After both the Federal Reserve and the Biden Administration suggested that inflation, was “transitory”, inflation has gotten much worse and is now embedded in much of the price structure.

The Biden Administration denies any role in causing inflation by spending hugely, gunning the money supply, and restricting energy output. Instead, it tends to blame Putin and the Russian invasion of Ukraine.

The Biden Administration also mistakes the economic comeback from “lockdown” as somehow a validation of their policy rather than the natural rebound one would expect after the government used its police powers to shut down the economy, supposed to save us from the virus.

This claim is tantamount to taking credit for the victim starting to breathe again after you decide to take your boot off his neck. 

It would seem the public is not buying their lame excuses and is becoming increasingly worried about both inflation and the economy. A recent Gallup Poll suggests that the public sees their economic status declining. Confidence readings are now lower than they were in 2009, at the end of the last financial crisis.

The World Bank has joined in with a newly issued report suggesting stagflation, not seen since the 1970s, will persist for a number of years. They have significantly downgraded their estimate of economic growth going forward.  

It is beginning to feel like Jimmy Carter is back in the White House.

This report seems to reinforce what the public is feeling. Things will be getting worse.

This is not what the Biden Administration wants you to hear, as it runs counter to their narrative that they have handled things well, the economy is booming and inflation is all the fault of Russia.

A quick summary from the forward from their report:

“Just over two years after COVID-19 caused the deepest global recession since World War II, the world economy is again in danger. This time it is facing high inflation and slow growth at the same time. Even if a global recession is averted, the pain of stagflation could persist for several years— unless major supply increases are set in motion. Amid the war in Ukraine, surging inflation, and rising interest rates, global economic growth is expected to slump in 2022. Several years of above-average inflation and below-average growth are now likely, with potentially destabilizing consequences for low- and middle-income economies. It’s a phenomenon—stagflation—that the world has not seen since the 1970s. Our forecasts reflect a sizable downgrade to the outlook: global growth is expected to slow sharply from 5.7 percent in 2021 to 2.9 percent this year. This also reflects a nearly one-third cut to our January 2022 forecast for this year of 4.1 percent. The surge in energy and food prices, along with the supply and trade disruptions triggered by the war in Ukraine and the necessary interest rate normalization now underway, account for most of the downgrade.”

Notice the passage “unless major supply increases are set in motion.”

That is very important because the Biden Administration and its ESG allies are busy cutting supplies and deliberately driving up energy costs to force the adoption of the Green New Deal. The resultant spike in natural gas has caused fertilizer to spike, inhibiting the production of food. Biden then adds greater injury by pushing ethanol, which basically has us burn our remaining food to make fuel. All this is the reverse of increasing supplies of key commodities.

They add:

“The danger of stagflation is considerable today. Between 2021 and 2024, global growth is projected to have slowed by 2.7 percentage points—more than twice the deceleration between 1976 and 1979. Subdued growth will likely persist throughout the decade because of weak investment in most of the world. With inflation now running at multidecade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain higher for longer than currently anticipated.”

Note the blame attributed to Covid.

It is not the virus per se that caused widespread disruption, it rather was the way governments chose to deal with Covid. This is not mindless quibbling. There is a difference between the damage the virus did and what damage government policy did. Never before in history was “lockdown” used, which instead of isolating the sick, shut in the healthy instead. So, we part company with the bank on causation. If the government had left the economy alone, and instead simply aided hospitals, the global slowdown would not have been as severe as that caused by the lockdown.

Many scientists at the time, argued against lockdown on both economic and health grounds, particularly the Great Barrington Declaration.  It has been subsequently supported by studies that show little in the way of reduction in mortality was achieved at great cost to the economy, and to the detriment of health in a variety of other ways. But that was buried by Dr. Fauci and the Federal medical establishment. To paraphrase Colin Powell, if you break it, you own it.  The Biden Administration and even the World Bank, simply won’t own up to the catastrophic series of mistakes made by government officials.

Compounding the economic trauma, worried about a drop in demand, governments and their central banks then flooded the system with money, boosting demand. But lockdown policies shut down supply as well, creating more demand than supply, a sure recipe for inflation.

Later on, the World Bank continues:

“The current juncture resembles the early 1970s in three key respects: supply shocks and elevated global inflation in the near-term, preceded by a protracted period of highly accommodative monetary policy in major economies, together with recent marked fiscal expansion; prospects for weakening growth over the longer term, which echo the unforeseen slowdown in potential growth of the 1970s; and vulnerabilities in EMDEs to the monetary policy tightening by advanced economies that will be needed to rein in inflation.”

It is good they acknowledge the “highly accommodative monetary policy” and fiscal expansion of the 1970s, but deficit spending has been far worse recently than in the 1970s, private debt growth far worse, and the QE policies and zero interest rates did not even exist during the 1970s. 

In short, the excesses of the recent period are far worse than the 1970s and it was all a policy choice.

Many asset classes and economic growth have been distorted by years of easy money and negative real interest rates, even before lockdown. As inflation has worsened, it has required that monetary policy be thrown in reverse with sales of central bank assets (Quantitative Tightening) and rising interest rates. Worldwide markets have shuddered as the easy money support for assets is being removed. We have had a sharp decline in stocks, bonds, cryptocurrencies, SPACs, NFTs, and other asset classes favored by easy money. Real estate is also beginning to show signs of weakness as interest rates rise, increasing the cost of monthly payments for housing.

It remains to be seen whether the damage to markets will rival that of the 1970s. The stock crash of 1973-74 was the worst since the Great Depression and brought the major stock indices down 50%.

While the World Bank’s description of the causation of stagflation is in our view too narrow, their estimate of the impact on growth looks pretty solid. In short, we agree with many of their conclusions even though their explanations are far too kind to governments.

But we agree with their overall economic conclusions. Stagflation seems likely for some time.

Just remember whom to blame for this. It is almost all the fault of bad policy decisions by government health officials, central bankers, diplomats, and politicians.

As a final thought, while not a subject of the World Bank Report, many comparisons are being made with the era of Jimmy Carter, an ineffectual President in many ways, but in others, he was a decent man who did not use his office to enrich himself. The occasional drunken gaffe from his beer-swilling brother Billy seems almost quaint compared to the constitutional shaking scandals of the Biden Family business ties to foreign powers, the pornographic rage of son Hunter, the clear path of mental decline by the President, the raw abuse of power by the FBI and the CIA, the Russian collusion hoax, and the electoral shenanigans of the Biden years.

Carter was a devout Southern Christian, a Navy veteran of the nuclear submarine fleet.  Biden has embraced and promoted truly radical social revolutionary movements ranging from Black Lives Matter, the 1619 Project, and the transgender extremists. He calls those that disagree with him, domestic terrorists and white supremacists. He either believes this crap or he is too addled to oppose those who want to exploit his creeping dementia.

The combination of social disintegration, stagflation, and a loss of confidence in government create an environment far worse than what existed under Carter. Biden in a sense has pulled off the impossible. He has made Jimmy Carter look like a great President.