We’ve Seen This Before
It seems strange, but not surprising, how many of the economic problems the nation is facing today have already been experienced in the not-too-distant past. High (price) inflation, rising interest rates, and a recession are all hallmarks of the early ‘80’s, with many of the economic woes being caused and purportedly solved by the Federal Reserve. Over 40 years later, these similar news headlines continue to appear month after month, as CNBC had on Thursday:
The Fed’s preferred inflation gauge rose 5.4% in February, the highest since 1983
It’s not even shocking at this point. It’s fair to say most people are no longer waiting for prices to come down anytime soon, even though that’s what was initially promised.
There are also ongoing reports on social media, anecdotal stories, and the odd news story of supply shortages, long lines at gas stations, and even talk of price controls. It’s not just in America. South of the border, Mexico’s President announced:
We've been able to control inflation, stop it from getting totally out of control by managing fuel prices, and we'll do the same in the case of foods if inflation is prolonged, or if it stays high.
Also strange, according to Reuters, Mexico has an inflation target of 3%, but inflation has been running over 7%. Their President claims they’re controlling inflation, but they’re clearly not. Yet American central planners can hardly be regarded any differently.
CBS reports prescription drug costs are on the rise, forcing US Congress to cap:
…the monthly cost of insulin at $35 for insured patients, part of an election-year push by Democrats for price curbs on prescription drugs at a time of rising inflation.
If price controls aren’t enough to fight inflation, our planners will use the rate raising path, similar to what was tried in the ‘80’s. As CNBC explains:
Now the expectation is that the central bank may raise rates by a half percentage point at each of its May and June meetings.
Putting it all together, we have high prices, supply shortages, and the feeling that with each passing day the public is becoming more aware that the dollar is losing its purchasing power. Combine this with talk of price controls and central bank tightening, it starts sounding very much like the Paul Volcker era of the early ‘80’s.
Of all things repeating themselves, the last piece of the puzzle still waits to emerge: The Double-Dip Recession.
Forbes provides an historical account:
- Recession. In January 1980, the U.S. economy fell into a recession that lasted six months.
- Expansion. In July 1980, growth turned positive once again, and the economy remained in an expansion that lasted 12 months.
- Recession. One year later, in July 1981, the economy once again fell into a severe recession, this time lasting 16 months.
The article goes on to say that both recessions “were caused by policy decisions made by the Federal Reserve.”
No one will know when the next recession hits, while it will only be reported many months after the fact; however, an inverted yield curve has normally been a tell-tale sign of a looming recession. One expert on CNBC noted that when the yield curve inverts:
…there has been a better than two-thirds chance of a recession at some point in the next year and a greater than 98% chance of a recession at some point in the next two years…
Here is the part where readers are told that the 10-year minus the 2-year Treasury yield has finally inverted. As of April 1, the yield curve stood at negative 0.06, being the first time this has happened since 2019. With that, it becomes quite possible that the next recession is on the horizon. Not that history should, or must repeat itself, but much of what has transpired in the last two years closely resembles the early ‘80’s. Unfortunately, our future may be fixed, and one more recession starts sounding like the next economic result caused by a series of government and central bank missteps.