So far this year, we have official forecasts for economic growth and inflation for the first three quarters or nine months of 2022. The results are very bad.
First, the economy did not grow. During the third quarter, real GDP is essentially constant for the year. Second, the inflation rate rose above 7%. That is, a straight-line economy with a price increase of more than 7%. These are numbers. They are facts. That is all. Now, there is some evidence that inflation is slowing in the latest figures, perhaps to around 5% using a base rate that the Federal Reserve tracks. But still, the Cleveland Fed’s median CPI is still around 7%.
As I said earlier, the leading indicators index is falling, M2 money supply growth actually dropped from about 30% to almost 0%, and the yield curve in the Treasury market for 3-month T-bills and 10-year bonds has inverted. TRUE? Short rates are higher than long rates.
DEMOCRATS CAN ADD $500 BILLION OF NEW DEBT IN THE LAST WEEKS OF CONGRESS CONTROL
The probability of a recession in 2023 is very high. Now, all this could turn inflation into recession, but it’s a very crude and painful way of doing it.
So, unfortunately, we have this lame duck Congress that could just as well start the lame duck spending spree, and if it gets passed it will reverse the little inflation progress that has been made. As the Wall Street Journal wrote in an editorial today, federal spending has increased by roughly $5 trillion in Biden’s last two years. That’s what put pressure on the Federal Reserve to go on a money-printing spree. Recent fiscal and monetary restraint may be badly broken. This is my concern.
As the liberals of the Democratic Party are breathing their last, they are grappling with at least $150 billion in new spending on a so-called giant bag of bills that will wreak havoc on proper budgetary processes and end the small fiscal restraints that currently exist. There could be more, too, including a $1.6 trillion child tax credit expansion that will help parents with over $100 billion a year in benefits with no working conditions. TRUE. More prosperity without the job, which has become the Radical Democratic battle cry.
Then there’s more COVID money and Ukraine aid and maybe some tax boosts. As a result, non-defense spending will rise 10% more than 7% last year, and defense spending will increase nearly 10% from 6% last year, according to the WSJ editorial.
This is not a restriction. This cannot prevent inflation. This would not provide any tax and regulatory supply-side incentives, reducing the burden of centrally planned large government. Rumor has it that Republicans in the Senate will keep up with this spending spree. Rumor has it that the GOP Senate leadership will come to an agreement on the so-called multi-purpose spending bill. This is the basis of the inflationary fiscal break we have experienced in recent years.
Four people will gather in a room and make a deal that covers a few thousand pages, maybe a few trillion dollars in new spending, and until it’s voted on and printed, no one will really know what’s inside that package, and even then it will take months, even years, to know what’s in there. There will never be any real oversight or monitoring of how taxpayer money is wasted by a small, selfish cadre of leaders who have little interest in the public welfare and economic well-being.
There are no budget decisions for next year. No commission meeting was held for 12 appropriations. There are no expert witnesses to discuss the merits of policies or levels of spending. In other words, there is no regular order. And the Democrats, with the cooperation of the Republic, will try to tackle this in a lame duck session before the public realizes the potential for financial damage and more inflation, more falling real wages, higher grocery and energy bills. and a deeper recession.
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This is not the way to conduct economic policy. It’s a $6 trillion budget and it continues to grow, and it’s time someone – possibly a Republican – put an end to this financial madness and get back to proper policy and budget-oriented processes. I mean, it’s just a big problem folks, and I want to warn you about it. Hats off to the Journal’s editorial, it’s a topic we talk a lot about on the show and that’s my riff.
This article is adapted from Larry Kudlow’s opening comment in the December 1, 2022 issue of “Kudlow” magazine.