observers already recognize their words as increasingly disconnected from reality.
Inflation is indeed a problem, and interest rates are on the rise. As supply chains stabilize and production scales up, the full impact of the Fed’s aggressive monetary policies will come to light.
Consider this: if supply chains are restored but prices still continue to climb, how will the situation evolve?
The Fed will undoubtedly face a difficult choice: will they:
A. Raise interest rates, risking a collapse of asset prices (including stocks, real estate, cryptocurrencies), which could push numerous households and businesses into financial distress?
Or will they:
B. Continue to inflate the money supply until the dollar’s value is eroded entirely, resulting in hyperinflation and eventual economic collapse?
These are the dilemmas that those in positions of power must navigate after their continuous interventions have obscured normal market signals, including the cost of credit. It’s evident the authorities will likely choose the most convenient path, no matter the consequences.
Sincerely,
MN Gordon
for Economic Prism
Return from The Fed’s Two Disagreeable Choices to Economic Prism
