If you can’t get your head around this, then you’re about to learn it … the hard way.
1 Like
How does a recession fuel inflation?
Or is this political bait?
If you can’t get your head around this, then you’re about to learn it … the hard way.
I can’t get my head around it. Typically, recessions fuel deflation, right? People lose their jobs, so they have less money to spend, less spending fuels more job loss, rinse, lather, repeat.
In the 1970s, inflation fueled recession. High energy input costs caused inflation which caused job loss, etc. Politically motivated Fed Chairman Arthur Burns thought it would be smart to throw crates of dollars on the fire, which didn’t help.
In the 1970s, inflation fueled recession. High energy input costs caused inflation which caused job loss, etc. Politically motivated Fed Chairman Arthur Burns thought it would be smart to throw crates of dollars on the fire, which didn’t help.
Historical note: I don’t know that Arthur Burns thought so. Nixon always said he lost to Kennedy years earlier because the country entered a mild recession at the end of the Eisenhower administration. He wanted to make sure that didn’t happen to him twice, so at the end of his first administration in the early 70’s he jawboned Burns to keep the spigots open because tightening = slowdown = possible recession.
(In fairness, inflation, while historically high, was actually declining from 1970-1972. It was the OPEC oil embargo that rocketing the inflation rates from 1973 onwards.)
6 Likes
(In fairness, inflation, while historically high, was actually declining from 1970-1972. It was the OPEC oil embargo that rocketing the inflation rates from 1973 onwards.)
OPEC lit the match. The US government and very wealthy American middle class had been borrowing in huge ways. The money supply was relatively so large inflation was unavoidable. The conditioned included top bracket tax rates that were coming down over time under political pressure that would not be used to head off inflation. The S&Ls had locked in interest rates that would not block off inflation caused by borrowing. The most damning factor the pension funds were holding a lot of US treasuries with very low yields. Corporations were fighting to raise prices to profit while funding their pension fund liabilities.
Bernanke’s/Yellen’s/Powell’s counter cyclical economics is meant to avoid those conditions. It is failing to do so. We do not need the Roosevelt New Deal institutional extremes back at all. We do need to moderate fiscal tools to head off inflation. We are bowing to the New Deal reactionary forces this is problematic. It is both sides of the arguments and we are missing our rudder in the process.
<If you can’t get your head around this, then you’re about to learn it … the hard way. >
Either explain your hypothesis or I will consider it a juvenile prank like throwing a bone into a yard full of dogs.
Wendy
4 Likes
Hmm … not a sharp knife in the drawer. Query: what is the Fed’s response to recession?
what is the Fed’s response to recession?
Usually to lower rates. And usually they keep lowering until they’ve lowered too much.
BUT, what if the fed created the recession to tamp down inflation? They may wait to lower rates until the good inflation numbers come in.
2 Likes
You will have to try and explain it to us.
You alone have the answers.
But you seem to know it wont fly so you are playing a game.