The trio responsible for high inflation
President Biden, Federal Reserve Chairman Jerome Powell and Russian President Vladimir Putin are all responsible for the 9.1 percent higher prices that consumers are paying compared to last year. This trio will pay for such escalating prices in ways that will change the political terrain in the U.S., Europe and Russia.
Biden and Powell rescued the American economy from the deep freeze imposed by the pandemic, beginning in early 2020. In March 2020 Powell saturated the economy with liquidity and cheap money. Shortly after, Biden, with Congress’s help, executed three stimulus rounds, as if they were manna from heaven. They gave taxpayers and business a lot of free money to spend to increase aggregate demand and help rescue the imploding economy.
Consumers helped and went on a never-ending shopping spree that not only stabilized the economy but pushed prices to unanticipated high levels of inflation. Luckily, Biden’s Build Back Better plan, which would have pumped more money into the economy, was defeated, otherwise it could have turned high inflation into runaway inflation.
Biden and Powell, facing a new and unprecedented phenomenon, were too successful two years ago in stabilizing and growing the economy. Now almost everybody has forgotten their success; all they see is higher prices.
A year later, Putin’s invasion of Ukraine resulted in, among other graver things, higher oil and grain prices, which have been pushing inflation in the U.S. and most other countries even higher.
According to the Bureau of Labor Statistics, the annual inflation rate in the U.S. was 9.1 percent in June 2022, the highest in 42 years. Further, the inflation rate for food was even higher, 10.4 percent, and much higher for gas, 60 percent.
But for the average family that typically spends more of its income on food and transportation, the real inflation rate is much higher than the overall inflation rate of 9.1 percent, as shown by food and gas prices.
But wages have gone up only 5 percent from last year — well below inflation. As a result, the average family must spend more to maintain its lifestyle. Absent more spending, consumers must adjust by buying less, buying generic rather than branded products, purchasing day-old products and cheaper cuts of meat etc., or by working more or dipping into whatever savings are left from the stimulus money in their accounts.
Either way, consumers get sticker shock every time they enter grocery stores and try to understand what is going on and why. The middle class especially feel that they have done their share to realize the American dream, and now the dream is slipping away.
As a result, their feeling about the economy, captured in the University of Michigan’s survey of consumer sentiment, has become extremely negative: In June, 2022, the Consumer Sentiment Index declined to 50.2 from 85.5 a year earlier due mostly to inflation concerns. Consumers feel frustrated and anxious about their ability to maintain their lifestyles. As a result, they hold the administration, the Fed and Putin responsible.
Barring a miracle, Biden will vacate the White House in the 2025 and Powell will leave his job when his term ends in 2026, or earlier, despite their great success in rescuing the economy in 2020.
Putin, a dictator, might continue to dictate for a while, but his stature has already begun to diminish. He will be facing a firmer, more united Europe, with neighboring Sweden and Finland as NATO members. A complete takeover of Ukraine seems implausible and an invasion of Moldova or any of the Baltic states is a far-fetched dream. Putin’s invasion of Ukraine has made him a lesser leader and Russia a less significant country.
The net result of high U.S. inflation is a job loss for Biden and Powell, and a diminished Putin despite his likely success in increasing his influence in parts of Ukraine. And though inflation is likely to decline in the coming months, it is too late for this trio.
Avraham Shama is the former dean of the College of Business at the University of Texas, The Pan-American. He is professor emeritus at the Anderson School of Management at the University of New Mexico. His new book, “Cyberwars: David Knight Goes to Moscow,” was recently published by 3rd Coast Books. See: avrahamshama.com
Source: TEST FEED1
