Our So-Called Foreign Policy: Beyond Blaming the Victim

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CCP Virus, China, coronavirus, COVID 19, Edward G. Luce, Financial Times, George W. Bush, global terrorism, Iraq war, lab leak, Mario del Poro, Melvyn Leffler, Our So-Called Foreign Policy, September 11, The Washington Post, weapons of mass destruction, Wuhan lab, Wuhan virus

When a line of argument appears twice in Mainstream Media publications on consecutive days, it’s hard not to conclude that a trend might be forming – or has been well underway. And when it comes to the particular line of argument I’m posting about, that’s disturbing news, since it’s an especially repugnant form of blaming the victim that could become dangerously influential. For these views can all too easily become rationales for official paralysis in the face of major threats, or excessively feeble responses, because the media organizations spreading these views are still taken so seriously by so many U.S. policymakers.

The first example of such blaming the victim comes from Edward G. Luce, a columnist for the Financial Times. Now before you go objecting that both this pundit and his newspaper are British, keep in mind that the author is based in Washington, D.C. and that the Times has long published a U.S. edition that’s must reading in high level American policy circles that are by no means confined to business and economics.

In his March 1 offering on how some revised American intelligence assessments of the CCP Virus lab leak theory might impact U.S.-China relations, Luce worries that “America’s growing tendency to demonise China — and the fact that China keeps supplying it with material — poses a threat to global health” and could poison the entire spectrum of bilateral ties because “The world’s superpower and its rising great power are both now working from home and nourishing paranoia about each other.”

It’s the first half of this analysis that especially caught my eye. According to Luce, practically the entire U.S. political system is increasingly “demonising” China – phrasing that, along with the follow-on reference to “paranoia,” can only mean that U.S. positions on the entire range of Sino-American relations have become unjustifiably harsh.

But at the same time, he notes that “China keeps supplying [Americans] with material.” That sounds like a confession that China’s record actually does warrant more confrontational stances in Washington. Luce’s contention of mutual paranoia stoking, however, indicates that this isn’t what he believes at all.

Practically identical is Luce’s observation that “Beijing’s reluctance to play global citizen on pandemic warning systems — on top of climate change and other common threats — means we are hearing far less from Washington about co-operating with China and far more about confronting it.”

Yet how is Luce advising the United States to deal with a country that he himself believes isn’t buying the argument about the need for cooperation on issues of common concern? Simply, it seems, by talking as much as ever or even more about “co-operating with China” – which appears to reflect the hope that some particularly inspiring official U.S. verbiage can bring Beijing around and of course a clear triumph over experience.

The second example of such victim blaming came in a book review published the following day in the Washington Post. Writing about American historian Melvyn Leffler’s new study of the 2003 U.S. Iraq War, French political scientist Mario del Pero describes Leffler as arguing that President George W. Bush and his top advisors

“were imbued with a ‘sense of exceptional goodness and greatness’ and believed in the superiority of ‘America’s system of democratic capitalism.’ This hubris encouraged a strategy that favored deploying America’s overwhelming power to protect the country and its way of life. The terrorist attacks fed this arrogance and blinded the administration to the moral and strategic issues it confronted.”

Leave aside the suggestion that belief in the superiority of “America’s system of democratic capitalism” is ipso facto a sign of “hubris” and “arrogance” (which strikes me as weird) and the contention that the Bush administration underestimated “the moral and strategic issues it confronted” (more persuasive IMO, especially the strategic part).

Concentrate instead on the final sentence about the September 11 attacks “feeding” the administration’s “arrogance.” This sounds just like Luce’s portrayal of over-the-top U.S. responses to Chinese provocations that he concedes in the next breath have been awfully provocative. Unless American leaders post-September 11 should have viewed that day’s strikes as a one-off?

Yet del Pero makes clear that Leffler makes no such argument. The author (in del Pero’s words) maintains that

>U.S. leaders “believed that America’s way of life was under threat”;

>”The shared assumption — within the administration as well as among allies and arms-control experts — was that Iraq still had secret weapons-of-mass-destruction (WMD) programs. The new global landscape made the possibility of a WMD-armed Iraq all the more ominous”; and

>“No threat [Leffler’s words] worried Bush and his advisers more than the prospect of terrorists getting their hands on weapons of mass destruction.”

Finally, (back to the reviewer’s words) “Intelligence was inconclusive and some of it, it was later realized, simply fabricated. But no risks could be taken.”

In other words, even though this second Iraq War turned out terribly, the idea that the dangers of global terrorism “fed” a Bush administration “arrogance” and “hubris” that presumably was already bloated is far too dismissive. Instead, the grievous damage already done by such terrorism, the genuinely frightful and plausible prospect of more to come – and possibly sooner rather than later – and the frustrating uncertainties policymakers always face in crises, mean that the 2003 invasion is best seen as an understandable and entirely rational response.

In fact, reviewer del Pero winds up substantially agreeing, calling Bush’s approach “coherent in theory.” Also worth keeping in mind. At least rhetorically, Bush didn’t start out as a chest-thumping foreign policy President.

In his October 11, 2000 debate with Democratic rival Al Gore during his first campaign for President, Bush stated:

“If we’re an arrogant nation [other countries will] resent us. If we’re a humble nation, but strong, they’ll welcome us. And our nation stands — stands alone right now in the world in terms of power. And that’s why we’ve got to be humble and yet project strength in a way that promotes freedom.”

Obviously, September 11 produced a change. But how could it not have, to at least some extent?

A famous bit of French snark memorably “complains” “This animal is dangerous. When attacked, it defends itself.” That’s a good way to think about both these charges that there’s something as fundamentally diseased about the overall American body politic’s reactions to the burgeoning threats posed by China as there was about the Bush administration’s invasion of Iraq.

Of course, although some policies will always be rooted in real paranoia, and although their more reasoned counterparts can always go awry for any number of reasons, the failure of Luce, del Pero, and apparently Leffler (along with their Financial Times and Washington Post editors) to recognize a healthy sense of national self-preservation that’s vital in a dangerous world when they see it, is pretty diseased itself. Here’s hoping it doesn’t become epidemic.

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(What’s Left of) Our Economy: New Figures Show that America is Still Pretty Unproductive

Tags

CCP Virus, coronavirus, COVID 19, inflation, labor productivity, manufacturing, non-farm business, productivity, recession, total factor productivity, Wuhan virus, {What's Left of) Our Economy

Let’s start off with the good news revealed by today’s final (for now) official U.S. report on labor productivity in the fourth quarter of 2022 and the entire year last year: The quarterly readings have now improved for the fourth consecutive time, and have even showed actual growth for the second straight quarter.

