So far this year, we have official estimates of economic growth and inflation for the first three quarters or the first nine months of 2022. The results are very poor.
First, the economy has not grown. During the third quarter, real GDP was essentially flat for the year. Second, the inflation rate has risen to over 7%. So, a flat economy, with a price increase of 7% and more. These are numbers. They are factoids. That’s all there is. Now there is evidence that inflation is slowing in the most recent numbers, possibly to around 5% using a base rate tracked by the Federal Reserve. But then again, the Cleveland Fed has a median CPI that’s still around 7%.
As I said before, the leading indicator index is plunging, M2 money supply growth has actually collapsed from about 30% to nearly 0%, and the Treasury market yield curve between 3-month treasury bills and 10-month treasury bills bonds of the year reversed. Right? Short rates are higher than long rates.
DEMOCRATS COULD ADD $500B IN NEW DEBT IN LAST WEEKS OF CONGRESSIONAL SCREENING
The probability of a recession in 2023 is very high. Now, all of this could push inflation back into a recession, but it’s a very brutal and painful way to do it.
So, we have this lame congress that, unfortunately, may well embark on a lame spending spree that, if passed, will reverse what little progress has been made on inflation. As the Wall Street Journal editorializes today, federal spending has increased by about $5 trillion over the past two Biden years. This is what put the pressure on the Federal Reserve to go on a money printing spree. The recent budgetary and monetary restrictions could be badly broken. This is my concern.
In their dying breath, the Liberal Democrats in the House are dealing with at least $150 billion in new spending for a so-called giant omnibus bill and it would wreak havoc on proper budgetary processes and end the few budgetary restraints that currently exist. It could well be more, including an extension of the $1.6 trillion child tax credit that would provide parents with children more than $100 billion a year without any work requirements. It’s true. No more well-being without work, which has become the battle cry of the radical democrats.
Then there’s more COVID money and Ukrainian aid and maybe tax extensions. In total, according to the WSJ editorial, non-military spending would increase an additional 10% from last year’s 7% and defense spending would increase nearly 10% from last year’s 6%. .
It’s not restraint. This will not curb inflation. It will provide no fiscal and regulatory incentive on the supply side by reducing the burden of a large centralized government. Rumor has it that Senate Republicans are going along with this spending spree. Rumor has it that the GOP Senate leadership is reaching a deal on the so-called omnibus spending bill. This is at the heart of the inflationary budget crisis that we have experienced in recent years.
Four people will get together in a room and make a deal covering a few thousand pages, maybe a few trillions of dollars in new spending and no one will know what’s really in that package until it’s voted on and printed and even then it will take months, if not years, to find out what is there. There will never be any real scrutiny or oversight of how taxpayers’ money is wasted by a small group of selfish leaders who have very little interest in public welfare and economic prosperity.
There is no budget resolution for next year. There are no committee meetings for the 12 supply bills. No expert witnesses to argue the merits of policies or spending levels. In other words, no regular order. And Democrats, with the cooperation of Republicans, are going to try to get that done in the lame session before the public can see the fiscal damage and the potential for even more inflation, more in addition to lower real wages, higher grocery and energy bills. and a deeper recession.
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This is no way to conduct economic policy. It’s a $6 trillion budget and it keeps growing and it’s time for someone – someone, presumably Republicans – to put an end to this fiscal madness and get back to proper political and budgetary processes. I mean, it’s just a big deal, folks, and I want to warn you about it. Hats off to the Journal editorial, that’s something that’s been talked about a lot on this show and that’s my riff.
This article is adapted from Larry Kudlow’s opening commentary on the December 1, 2022 edition of “Kudlow”.
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