Global Economic Crisis

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Earlier this week the Labor Department released statistics on the CPI (consumer price index) for the period March 2021 through March 2022. The news was dismal,; the CPI data revealed that inflation in the United States had reached 8.5 percent. This is the highest level of CPI growth in the U.S. over a one year period registered since December 1981.

As bad as the official figures are, the reality is probably much worse. Typically, American government statistics reflecting inflation are lagging indicators. What is clear is that inflation in the U.S., as in most of the world, is accelerating at a quickening pace. It probably has reached double digits in the U.S., with every indication that it will continue to increase, probably well into double digit territory.

As to be expected, the Biden administration is blaming the Russia-Ukraine war for spiraling inflation. No doubt, Russia’s invasion of Ukraine has had a major negative impact on price stability. However, contrary to the spin of President Biden and his officials, the primary driver of the worst inflation spiral in the U.S. in more than 40 years has been policy missteps  of both a fiscal and monetary nature.

On the fiscal side the U.S. government responded to the Covid pandemic with levels of deficit spending that, in real terms, exceeded the debt spending required to fight World War II. In addition, government mandated lockdowns and restrictions on economic activity, both in the United States and worldwide, disrupted  supply chains. Added to all this has been the non-stop money printing by the Federal Reserve. In defiance of economic logic, the Fed unleashed an unprecedented floodtide of liquidity, while publicly claiming that the resulting inflationary upsurge was merely “transitory.”

The accumulation of policy missteps by sovereigns and central banks, especially as had occurred in the United States, has created a vicious negative feedback cycle. On the one hand, inflations is at its worst in more than 40 years, and accelerating. On the other hand, labor will demand massive wage increases to match the CPI , which will in turn add further pressure on the inflationary trend. Only recently has the Federal Reserve begun to comprehend its massive policy errors, and is beginning to play catch-up. With interest rates set to rise sharply over the next several months, policymakers have crafted the perfect storm: high inflation and a severe recession, leading to a likely stagflationary depression.