That’s sure better than America’s performance earlierin 2022 for this narrowest of the two productivity growth gauges tracked by the U.S. government. Last year’s first half featured the first quarter’s 6.1 percent drop at annual rates (tying the second quarter, 1960 for the worst such performance ever in a data series going back to 1947) and a second quarter 3.8 percent annualized decrease that created the worst back-to-back results ever.

And any positive productivity news is important any time because robust productivity gains are the country’s best bet for achieving sustainable prosperity rather than the bubble-ized veneer of economic success. Moreover, any positive productivity news these days is especially important, because enough improving efficiency on this score would cool off inflation. For all else (particularly demand levels) equal, it would enable businesses to absorb higher costs for labor and other inputs and still maintain their profits rather than being forced to preserve profitability by raising prices charged to consumers and other final customers.

But that’s it for this morning’s good productivity news.

Although the new fourth quarter rise of 1.7 percent annualized (for non-farm businesses – the government’s closest proxy for the entire private sector economy) was the best since the three percent improvement registered in the fourth quarter of 2021, it was 1.3 percentage points lower than the three percent reported in the advance release.

Further, the 1.7 percent yearly fall-off in labor productivity between 2021 and 2022 was the greatest such weakening since the same decrease in 1974.

Although there’s no legitimate doubt that recent productivity data are still reflecting CCP Virus-related distortions that presumably will fade significantly at some point, the latest number’s unfortunately provide no reasons to think that America’s long-time productivity growth slump will end any time soon. Here are the results, incorporating new “benchmark” revisions for the last few years, for all the expansions that the U.S. economy has enjoyed since the 1990s. (As known by RealityChek regulars, the most reliable economic comparisons are those among the same periods of business cycles.)

1990s expansion (2Q 1991-1Q 2001): +23.53 percent

bubble-decade expansion (4Q 2001-4Q 2007): +16.01 percent

pre-CCP Virus expansion: (2Q 2009-4Q 2019): 13.56 percent

post-CCP Virus expansion: (3Q 2020-4Q 2022): -1.32 percent

Again, maybe American business is still suffering from pandemic era doldrums. But obviously something awfully dramatic is going to have to change to reverse this discouraging trend.

Even worse, as I see it, have been the latest results in manufacturing labor productivity. The reason? As the table below shows, industry used to be far and away the nation’s productivity growth leader – at least until the pandemic struck.

1990s expansion (2Q 1991-1Q 2001): 44.70 percent

bubble-decade expansion (4Q 2001-4Q 2007): 31.05 percent

pre-CCP Virus expansion: (2Q 2009-4Q 2019): 2.11 percent

post-CCP Virus expansion: (3Q 2020-4Q 2022): -1.00 percent

Since the post-pandemic recovery, manufacturing’s labor productivity swoon has been marginally milder than that for non-farm business overall. But for the last two quarters of 2022, its perfomance has been worse, as its labor productivity has sunk by 3.9 percent and 2.7 percent at annual rates. And in fact, it’s fallen in absolute terms for five of the last six quarters.

But maybe the broader measure of productivity growth, total factor productivity (TFP) growth, yields better results? TFP measures how much expansion of output businesses are getting from the use of man different inputs – materials, energy, technology, capital spending, and the like, as well as labor. So it provides a more complete picture of business efficiency. But the TFP numbers only come out annually, and with more of a delay than the labor productivity results.

Yet even keeping in mind the inability to generate TFP growth statistics for the precise extent of expansions, and the delay factor, the results we do have so far don’t differ substantially from the labor numbers in terms of the long-term weakening – especially of manufacturing. Here are the results for non-farm businesses for the closest annual approximations of recent economic expansions:

1990s expansion: 1991-2000: 10.11 percent

bubble-decade expansion (2002-2007): 6.65 percent

pre-CCP Virus expansion: (2009-2019): 6.06 percent

post-CCP Virus expansion: (2020-2021): 4.13 percent

And here are the same results for manufacturing:

1990s expansion (1991-2000): 15.64 percent

bubble-decade expansion (2002-2007): 11.67 percent

pre-CCP Virus expansion: (2009-2019): 1.55 percent

post-CCP Virus expansion: (2020-2021): 3.26 percent

Since the deep pandemic-induced recession of 2020, TFP growth looks pretty impressive. But we only have a single year’s worth of data. And the 2022 numbers don’t come out till March 23. Most economists agree that productivity is the hardest of the economy’s standard performance indicators to measure, so even the upcoming TFP report may contain some big encouraging surprises. And even if it doesn’t, it’s conceivable that it’s missing much of the real productivity story.

Yet since both measures used by the government are in basic agreement, that last argument isn’t one I find persuasive. Worse, as long as American productivity growth remains crummy – and possibly non-existent – fostering a dramatic economic slowdown and quite possibly a recession will be the only ways to defeat today’s troubling inflation.

(What’s Left of) Our Economy: A New Post-Virus Normal Emerging in U.S. Trade?

Tags

CCP Virus, coronavirus, COVID 19, goods trade, Trade, Trade Deficits, trade surpluses, Wuhan virus, {What's Left of) Our Economy

Back to the full-year 2022 trade figures today, and the focus is on this question: Is the structure of U.S. trade settling into to a somewhat stable post-CCP Virus pattern? That’s one possible conclusion that can be drawn from a detailed look at U.S. goods trade flows for full-year 2022 and comparing them with those of the year before, and then with those of 2019 – the last full pre-pandemic year.

What they show is that although this structure barely changed between 2021 and 2022, some sizable changes can be seen between 2019 and last year. The evidence comes from examining list of the products that have recorded the biggest trade surpluses and deficits during these years.

For data geeks, these lists are constructed from the U.S.government’s main system for slicing and dicing the economy by industry – the North American Industry Classification System (NAICS). The level of disaggregation used is the sixth – which in my view enables the clearest and most conveniient way to distinguish between final products (on the goods side of the economy) and their parts and components. With so much production of so many manufactures in particular still so globalized, that’s a crucial distinction. All specific amounts are presented in billions of pre-inflation dollars.

Finally, the numbers for the civilian aeropace sector (whose trade flows are enomous) are kind of funky, because the Census Bureau that gathers the data has been inconsistent in lumping all these numbers together and breaking them down into aircraft and the various types of aircraft parts.

