Stuck in Inflationary Hell: Biblical trillion dollar infrastructure bills are fuel to the fire
D.C. politicians rushed through a $1.2 trillion spending package late on Friday night, November 5th
“For they have sown the wind, and they shall reap the whirlwind.”
- Hosea 8:7, King James Version
Originally posted on my Power and Markets Substack, please feel free to share and subscribe to my newsletter to get these articles in your inbox!
Washington politicians are spending globs of your money; the consequences of which we are just beginning to see. Late this past Friday, the House of Representatives crammed through another $1.2 trillion in spending in the dead of night. The urgency of haphazardly passing this bill was to, “Put points on the board,” according to progressive Democrat Jared Huffman of California.1 The problem is it’ll work to put more points on the inflation board; points that won’t readily come off.
Anyone who buys stuff for a living can’t help but notice the steep climb in prices across the board. This is understood as inflation; however, I distinguish between the inflation and inflationary effects here. The outcomes of inflation are shortages of goods and services leading to higher prices consumers pay.
The inflation is entirely government-induced. Wave after wave of gluttonous stimulus bills combined with lockdowns and mandates are destroying international commerce. The flows of goods and services are completely disrupted with supply chains strained on the verge of snapping. This past Friday night, DC politicians decided to further stress the economy by forcing more demand in with $1.2 trillion in additional spending. Such programs will crowd out private market participants as the government bids up prices adding fuel to the inflationary hell we are entering.
Concurrently, the Federal Reserve announced its initiation of the tapering process last week. The mounting inflationary effects are pressuring the Fed to take action. The central bank had been purchasing $120 billion per month of public and private market debt since the start of the pandemic in 2020. This helped fuel the incredible gains in asset prices for anyone invested in the stock market.
Through the tapering process, the Federal Reserve expects to reduce the growth in its balance sheet by $15 billion per month. 2 Over the course of the next 8 months, the $120 billion/month in asset purchases will be extinguished to zero by June 2022. In other words, the Federal Reserve sees the inflation occurring and will continue emitting more monetary stimulus into asset markets until next summer. Clearly, there’s no sense of urgency over at the central bank. I explain why the Fed’s taper won’t work in quelling the inflation they’ve created here.
Oddly, many Washington politicians and bureaucrats are arguing the infrastructure spending will actually reduce inflation. The argument is the supply chains will be alleviated with the new “investments.”3 I completely disagree. Certainly over the short-term, having the government enter commodity markets by purchasing more materials will drive prices up. If the supply chains are already stretched, they’re tossing more demand onto the system. The end result of roads, bridges, and broadband won’t be realized until years from now. And our supply chain issues are not due to lack of roads or high-speed Internet in rural America. They are due to the Federal Reserve pumping trillions into the economy and DC politicians sending out stimulus checks repeatedly.
Don’t be fooled. These spending programs are inflationary as hell. Inflation is a hidden tax; one we all pay embedded in every product we purchase. As Keynes said, it’s a phenomenon not one man in a million is able to diagnose due to its obscure nature. One thing is for certain, we are sowing the inflationary winds with such fiscal profligacy, and we will reap the economic whirlwind as a result.
Originally published at https://powerandmarkets.substack.com on November 7, 2021.
