It cannot be said enough. Inflation starts with the inflation of the money supply. From there, the excess money and credit chases consumer prices higher. So, too, it pumps up both stock and real estate market bubbles.
Rising prices then come with a wide range of effects. Asset owners are enriched as the nominal prices of the things they own inflate. This also reduces the relative debt burden of the borrowing used to purchase the assets.
Workers, having little but their labors to sell, are impoverished. Price increases for consumer goods vastly outpace wages. Retirees on fixed incomes also get shredded, as their monthly allotments do not go the distance.
Consumer debts become more and more difficult to service. As a greater portion of a person’s paycheck is used for food and shelter, there’s less money available to pay down debts. For some, debt piles up from month to month, as additional debt is used to make up the difference between wage earnings and rising prices.
Inflation also pushes societies’ wealth gap to extremes. Wealthy asset owners have their riches multiplied while the value of worker labor is destroyed. In Q3 of 2023, for instance, 66.6 percent of the total wealth in the U.S. was owned by the top 10 percent of earners, while the lowest 50 percent of earners owned just 2.6 percent.
The great wave of inflation that has flooded America originated with the reckless operations of the Treasury and the Federal Reserve during the coronavirus fiasco. And it isn’t going away anytime soon. Moreover, the consequences will be felt for centuries to come.
At this point, many people have already been left behind.
Death and Destruction
Out on America’s back forty, where the weeds grow high and the prairie dogs burrow deep, there’s a world of despair. According to the Center for Disease Control and Prevention, more than 1,500 Americans per week are dying from fentanyl or other opioid overdoses.
This sums up to about 80,000 overdose deaths per year. For perspective, that exceeds the capacity of many NFL stadiums.
Highly addictive pain easing substances, coupled with meagre job prospects and rising consumer prices, have demolished people’s hopes and dreams. They’re giving up, chasing relief in their next fix, and losing their lives in the process.
This, unfortunately, isn’t a trend that will easily be reversed. A quarter or two of positive GDP growth or several interest rate cuts won’t somehow keep people alive. It’s something that must run its course.
And where the government intervenes, sometimes with good intentions, the unintended consequences can be devastating. In California, for example, a new state law goes into effect on April 1 that raises fast-food worker wages to $20 an hour.
This law, no doubt, is a textbook example of how to destroy jobs and make life more expensive. Anyone with even the slightest bit of imagination can foresee what will happen next. In fact, the logical chain of events has already begun.
In preparation, many businesses have already laid off staff. While others have halted hiring and are reducing worker hours as they try to cut costs.
Franchisees for Pizza Hut and Round Table Pizza have said they plan to lay off 1,280 delivery drivers this year. They intend to farm out delivery services to apps like DoorDash. But for some unlucky workers the pink slips have already arrived.
Government Meddling
Take Michael Ojeda from Ontario, California. In December, his eight-year career as a Pizza Hut driver took a dead end turn. That was when he received a notice from his employer that his last day would be in February.
Ojeda, age 29, also had an insulting carrot dangled in front of his face. A $400 severance package if he remained on the job through his termination date. Naturally, he turned down the money and went on unemployment.
“Pizza Hut was my career for nearly a decade and with little to no notice it was taken away,” said Ojeda. Alas, thanks to Sacramento’s benevolent policies, there will be many more fast-food workers in California that suffer a similar fate.
Currently, Jack in the Box is pilot testing fryer robots to reduce labor needs. And El Pollo Loco recently told investors it was automating its salsa-making. Many restaurants will be raising menu prices, thus exacerbating the cost-of-living problem the wage increase was supposed to ease.
At the same time, fast food restauranteurs are turning down opportunities to open new locations in California. They’re looking at expanding in other states instead. This, of course, is how government meddling makes prices expensive and job opportunities scarce.
For Ojeda, and his cohorts, it could be the best thing to ever happen. Perhaps it’ll motivate him to learn a new, higher-paying skill. Or maybe he’ll depart the Golden State for a more worker friendly locale. One where he can live at a fraction of the cost, and without all the government nonsense. You never know.
Does Corporate Greed Cause Inflation?
Predictably, California’s unemployment rate is now the highest in the country, hitting 5.3 percent in February. And job growth in the state has slowed significantly.
Government data initially showed California had added 300,000 jobs between September 2022 and September 2023. Upon closer scrutiny, that number was recently revised to just 50,000, which comes to a little over 4,000 jobs per month. For a state with a population over 39 million – more people than Canada – 4,000 jobs per month (0.01 percent of the population) is essentially nothing.
Who knows what the state legislatures will try next? Most likely, it will involve more regulations. This is all they know how to do. They can’t help themselves.
The cause and effect of more regulations should be well understood by now. There are countless examples of businesses being squeezed to the point where they close up shop and leave. Here’s one example from last week:
“State Farm announced on March 20 that it would cut 72,000 home and apartment policies in California because of inflation, regulatory costs and increasing risks from catastrophes. The decision is a blow to California property owners, who already suffer under high insurance rates or scarce policy coverage.”
California’s regulatory environment may be extreme. But don’t think you’re protected from it if you don’t live there. Even if your state and local governments take a light regulatory approach, the federal government is making up for it in spades.
Government regulation coupled with government inflation is a brutal combination. Rising prices, fewer choices, less job opportunities, a widening wealth gap, and on and on.
Remember this the next time you hear President Biden blame corporate greed for rising prices. It’s a lie. The inflation is coming from mega government budget deficits and easy money policies from the Fed. And there’s plenty more inflation coming.
The recently passed $1.2 trillion spending package, larded up with over 1,000 pages of regulations and pork barrel payoffs, guarantees it.
[Editor’s note: It really is amazing how just a few simple contrary decisions can lead to life-changing wealth. And right now, at this very moment, I’m preparing to make a contrary decision once again. >> And I’d like to show you how you can too.]
Sincerely,
MN Gordon
for Economic Prism
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