That said, let’s start with the twenty categories that ran up the biggest trade surpluses in 2022 and the magnitude of those surpluses:

aircraft:                                                                           $90.53

natural gas:                                                                     $75.14

petroleum refinery products;                                          $60.51

misc special classification:                                              $35.51

soybeans:                                                                         $34.00

plastics materials and resins:                                           $23.16

waste and scrap:                                                               $20.82

corn:                                                                                 $18.59

non-anthracite coal & petroleum gases:                          $16.44

used or second hand merchandise:                                    $9.38

cotton:                                                                                $9.10

semiconductor machinery:                                                 $9.09

wheat:                                                                                 $7.82

non-poultry meat products:                                                $7.60

motor vehicle bodies:                                                          $7.21

non-aluminum non-ferrous smelted/refined metal:             $6.91

petrochemicals:                                                                    $5.66

tree nuts:                                                                               $5.61

semiconductors and related :                                                $5.59

copper, nickel, lead & zinc:                                                  $5.5

Now here are their counterparts in 2021:

civilian aircraft, engines, and engine parts:                        $79.89

natural gas:                                                                          $54.55 

soybeans:                                                                             $27.07

petroleum refinery products:                                               $26.29

special classification :                                                         $24.90

waste and scrap:                                                                  $21.39

plastics materials and resins:                                               $18.78

corn:                                                                                     $18.58

semiconductor machinery:                                                   $12.21

semiconductors and related devices:                                   $10.62

non-anthracite coal and petroleum gases:                             $9.29

used or second-hand merchandise:                                       $8.56

non-poultry meat products:                                                   $7.83

motor vehicle bodies:                                                            $6.95

wheat:                                                                                    $6.87

cotton:                                                                                    $5.76

copper, nickel, lead and zinc:                                                $5.46

tree nuts:                                                                                $4.69

prepared or preserved poultry:                                              $4.54

miscelleaneous inorganic chemicals:                                    $4.05

What jumps out is how similar these two lists are. In fact, 18 of the biggest surplus sectors for 2021 earned the same distinction in 2022. Even the order of the two lists is strikingly similar. No individual sector moved more than two rungs up or down in the rankings. And even the two 2021 biggest surplus winners that didn’t make the 2022 list, they came awfully close, with prepared or preserved poultry ranking twenty first in 2022 and miscellaneous organic chemicals ranking twenty fourth.

And don’t forget this head-scratcher: Between 2021 and 2022, a trade deficit in non-aluminum non-ferrous smelted and refined metals of $484 billion turned into a $6.91 surplus!

Very similar top twenty results emerge from the 2021 and 2022 lists of sectors with the biggest trade deficits for those years. Here’s the 2022 list:

autos and light trucks:                                                      $112.98

broadcast and wireless communications equipment;         $93.76

goods returned from Canada:                                             $90.79

computers:                                                                          $82.93

crude petroleum:                                                                $81.28

pharmaceutical preparations:                                             $66.02

female cut and sew apparel:                                               $47.85

male cut and sew apparel:                                                  $39.07

footwear:                                                                            $34.56

audio and video equipment:                                               $34.26

iron, steel, ferroalloy steel products:                                  $33.34

miscellaneous motor vehicle parts:                                    $31.17

dolls, toys and games:                                                        $30.79

printed circuit assemblies:                                                 $29.90

major household appliances:                                             $21.08

miscellaneous electronic components:                              $20.99

miscellaneous plastics products:                                       $20.03

storage batteries:                                                               $19.13

aircraft engines and engine parts:                                     $18.34

motor vehicle electrical and electronic equipment:          $17.67

And the top (bottom?) twenty for 2021:

goods returned from Canada:                                           $96.13

autos and light trucks:                                                      $95.84

broadcast and wireless communications equipment:       $80.02

computers:                                                                        $79.08

crude petroleum:                                                               $63.69

pharmaceutical preparations:                                            $63.57

female cut and sew apparel:                                              $40.98

audio and video equipment:                                              $34.34

male cut and sew apparel:                                                 $29.82

miscellaneous motor vehicle parts:                                   $28.91

dolls, toys and games:                                                       $26.67

printed circuit assemblies:                                                 $26.57

iron and steel and ferroalloy steel products:                      $26.21

footwear:                                                                            $25.81

major household appliances:                                             $20.84

miscellaneous plastics products:                                        $20.51

jewelry and silverware:                                                      $17.77

motor vehicle electrical and electronic equipment:           $16.09

curtains and linens:                                                            $15.23

aircraft engines and engine parts:                                      $14.06

Revealingly, the 2021 and 2022 lists are not only also very much alike each other. They’re alike in a big way very similar to how the surplus lists for the two yeasr are alike: Eighteen of the entries on the 2021 list are on the 2022 list.

The big difference: Movement up and down the ranks was somewhat greater. Three sectors changed places by more than two rungs: footwear (which rose from fourteenth on the 2021 list to ninth in 2022; jewelry and silverware, which dropped from seventeenth to twenty-first; and curtains and linens, which tumbled from nineteenth to twenty-ninth – likely because the domestic housing sector slumped.

But the differences between the 2019 and 2022 lists are more substantial. Here are the former’s top twenty trade surplus winners:

civilian aircraft, engines, and parts:                                $126.02

petroleum refinery products:                                             $30.55

special classification provisions:                                       $24.51

natural gas:                                                                        $21.79

plastics materials and resins:                                             $18.80

soybeans:                                                                           $18.49

waste and scrap:                                                                 $13.07

non-anthracite coal and petroleum gases:                           $9.31

motor vehicle bodies:                                                         $ 9.20

semiconductors and related devices:                                   $9.01

used or second-hand merchandise:                                      $8.80

corn:                                                                                     $7.62

wheat:                                                                                  $5.85

tree nuts:                                                                              $5.10

computer parts:                                                                    $4.79

copper, nickel, lead and zinc:                                              $4.40

miscellaneous basic inorganic chemicals:                           $4.31

prepared or preserved poultry:                                            $3.79

in vitro diagnostic substances:                                            $3.27

surface active agents:                                                          $3.24

Here again, eighteen out of the 2019 entrants made it to the 2022 list. But there were quite a few more big movers and in two cases huge movers. No fewer than nine made shifts of more than two places, including motor vehicle bodies, which sank from nine on the former to 15 on the latter; semiconductors, which plummeted from tenth to nineteenth; corn, which rose from fourth to eighth; copper and the three other metals,which dropped from 16 to 20; miscellaneous inorganic chemicals, which fell from seventeenth to twenty-fourth; and surface active agents, which declined from twentieth to twenty sixth.

Much more dramatic, however, in computer parts, a $4.79 billion surplus turned into a $438 million deficit, and in in vitro diagnostic substances. a $3.27 billion surplus had become a ginormous $15.47 billion deficit by last year –no doubt mainly reflecting exploding demand for CCP Virus tests.

