Everybody is asking it, are we heading into a recession?
Let's start with what the Biden administration is saying about this
directly.
So in a White House press briefing,
they wrote that both official determinations of recessions and
economists assessment of economic activity are based on a holistic look at the data.
Including the labor market, consumer and
business spending, industrial production and incomes.
Based on these data,
it is unlikely that the decline in GDP in the first quarter of this year,
even if followed by another GDP decline in the second quarter indicates a recession.
So there is a rumor that two consecutive quarters
of GDP decline is the one thing that means we are in a recession.
But as the White House accurately pointed out,
recessions are more about how people are doing economically and
you can't really determine this with any one statistics or metrics.
So they're right about that, but it really sounds like they're downplaying the risk
of a recession that we are in right now.
So what are they missing?
The Democrats tweeted this out from their Twitter account, reducing the deficit
is one of the main ways we can ease inflationary pressures and Joe Biden is on
track for the largest deficit cut in history this year over 1.7 trillion.
>> But reducing the deficit is not necessarily something to brag about.
Janet Yellen said recently in a press conference that we are in a period where
there's significant financial drag, very significant financial drag.
She said this, because a huge factor in economic growth and economic stability is
a well managed money supply and you need money to get things done.
Everybody knows you've got have money to make money.
You need money to put people to work and pay their wages to purchase land to
purchase machinery and tools, things that are necessary to get things done.
You need money to mobilize resources and labor.
You've got to put money into the economy to put our productive capacity to use.
A rapid reduction in the money supply, it can curb growth and
really jeopardized the stability of our economy, economists Wine Godly,
who became very popular because he was quite effective at predicting recessions.
He put it this way, he said there are three main sources for
us to increase the money supply.
One, the private sectors to think of households and businesses,
the other the US government, the fed and the third the foreign sector.
For any sector of our economy to be in surplus, another one has to be in deficit.
This often means the federal deficit, and
the federal deficit isn't necessarily debt.
It's simply a record of all of the dollars put out into the economy that haven't yet
been taxed back out and these dollars are not necessarily backed with bonds.
When the federal deficit increases, more dollars are out in the economy,
it's simply a record of the dollars that have gone out, they're a surplus for
everyone in the private sector.
So all of those households and all of those businesses.
And as Stephanie Kelton, Bernie's former chief economist would put it,
there red ink that they marked down as deficit is our black ink.
That's money circulating in the economy should also warn us that constraining
the federal deficit too much can plunge the private sector, so households and
businesses into deficit, and for them that is debt.
That is money that they have to pay back to someone else.
And that is a condition that has led to recessions in the past.
But the Biden administration has boasted a lot about the recovery that things
are looking better.
People are spending money on goods and services, flying in planes again,
eating out and shopping and spending money.
The recovery looks good for the upper class in the United States.
Bill Mcbride at calculated risk tweeted this out, he said, we're back and
we see this graph here, let's leave this up for a second.
It seems great, whereas it took 75 months to claw back nearly nine million
jobs that were lost during the great recession.
See the blue line for 2007,
it took just 30 months to add back the 22 million jobs that were lost during.
Covid recession instead of yet another long and
painless, long and painful job recovery.
Instead we got a V shaped job full recovery, so that's the red line there.
That's how Stephanie Kelton would put it.
And I would point to this V shaped line and
say that this fast recovery was thanks to the spending of the American rescue plan.
But as the Biden administration said, we can't just look at GDP or jobs and
say look, the economy's back, we've recovered.
You really do have to look at all of the data and
what the data shows is pretty concerning.
The true story here is that most everyday working people in the United States
are cutting back on spending and are working more jobs.
A month ago people were concerned with what Walmart was reporting on.
CBS wrote, Walmart reported that high costs for food are squeezing customers
ability to spend on discretionary items, like furniture and electronics.
So, an analysis of consumer spending at Walmart showed everyday people were
cutting back a month ago when people were bragging about the recovery.
This month, Walmart has seen an uptick in revenue and people are taking this as
a sign that we might not actually be at risk of a recession.
But this isn't because people are spending more money at Walmart, it's because people
are leaving other more expensive stores and Walmart seen an increase in customers.
Their CEO Doug McMillon said, we're pleased to see more customers choosing
Walmart during this inflationary period.
The evidence of recession isn't just in the spending, it's also in jobs, the July.
The July's Jobs report affirmed this and
while the administration is celebrating employment rates surpassing pre
pandemic levels, there's some concerning data in there as well.
The number of people working multiple jobs jumped 92,000 a whopping
549,000 more versus July 2021 just a year ago,
reporting from Stephanie Kelton at the Lens.
More data backs this argument that the recovery has been concentrated
to people with college degrees, which is amajor class indicator.
Graduate degree holders gained 3.8 million jobs,
bachelor's degree holders gained 4.7 Million jobs,
an associates degree holders gained 3.1 million jobs compared to workers
with a high school diploma or less, who added only 80,000 jobs.