The differences between the 2019 and 2022 top twenty trade deficit sectors were noteworthy, but not quite so. Here are the results for 2019:

autos and light trucks:                                                      $125.47

goods returned from Canada:                                             $91.23

broadcast and wireless communications equipment:         $73.02

pharmaceutical preparations:                                             $62.24

crude oil:                                                                             $61.91

computers:                                                                          $59.44

female cut and sew apparel:                                               $42.07

male cut and sew apparel:                                                  $30.88

aircraft engines and engine parts:                                      $25.68

footwear:                                                                           $25.39

miscellaneous motor vehicle parts:                                   $23.21

audio and video equipment:                                              $22.36

non-diagnostic biological products:                                  $17.31

dolls, toys and games:                                                       $17.28

iron, steel and ferroalloy steel products:                           $16.95

printed circuit assemblies:                                                 $16.71

motor vehicle electrical and electronic equipment:           $14.36

non-engine aircaft parts:                                                    $14.33

major household appliances:                                              $14.12

miscellaneous plastics products:                                        $12.86

As with the surplus list, eighteen of the top twenty deficit 2019 showed up on the counterpart 2022 list. But whereas nine sectors made moves of more than two places between the coresponding surplus lists, that was the case for only six sectors in the deficit lists. They were iron, steel and ferroalloy products (fifteenth to eleventh); motor vehicle electrical and electronic equipment (seventeenth to twentieth); non-engine aircraft parts (eighteenth to fifty sixth); major household appliances (nineteenth to fifteenth); and miscellaneous plastics products (twentieth to seventeenth). In addition, the non-diagnostic biological substances went from a $17.31 billion deficit in 2019 to a $4.17 billion surplus in 2022! 

As with any economic developments coming out of the pandemic era, it may be way too soon to draw sweeping conclusions. So the structure of U.S. trade deficits and surpluses will be worth watching going forward. But it’s not too soon to ask whether these trends seem likely to benefit or harm the economy’s health longer term – or won’t matter much either way. And that will be the subject  of the upcoming final (for now) deep dive into the 2022 U.S. trade figures.        

(What’s Left of) Our Economy: Why the U.S. Inflation Outlook Just Got Even Cloudier

Tags

CCP Virus, China, consumer price index, consumers, core CPI, coronavirus, cost of living, COVID 19, CPI, energy prices, Federal Reserve, food prices, inflation, Jerome Powell, prices, recession, stagflation, stimulus, supply chains, Ukraine War, Wuhan virus, {What's Left of) Our Economy

If the big U.S. stock indices didn’t react enthusiastically to yesterday’s official American inflation figures (which were insensitively released the very day I had a minor medical procedure), that’s because they were too mixed to signal that consumer prices were finally being brought under control.

Lately, good news on inflation-fighting has been seen as good news for stock investors because it indicates that the Federal Reserve may at least pause its campaign to hike interest rates in order to slow economic growth significantly– and even trigger a recession. That’s because a weaker economy means consumers will have less money to spend and that businesses therefore will find it much harder to keep raising prices, and even to maintain prices at currently lofty levels. And all else equal, companies’ profits would take a hit.

So already softening inflation could convince the central bank that its efforts to date have been good enough, and that its goal of restoring price stability can be achieved without encouraging further belt tightening – and more downward pressure on business bottom lines.

Of course, stock investors aren’t always right about economic data. But their take on yesterday’s figures for the Consumer Price Index (CPI), which cover December. seems on target.

The data definitely contained encouraging news. Principally, on a monthly basis, the overall (“headline”) CPI number showed that prices actually fell in December – by 0.08 percent. That’s not much, but this result marks the first such drop since July’s 0.02 percent, and the biggest sequential decline since the 0.92 percent plunge recorded in April, 2020, when the economy was literally cratering during the CCP Virus’ devastating first wave. Further, this latest decrease followed a very modest 0.10 percent monthly increase in November.

So maybe inflation is showing some genuine signs of faltering momentum? Maybe. But maybe not. For example, that CPI sequential slip in July was followed by three straight monthly increases that ended with a heated 0.44 percent in October.

Moreover, core CPI accelerated month-to-month in December. That’s the inflation gauge that strips out food and energy prices because they’re supposedly volatile for reasons having little or nothing to do with the economy’s underlying inflation prone-ness.

December’s sequential core CPI rise was 0.30 percent – one of the more sluggish figures of the calendar year, but a rate faster than a November number of 0.27 percent that was revised up from 0.20 percent. Therefore, these last two results could signal more inflation momentum, not less.

In addition, as always, the annual headline and core CPI numbers need to be viewed in light of the baseline effect – the extent to which statistical results reflect abnormally low or high numbers for the previous comparable period that may simply stem from a catch-up trend that’s restoring a long-term norm.

Many of the multi-decade strong year-to-year headline and core inflation rates of 2021 came after the unusually weak yearly results that stemmed from the short but devastating downturn caused by that first CCP Virus wave. Consequently, I was among those (including the Fed) believing that such price rises were “transitory,” and that they would fade away as that particular baseline effect disappeared.

But as I’ve posted (e.g., last month), that fade has been underway for months, and annual inflation remains powerful and indeed way above the Fed’s two percent target. The main explanations as I see it? The still enormous spending power enjoyed by consumers due to all the pandemic relief and economic stimulus approved in recent years, and other continued and even new major government outlays that have put more money into their pockets (as listed toward the end of this column).

(A big hiring rebound since the economy’s pandemic-induced nadir and rock-bottom recent headline unemployment rates have helped, too. But as I’ll explain in an upcoming post, the effects are getting more credit than they deserve.)

And when you look at the baselines for the new headline and core CPI annual increases, it should become clear that after having caught up from the CCP Virus-induced slump, businesses still believe they have plenty of pricing power left, which suggests at the least that inflation will stay high.

Again, here the inflation story is better for the annual headline figure than for the core figure. In December, the former fell from November’s 7.12 percent to 6.42 percent – the best such number since the 6.24 percent of October, 2021, and the sixth straight weakening. The baseline 2020-2021 headline inflation rate for December was higher than that for November (6.83 percent versus 7.10 percent), and had sped up for four consecutive months. But that November-December 2020-2021 increase was more modest than the latest November-December 2021-2022 decrease, which indicates some progress here.

At the same time, don’t forget that the 6.24 percent annual headline CPI inflation of October, 2020-2021 had a 2019-2020 baseline of just 1.18 percent. Hence my argument that businesses today remain confident about their pricing power even though they’ve made up for their pandemic year weakness in spades.

In December, annual core inflation came down from 5.96 percent to 5.69 percent. That was the most sluggish pace since December, 2020-2021’s 5.48 percent, but just the third straight weakening. But the increase in the baseline number from November to December, 2021 was from 4.59 percent to that 5.48 percent – bigger than the latest November-December decrease. In other words, this trend for core CPI is now running opposite it encouraging counterpart for headline CPI.

Finally, as far as baseline arguments go, that 5.48 percent December, 2021 annual core CPI increase followed a baseline figure the previous year of a mere 1.28 percent. Since the new annual December rate of 5.69 percent comes on top of a rate more than four times higher, that’s another sign of continued business pricing confidence.

But the inflation forecast is still dominated by the question of how much economic growth will sink, and how the Fed in particular will react. And the future looks more confusing than ever.

The evidence for considerably feebler expansion, and even an impending recession, is being widely cited. Indeed, as this Forbes poster has reported, “The Federal Reserve Bank of Philadelphia’s Survey of Professional Forecasters indicates the highest probability of a recession over the next 12 months in the survey’s 55-year history.”

If they’re right, inflation may keep cooling modestly for a time but still remain worrisomely warm. And the Fed may react either by keeping interest rates lofty for longer than expected – as Chair Jerome Powell has already said – or even raise them faster. 

Nonetheless, although the recession that did take place during the first and second quarters of last year convinced numerous observers that worse was yet to come, the third quarter saw a nice bounceback and the fourth quarter could be even better. So if a downturn is coming, it will mean that economic activity will need to shrink very abruptly. Hardly impossible, but hardly a sure thing.

And if some form of economic nosedive does occur, it could prompt the Fed to hold off or even reverse course to some extent, even if price increases remain non-trivial. A major worsening of the economy may also lead Congress and the Biden administration to join the fray and approve still more stimulus to cushion the blow.

Complicating matters all the while – the kind of monetary stimulus added or taken away by the central bank takes months to ripple through the economy, as the Fed keeps emphasizing.  Some of the kinds of fiscal stimulus, like the pandemic-era checks, work faster, but others, like the infrastructure bill and the huge new subsidies for domestic semiconductor manufacturing will take much longer.

Additionally, some of the big drivers of the recent inflation are even less controllable by Washington and more unpredictable than the immense U.S. economy – like the Ukraine War’s impact on the prices of energy and other commodities, including foodstuffs, and the wild recent swings of a range of Chinese government policies that keep roiling global and domestic supply chains. 

My own outlook? It’s for a pretty shallow, short recession followed by a comparably moderate recovery and all accompanied by price levels with which most Americans will keep struggling. Back in the 1970s, it was called “stagflation,” I’m old enough to remember that’s an outcome that no one should welcome, and it will mean that the country remains as far from achieving robust, non-inflationary growth as ever.  

Those Stubborn Facts: Beijing’s CCP Virus Cover Up Continues

Tags

CCP Virus, China, coronavirus, cover up, COVID 19, public health, Those Stubborn Facts, transparency, Wuhan virus, Zhejiang province

China’s central government official tally of new CCP Virus cases yesterday: 9,548

Zhejiang province government tally of new daily CCP Virus cases as of Tuesday: c. one million

 

(Source: “Explainer: Is China sharing enough Covid-19 information?” by Huizhong Wu and Annirudha Ghosal, Associated Press, January 6, 2023, EXPLAINER: Is China sharing enough COVID-19 information? | AP News)

 

Im-Politic: A CCP Virus Lesson Learned and a Mystery Still Unsolved

Tags

Biden, CCP Virus, CDC, Centers for Disease Control and Prevention, coronavirus, COVID 19, Donald Trump, hospitalizations, Im-Politic, mortality, National Center for Health Statistics, vaccines, Washington Post, Worldometers.info, Wuhan virus

As the third anniversary of the CCP Virus’ arrival in the United States approaches, new data from the U.S. Centers for Disease Control and Prevention (CDC) have upended a widely held belief about the U.S. government’s response, even as other recent statistics have left another conclusion firmly in place.

The upended belief: that President Biden has handled the pandemic much better than former President Trump. Recently released figures from the CDC say it ain’t so – at least when it comes to the virus’ death toll.

According to the agency’s National Center for Health Statistics, in 2020, the number of American deaths attributable to the CCP Virus was 350, 831. According to its latest report on the leading causes of mortality in the United States, Covid 19 took 416,893 lives in 2021. That’s an 18.83 percent increase.

In other words, in 2020, when Trump was President and his policies toward the pandemic were widely considered an unmitigated disaster (except for the Operation Warp Speed policy that produced vaccines in record time), the virus killed many fewer Americans than in 2021, when Joe Biden’s administration has gotten much better marks.

But maybe these results are skewed by the fact that the Trump Covid year only lasted eleven months (because the first recorded American CCP Virus death didn’t occur till February 29, 2020, and the Trump administration ended on January 20, 2021)? Nope. Even when you make the needed changes, and peg the start of the Biden administration in February, 2021, you get the same 18.83 percent gap (with monthly deaths under Trump coming in at 31,893 and under Mr. Biden at 37,899).

The big bump up in deaths under Biden are even stranger when you consider that when the pandemic hit the United States, it was a truly novel coronavirus, meaning that it was difficult to figure out what it even was, much less how rapidly it could spread (thanks in part to China’s refusal to share reliable information), let alone how to treat it. So healthcare providers (and public health agencies) literally were flying blind. Moreover, there was absolutely no vaccine. And relatively few had the chance to develop natural immunity.

It’s true that the vaccine rollout took some time to complete (partly because, again, it was a novel challenge), and that once it was widely available, many Americans refused to be jabbed. But according to this source, by July 30, half of the population was fully vaccinated, and by year-end, this level had hit 62 percent.

Biden supporters can point to the fact that. in fall, 2021, the seven-day daily average of CCP Virus-attributable deaths peaked at 2,093 (on September 22). That was 37.47 percent below the peak under Trump (a seven-day average of 3,347 on January 17, 2021). (These figures come from the Washington Post‘s Covid tracker feature.) But again, there was no vaccine available at all in fall, 2021, under Trump. And natural immunity was much more widespread during President Biden’s first year.

Of course, deaths aren’t the only metric needed to evaluate the effectiveness of CCP Virus responses. Hospitalizations are important, too. A flood of severe virus victims can strain the healthcare system to the breaking point, both making each of them harder to treat effectively, and leaving fewer personnel and resources available for dealing with other serious medical problems.

So it’s more than a little interesting to observe that, according to the Post‘s virus tracker, the peak of reported Covid-related hospital admissions under Trump came on January 6, 2021, at 139,752. During President Biden’s first year, it was 101,865 on December 31, 2021. That’s 27.11 percent fewer. But again, the Trump peak came during a vaccine-less period. Moreover, that Trump peak was the peak for that winter’s wave. That Biden peak wouldn’t arrive until January 19, 2022, when reported hospitalizations hit 161,789 – 15.77 percent higher than the worst Trump figure. And these Biden-era hospitalizations reached such levels even though this was the time when the virus’ Omicron variant became dominant in the United States – strain that was the most infectious, yet the least severe, yet.