That data comes from the center on education and
the workforce in Georgetown University.
And now we're in this situation where the Federal Reserve has decided to tackle
inflation and our current economic predicament with raising rates.
Really categorizing this as a demand problem, which,
according to the Economic Policy Institute, is not supported by the data.
They wrote, many countries have experienced a rapid acceleration,
of course inflation, a good reminder this problem is not concentrated to
the United States, inflation is not uniquely a US problem.
The economic policies that spearheaded the rapid economic recovery
rather than the specific policies of the Biden administration driving inflation.
The roots of today's inflation or a more complicated cocktail of other force.
This is from the spike in raw material, energy and commodities prices due in large
part to the Russian invasion of Ukraine, to lingering supply chain disruptions and
distorted consumer demand patterns stemming from the pandemic.
These shocks and their unexpectedly large ripple effects are the global
expansion for rising inflation.
So it seems as though we have taken a policy approach to solve a problem that
isn't relevant to the problem.
This is like if I felt very sick and I started taking antibiotics, but
I didn't have an infection, and then the antibiotics made me feel more sick,
raising rates and constraining the money supply is making things worse, not better.
And so this is really a story of the haves and have nots.
And we're jeopardizing our recovery by not addressing the root causes of
inflation and making people worse off.
And I think it can be argued that the administration might know exactly what
they're doing and it's not an accident.
These are pretty smart people,
but, annah \nd I would love to get your thoughts on all of this.
>> Yeah, I actually have a pretty different point of view and
analysis on the idea of increasing the money supply.
Because when we increased the money supply, especially after the 2008,
economic crash, what, aw was the Federal Reserve,
essentially pumping money into banks anow the companies that were lailin.
End the idea, especially with the banks was, okay,
we're gonna give you essentially interest free money,
which you can then pump into the economy in the form of small business loans, in
the form of mortgages to help fire up the mortgage market, the housing market again.
And what ended up happening was these banks decided, wait,
why don't we just take this free money essentially and
invest it ourselves and make this money work for us.
And so what they ended up doing and we saw this also occur with private equity firms
during the pandemic, is they started buying shares of their own stock.
So they did corporate corporate stock.
They also went off to basically buy the inventory of homes available on
the market at the time,
rather than giving out mortgages to individuals who had the correct,
you know, credit score and everything necessary to qualify for mortgages.
So a lot of people wouldn't even qualify for one.
And so that did lead to inflation,
not with everything that we are experiencing inflation wise today, right?
There's there are supply chain issues, the war in Ukraine obviously has
something to do with it, but when it comes to so called asset bubbles,
that's where the Federal Reserve really came in and created that problem.
Nomi Prince who wrote this really great book called collusion,
it's not related to Russia, it's just about central banks and their role and
basically increasing inequality, not just in our country, but across the globe.
She talks about how this led to people being priced out of the housing market.
It led to asset bubbles, especially when it comes to the stock market,
when you have corporate stock buybacks,
all that really does is artificially inflate the value of the shares.
Because there's really no pro activity or economic activity happening here.
It's just a way to game the system.
Now, With that said though, what also ends up horrening by increasing interest rates
through the Federal Reserve is, you're right, it becomes much more expensive for
ordinary working so bamericanwes to borrow money.
But I think if you look back at the financialization of our economy,
that is really where the root problem lies.
Because we started basically allowing for
Americans to just take out more loans to make ends meet rather than
ensuring that their real wages were keeping up with inflation.
And so if you look at the 1970s and how wages have remained stagnant since then,
you'll also notice that Americans are increasingly borrowing more money through
personal loans through credit card debt.
And we have record consumer debt today.
As a result, I think we need to go back to the pre financialized economy where
Americans were making good money, decent wages,
they were able to live the so called American dream and
they didn't have to dig themselves into a massive amount of debt.
But I do think that the Federal Reserve keeping interest rates low
is actually pretty damaging to the economy.
Yeah, I'm so glad you brought up the point about central banks and how they're
currently operaton perating to increase the money supply because it's a crisis and
it's outdated, to have central banks decide that the way that they're going to
influence our money supply is to outsource money creation to private banks are.
Central bank should be confident in their ability to fund public
programs with a high return on investment.
We can increase the money supply in all sorts of ways.
We should not have our economy running ,so the the central bank outsources money
creation to private banks,
how it currently works right now, is the Federal Reserve is going to say, okay,
we need more investment, we need more spending.
Maybe the economy is getting a little bit cold.
We're not seeing, you know, high supply have too much power and
be negotiating for too high of wages.
So, let's actually increase interest rates and ensure that people who are,
who are bankers have, more expensive, right?
It becomes more expensive for banks to borrow money from the federal government,
when rates go up, and then in turn, they make rates more expensive for people who
want to borrow money and start businesses, invest and invest in businesses,
which will eventually, you know, lead to more jobs, Rrght?