But the conclusion that’s been left in place is that, whoever the President, the United States’ virus response has been much less effective than that of many other countries in terms of saving lives.

As of today, the Worldometers.info website reports that the CCP Virus has killed just under 6.69 million globally. The death toll in the United States: Just under 1.12 million. So the United States has suffered 16.74 percent of the world’s virus-related deaths even though it represents just 4.25 percent of the world’s population. That’s a discrepancy so big that it can’t possibly be explained to any meaningful extent by national differences in how virus-related deaths are defined.

A new U.S. Congress convenes next month, and supposedly lots of investigations will be launched – especially by the new Republican majority in the House. Let’s hope that a serious probe of the nation’s clearly bipartisan failure to cope adequately with the CCP Virus is at or near the top of the list.  

(What’s Left of) Our Economy: Worsening U.S. Trade Deficits are Back for Now

Tags

Advanced Technology Products, CCP Virus, China, coronavirus, COVID 19, dollar, euro, Europe, exchange rates, exports, goods trade, imports, manufacturing, natural gas, non-oil goods, services trade, Trade, trade deficit, Wuhan virus, Zero Covid, {What's Left of) Our Economy

At least if you don’t factor in inflation, this morning’s official U.S. figures (for October) show that an encouraging recent winning streak for America’s trade flows and their impact on the economy has come to an end for now.

The winning streak consisted of overall monthly trade deficits that shrank sequentially from April through August, which means – according to how Washington and most economists calculate such things – that trade was contributing to the economy’s growth. And that five month stretch was the longest since the shortfall declined for six straight months between June and November, 2019.

Even better, this contribution translated into expansion that was healthier, fueled more by producing and less by borrowing and consuming. Better still, during the last part of this period, the deficit was falling while growth was taking place – as opposed to the more common pattern of a declining deficit limiting contraction mainly because a shriveling economy was buying fewer imports. And better still, for most of these months, the trade gap shrank both because exports climbed and imports dropped.

In October, however, the combined goods and services deficit rose for the second consecutive month, and by 5.44 percent, from an upwardly revised $74.13 billion to $78.16 billion. That total, moreover, was the highest since June’s $80.72 billion. And also for the second straight month – exports dipped and imports advanced.

That consecutive sequential export decrease was the first such stretch since the peak CCP Virus period of March thru May, 2020. The actual decline was 0.73 percent, from an upwardly revised $258.51 billion to $256.63 billion – a total that was the lowest since May’s $256.08 billion

The total import increase was also the second straight, and marked the first back-to-back improvements since January through March of this year (which capped an eight-month period of increases). These foreign purchases advanced by 0.65 percent in October, from an upwardly revised $332.64 billion to $334.79 billion.

Up for the second straight month as well as the goods trade deficit – a development that last happened from November, 2021 through January, 2022. The gap widened by 6.51 percent, from upwardly revised $93.50 billion to $99.59 billion, and this figure was the highest figure since May’s $104.33 billion.

Goods exports fell for the second straight month in October, too – a first since that peak virus period of March through May, 2020. (The streak actually began in February.) The October retreat was 2.06 percent, and brought the total from a downwardly revised $179.69 billion to $175.98 billion – its worst since April’s $176.80 billion

Goods imports grew a second straight month, too, from an upwardly revised $273.19 billion to $275.57 billion. The 0.87 percent increase resulted in the highest monthly level since June’s $282.68 billion.

Services trade, which is dwarfed by goods trade, nonetheless produced some bright spots in the October trade report. The longstanding surplus in this sector, which was so hard hit by the pandemic, improved for the first time in three months, froma downwardly revised $19.37 billion to $21.43. The 10.62 percent increase produced the best monthly total since last December’s $21.66 billion.

Most of this progress stemmed from the ninth consecutive advance and the seventh straight record in services exports. In October, they expanded from an upwardly revised $78.82 billion to $80.65 billlion.

Services imports dipped by 0.38 percent, from an upwardly revised record of $59.45 billion to $59.22 billion.

Manufacturing’s chronic and enormous trade shortfall became more enormous in October, worsening by 4.32 percent, from $129.14 billion to $134.73 billion. That total was the second highest ever, after March’s $142.22 billion.

Manufacturing exports inched down by 0.24 percent, from $110.69 billion to $110.42 billion, while imports surged by 2.07 percent, from $240.10 billion to a second-highest ever $245.17 billion (behind only March’s $256.18 billion).

At $1.2745 trillion (up 18.06 percent from the 2021 level), the year-to-date manufacturing trade deficit is already close to the annual record – last year’s $1.3298 trillion.

By contrast, dictator Xi Jinping’s over-the-top Zero Covid policies no doubt helped depress the also chronic and enormous U.S. goods trade deficit with China by 22.58 percent on month in October. The nosedive was the biggest since the 38.93 percent plummet in February, 2020, when the People’s Republic was locking itself down against the first CCP Virus wave. And the October monthly trade gap was the smallest since August, 2021’s 31.66 percent.

Interestingly, U.S. goods exports to China soared by 31.38 percent on month in October, from $11.95 billion to $15.70 billion. That amount was the highest since last November’s $15.87 billion, and the monthly increase of 31.33 percent was the fastest since October, 2021’s 51.23 percent.

Imports, however, sank by 9.49 percent, from $49.25 billion to $44.57 billion. The level was the lowest since May’s $43.86 billion and the rate of decrease the greatest since April’s 11.82 percent.

Year-to-date, the China goods trade gap has ballooned by 18.68 percent, once again faster than the rise of the U.S. non-oil goods deficit (17.53 percent), its closest global proxy.

In October, for a change, the widening of the overall U.S. trade deficit – and then some – came largely from a booming imbalance with Europe. The goods gap with the continent skyrocketed by 48.51 percent, sequentially, from $15.78 billion to $23.44 billion. That new total was the biggest since March’s $28.50 billion and the rate of increase the fastest since it shot up by 68.37 percent that same month.

U.S. goods exports to Europe actually set a new record in October ($44.27 billion, versus the old mark of $43.61 billion in June). But American global sales of natural gas, which are up 52.51 percent on a year-to-date basis due largely to the continent’s need to replace sanctioned Russian energy supplies, oddly pulled back by 9.90 percent.

At the same time, American goods imports from Europe, surely reflecting a weak euro, leaped by 16.35 percent, from $58.19 billion to $67.71 billion. That total was the second highest on record (trailing only March’s $70 billion) and the monthly increase (16.35 percent) the fastest since March’s 32.43 percent.

October trade in Advanced Technology Products (ATP) set several records, but most were the bad kind. The deficit worsened by 7.70 percent, from $24.32 billion to $26.19 billion, and hit its second straight all-time in the process.

Exports set a new record, rising 4.08 percent on month, from $34.33 billion to $35.73 billion. (The old mark of $34.91 billion dates back to March, 2018.)

Imports also reached their second straight all-time high, climbing 5.58 percent sequentially, frm $58.65 billion to $61.92 billion.

Moreover, year-to-date, the ATP trade shortfall is up 32.17 percent, and at $204.21 billion, it’s already set a new annual record.

Some relief could be in store for America’s trade flows in the coming months. The dollar has weakened in recent weeks, which will restore some price competitiveness for U.S.-origin goods and services at home and abroad. And a recession, a further growth slowdown, and/or continued high inflation could keep reducing imports as well (though that’s the kind of recipe for smaller trade deficits that no one should welcome).

At the same time, solid economic growth could continue, as it has throughout the second half of the year. Americans’ spending power could remain strong, given still huge (though dwindling) amounts of savings amassed during the pandemic. At the behest of U.S. allies, President Biden seems likely to weaken the Buy American provisions governing the green energy production incentives in the Inflation Reduction Act. And China’s export machine could revive as Beijing decides to back away from economically crippling levels of lockdowns.

At this point, however, I’m thinking that recent deficit improvement will keep “rolling over” as Wall Streeters call a steady reversal of investment gains. It’s not much more than a gut feeling. But my hunches aren’t always wrong.

Im-Politic: So Fauci Finally Gets It on Lockdowns?

Tags

Anthony S. Fauci, Biden administration, CCP Virus, China, coronavirus, COVID 19, facemasks, Im-Politic, lockdowns, social distancing, Wuhan virus, Xi JInPing, Zero Covid

Retiring U.S. chief infectious disease specialist Dr. Anthony S. Fauci told us over the weekend that he’s just shocked by what he calls China’s pointlessly “draconian” Zero Covid policy to defeat the CCP Virus. And the Biden administration has been critical, too. To which the only reasonable response is, “Seriously?”

Not that Zero Covid hasn’t been an epic fail by Chinese dictator Xi Jinping. But the criticism from Fauci and the Biden presidency sure looks like the pot calling the kettle black.

If you’re skeptical, here’s Fauci’s response to a question noting perceptively that “you’re seeing things that we saw in this country when people didn’t like how Covid response — What is going on in China, and why do they seem to be in a worse place than anyone else in the world?”

“[T]heir approach has been very, very severe and rather draconian in the kinds of shutdowns without a seeming purpose. I mean, if you’re having a situation, if you can recall, you know, almost three years ago when we were having our hospitals overrun, you remember the situation in New York City, you had to do something immediately to shut down that flow. So remember we were talking about flattening the curve and the social distancing and restrictions and shutdown, which was never really complete, is done for a temporary period of time for the purpose of regrouping, getting more personal protective equipment, getting people vaccinated. It seems that in China it was just a very, very strict extraordinary lockdown where you lock people in the house but without any seemingly endgame to it.”

No one can reasonably criticize any public official for urging extreme and sweeping anti-virus measures during the pandemic’s early days – before its nature and especially its highly granular lethality (overwhelmingly concentrated in seniors and others with major health problems) were understood. For it could have been like the Black Death.

But of course Fauci, the rest of the official public health establishment, and left-of-center leaders like Biden, were championing these policies long after these patterns became known.

And more important, when it comes to comparing U.S. policies during his tenure with Chinese policies today, Fauci’s claim that he was only urging “social distancing and restrictions and shutdown” essentially until vaccination was widespread ignores his stated belief in March, 2020 that “It will take at least a year to a year in a half to have a vaccine we can use.” And of course getting enough arms jabbed to turn the CCP Virus tide was always going to take months more even if the rollout went perfectly (which was far from the case). And what if the vaccines were major flops?

So Fauci himself clearly felt that pretty draconian policies – despite their devastating impact on the economy, on education, and on Americans’ mental health – would be needed over a very long haul. Therefore, when it counted, his differences with the approach taken recently by China (which lacks vaccines even as effective as America’s imperfect – especially against transmission – versions) was one of degree, not of kind.

Just as bad, as with Xi Jinping, this conviction of Fauci’s didn’t seem to be greatly affected by the proven potential of natural immunity per se to help end the pandemic (especially as variants, predictably, became more infectious but less lethal), or by the emerging evidence of sharp limits (to put it diplomatically) to the utility of social distancing in and of itself, and masking – and even of widespread lockdowns themselves.

Fauci’s declaration that “a prolonged lockdown without any seeming purpose or end game to it…really doesn’t make public health sense” comes way too late to impact America’s strategy during the pandemic era.  But hopefully it will dissuade both politicians and the public health establishment from repeating these grave mistakes when the next pandemic – inevitably – comes the nation’s way.

Im-Politic: Evidence That the Longest U.S. School Closings Really Did the Most Damage to Students

Tags

CCP Virus, coronavirus, COVID 19, education, Im-Politic, math, NAEP, National Assessment of Educational Progress, National Education Association, reading, remote learning, school closings, school reopenings, schools, teachers unions, Wuhan virus

Although a strong nation-wide consensus has now emerged that CCP Virus-related school closings exerted a devastating and perhaps irreversible effect on the education of America’s children, and even that most of the country’s schools stayed partly or fully shut way too long, one group apparently begs to differ: America’s teachers, or at least one of their major unions.

And their views of course matter greatly because of the major influence they wield over Democratic Party politicians.

But data contained in the just-released latest edition of the U.S. Department of Education’s “nation’s report card” on pupils’ proficiency in key subjects clash loudly with the claim by the National Education Association that “no clear conclusions can be drawn between states and cities that reopened schools sooner than others.”

I haven’t checked all the scores for the thousands of U.S. school districts. What I have done is look into the state-by-state statistics. And they contain strong evidence that overall, those states that reopened schools earlier and more completely saw considerably better learning results than those taking a more cautious approach.

Specifically, I took a list of the ten earliest reopeners and ten latest reopeners as compiled by this “Business Intelligence Platform for School and Community Life,” and then examined the scores they received from that national report card – officially known as the National Assessment of Educational Progress (NAEP). I focused on the four measures that received the most attention in the press release announcing the NAEP results – fourth grade reading and math scores in 2019 (just before the pandemic’s arrival) and 2022, and their counterparts for eighth grade reading and math.