And so if they start these new businesses, and, you know,
it's only a few people who can afford them.
It's pretty much people who are proven to do a good job running businesses
because banks want to return on their investment.
This causing less jobs is really their intent when they're raising interest
rates, right?
Less people are working.
They have less money, They're not spending that money back to the economy,
but also by raising rates and curbing economic activity.
What you're doing is also reducing supply and so
you're just pretty much dampening what's going on in the economy and
what can happen instead of increasing the money supply through the private sector.
I would encourage everyone in Congress to realize that it's in your power to spend
money with votes.
You do this every year with the defense budget passing a ton of spending for
defense without backing that spending with bonds.
You can do the same thing with an investment in renewable energy
infrastructure and
employ a bunch of Americans as well paid public employees at a living wage.
And guess what, now?
The private sector has to compete with what you're offering your workers.
And this raises the bottom line for everyone.
And investments and things like renewable energy,
wind and solar,extremely high return on investment.
So when you talk about, being concerned about spending as well here,
Jerome Powell and Ted Cruz complaining on Fox News and
all kinds of people talking about spending, causing inflation.
They're really afraid of what we can do with public spending
because this kind of spending is not an inflation risk if it's done right?
But they're taking a ton of money from bankers who want all new money to enter
our economy through the way it always has, through private banks and
it's time we realize we don't have to outsource that to private banks.
So it's such a good point.
>> Yeah, thank you for mentioning that because you can also, I mean,
I talk about the Financial financialization of our economy.
So that I think is the root of the problem, but I think a short term fix
because reversing that is gonna take a lot of work a lot of time.
But I think a more short term fix would be to establish public banking, you know,
through the post office, for instance.
Where the government is lending directly to the aAmerican people,
as opposed to giving the money to private banks who of course at the end of the day,
we all know what private banks want.
Their bottom line is there, you know, profit motive,
They want to make sure that they maximize their profits.
And so you've got to take that part out of the equation in order to ensure that
we're actually increasing the money supply to the individuals who actually need it
to maybe start their own small businesses, buy a home, whatever it is that, you know,
they might need to take a loan out for.
The one other thing I want to mention because it's not all bad news.
You know, you did a really good overview of the economy.
You know, I'm always pretty skeptical of jobs reports because they leave out
the number of individuals who have given up on looking for work.
And when you see the increase in the number of people working multiple jobs, we
kind of get a sense of the quality of jobs that are out there for people to take.
So I wanted to mention that.
And then final thing I'll say is look, one of the,
I guess positive aspects of the Federal Reserve increasing interest rates is
that if you have a portion of your money in just a traditional savings account,
I usually don't give out any financial advice because I'm not an expert, but
I feel very confident in what I'm about to say higher interest rates.
Mean you could also get a higher interest rate on a savings account.
Okay. I'm not talking about stock market stuff,
I'm talking about just strictly a savings account that is not tied to
the stock market.
There's no risk if you are putting your savings in like chase Bank or
Bank of America, take that money out.
Okay.
Research online.
F. D.
I. C. Insured banks that at this point, I mean I have mine in a bank account that is
earning 2.5% interest, make like earn some interest on that money because it's
out there, it's available and make sure it's F.
D. I. C insured that it's federally insured.
So if the bank crashes or
something, you're able to recoup your money through the federal government.
Yeah, I I love that.
We're talking about the Financial ization of the economy because so
many people are like, well the really rich guys in America must have just worked so
hard and that's how they got all of their money.
No, no.
The rate of return on capital is much higher than the rate
of growth in our economy right now,
that's why we see inequality exacerbating to the extent that it really is.
So these are people who have a sum of money, maybe they're from a very wealthy
family, Maybe they've acquired it in an honest way,
maybe they got it through alone in any sense, they've acquired a lump of capital.
And what they've done with all of that money is make other investments.
There are many people, the richest people in our country for
sure make their money off of the existing money.
They already have, they are not working for it.
And because the rate of return on capital is much higher than the rate of return and
much faster than the rate rate of return on economic growth,
they've amassed a ton of wealth and it's not reflected by real goods and services,
real things of value actually being produced.
And we're at the point where GDP is not an accurate reflection of the total goods and
services in our economy.
It's a huge problem unless we we regulate Wall Street to the extreme,
and tax wealth extremely, and tax income extremely, and corporate taxes and
actually do something about stock buybacks, which cinema rumor has.
It is the reason that people were removing it from the ira.
God, she's the freaking worst.
The worst.
I just, I can't stand her.
I just, I really can't like the shamelessness of everything she's up
to lately.
It's just can't stand her.
Anyway, sorry to interrupt you, continue.
And she's fighting for these guys because they're lining her pockets and
it's not in the interest of anyone to have these people have the ability to
inflate their stock.