And for the best gauges of the impact of school closings, I used the NAEP’s numbers on how each state’s scores in those four subjects compared with the national averages for those two years. That is, I examined whether between 2019 and 2022, the math and reading scores registered by the state’s fourth and eighth graders improved or worsened versus the national averages (which themselves fell).

This method says nothing about which states’ scores were best or worst in absolute terms for either year – because that metric can’t reveal anything about the impact of school closing and reopening policies. In fact, several states that remained leaders in all four student categories, with results above the national averages for both years, moved closer to those (lower) national averages between 2019 and 2022. To me, that’s a clear sign that during a period of severe CCP Virus-related challenges, their performance deteriorated. And several states that remained serious laggards also closed the gaps with the national averages, which justifies in my view concluding that their educational performance improved during this period.

And here’s what I found.

Of the ten states that reopened earliest and most completely, three saw improved student scores compared with the national average on all four fronts: Florida, Texas, and Louisiana. Interestingly, in the ten-state group whose approach was extremely cautious, three states achieved such success as well: California, Hawaii, and Illinois.

But five of the earliest reopening states recorded relative improvement in three of the four categories: Wyoming, Arkansas, South Dakota. Utah, and Montana. Only one of the latest reopening states could make this claim: Washington.

Similarly, among the earliest reopening states, two achieved improvement versus the national average in two student categories: Nebraska and North Dakota. Among the latest reopening states, only one compiled this record: Nevada.

But here’s where the results get especially revealing. Nebraska and North Dakota were the worst performing of the earliest reopening states. But five (fully half) of the latest reopening states performed worse than them. They were Maryland and New Jersey, where three of the four student groups’ performances slumped compared with the national averages; and Oregon, New Mexico, and Massachusetts, in which relative decline took place in all four student groups.

As I’ve noted previously, many states are big, diverse places, and especially for those whose student populations are heavily dominated by one or two big cities, district-by-district analyses will be needed.

One such academic effort reported such results recently, and seems to have reached mixed conclusions. On the one hand, the researchers at a Harvard University-Stanford University collaboration called the “Education Recovery Scorecard” observe that “Within states, achievement losses were larger in districts that spent more time in remote instruction during 2020-21.” On the other, they state that “school closures do not appear to be the primary factor driving achievement losses.”

But more such work clearly needs to be done, since the Harvard-Stanford team had only collected results from 29 states.

In the meantime, though, the National Education Association looks off-base in its attempt to absolve lengthy school closings of any blame for the academic losses suffered by the nation’s school children. So just as war-fighting strategy may be too important to be left to the generals, school closing strategy during pandemics may be too important to be left to the teachers’ unions.

(What’s Left of) Our Economy: No Shortage of U.S. Inflation Fuel

Tags

CCP Virus, consumers, coronavirus, cost of living, COVID 19, debt, Federal Reserve, housing, inflation, interest rates, monetary policy, quantitative tightening, revolving credit, savings, stimulus, stock market, Wells Fargo, Wuhan virus, {What's Left of) Our Economy

As known by RealityChek regulars, I’ve repeatedly written (e.g., here) that sky-high U.S. inflation is going to remain sky high until the prices of the goods and services bought by consumers become genuinely unaffordable – and that their current towering levels make clear that we’re far from that point.

That’s why it’s so great that a team of economists from Wells Fargo bank have so clearly laid out the evidence for how much spending power remains with households – and therefore how much pricing power remains with businesses.

The two key facts entail how much in extra savings households have amassed since the CCP Virus pandemic struck in force in early 2020 and ushered in a period of both greatly reduced spending opportunities and greatly increased stimulus payments from Washington. As shown in this chart, the resulting “excess savings” zoomed up starting then and continued through mid-2021, when they peaked at about $2.5 trillion.

Source: U.S. Department of Commerce and Wells Fargo Economics

They’ve come down since – but still stood at just short of $1.3 trillion as of this past summer. Moreover, don’t forget – that number doesn’t tell us the actual level of consumer savings. It tells us how far above the pre-pandemic normal it stands.

For an idea of the actual amount of cash households have to spend, check out this second graph. It shows that even factoring in inflation, Americans’ checking and savings accounts hold a total of $13.9 trillion (the dark blue line), and that this figure is way up since the beginning of the pandemic, too.

Source: Federal Reserve Board and Wells Fargo Economics

You might have read that one big reason for worrying about the sustainability of consumer spending – and as a result, one big reason for optimism that inflation will soon peak or has already topped out – is that “Inflation is driving consumers to rack up more debt to purchase essentials.” Sounds like a sign of soaring desperation, right? Not if you look at the big picture.

Sure, credit card use has boomed over the last year (a high inflation year) in particular. Indeed, as shown in the third chart, it’s not only above pre-CCP Virus levels. It’s above its levels during the bubble years that preceded the Global Financial Crisis which ended in the worst economic downturn America had suffered to that point since the Great Depression of the 1930s. (The pandemic recession of 2020 was deeper than the Great Depression, but was much shorter.)

Source: Federal Reserve Board and Wells Fargo Economics

But that’s only one side of the credit card story, and not the most important side. The other side is how that “revolving” credit card and other consumer debt compares with consumers’ spend-able incomes. And as the chart below shows, although the “Household Financial Obligations Ratio” has worsened a lot recently, in absolute terms it’s not only considerably below its levels just before the CCP Virus’ arrival in force. It’s still at post-1990s lows – and by a wide margin.

Source: Federal Reserve Board and Wells Fargo Economic

As the Wells Fargo economists point out, this consumer spending power has to run out at some point, especially since households have been buying more than they earn, since their net worth (and therefore their ability to borrow robustly) is down some because both housing and stock prices have been sinking, and since the Federal Reserve’s inflation-fighting interest rate hikes and other tightening measures keep making such borrowing more expensive. Inflation-adjusted wages keep falling, too. 

Nevertheless, rate hikes (which only began this past March) can take up to 18-months to slow spending and the entire economy. The Fed is also reducing its balance sheet, which skyrocketed to astronomical levels as the central bank bought vast quantities of bonds during the worst of the pandemic in order to flood the economy with cheap money and keep it afloat during the worst of the CCP Virus downturn. But for what it’s worth, the consensus among economists to date is that this “quantitative tightening” isn’t severe enough depress economic activity significantly for some time, either. (See, e.g., here.)

And don’t forget – Washington keeps putting more money in consumers’ pockets directly and indirectly, most recently with an increase in Social Security payments to compensate for…high inflation, and another release from the Strategic Petroleum Reserve to dampen down oil prices.   

So it’s still true that, ultimately, the surest cure for high prices is high prices. But it’s just as true that everything known about consumer finances and the inflation fuel they represent says that these prices have a long way to go before those consumers start crying “Uncle!”