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A Decade Lost

Jeffrey Tucker

Posted September 12, 2022

Jeffrey Tucker

The year began with promises that the bad times would end soon. Inflation would subside. Financial markets would calm down and start rising again. Supply chains would fix themselves. Markets would normalize, just wait and see. 

Now we are headed to the summer of our discontent. 

Headline writers have begun competing with each other for just how dreary they can be. The Wall Street Journal yesterday went all out, predicting a “lost decade” for financials. But the message was even broader: it will take another 8-10 years to straighten all this out. We might add: if it ever gets straightened out. 

The trouble is that the people in power now seem to have no clue about the source of the problem or the fix. The ignorance is truly astonishing. It would appear that several decades of miseducation in every field (from economics to history to biological science) have taken their toll. The miseducated youth eventually got jobs and rose up the ranks to be in charge. Now we have utterly blind leadership in every sector. 

Always More Force 

A good example was on display recently with the great baby formula fiasco. Shortages had been growing for months but they became ever more intense. The administration ignored the problem for as long as possible. But the online cry from new moms became absolutely deafening. Finally, government decided to act: by invoking the Defense Production Act. It’s a dangerous tool because it essentially takes control of private industry. 

And yet, a hundred years of central planning should have taught us that you cannot make products and services magically appear merely by waving around an edict. Plus, there is a vast regulatory thicket governing baby formula. The FDA has to approve and monitor its production in the name of safety. They don’t do this for any other food or drink sold at the store but because this involved babies, the FDA presumes it to be their purview. 

With that of course comes corruption. The FDA has approved only three large companies to make it, and the program called WIC further distorts the market because it too massively subsidizes the cartel. So when one producer, Abbott, became concerned about one of its plants, it used the cautionary principle and shut it down. The FDA took its own sweet time to reauthorize the opening. 

I’ll stop with the details here: suffice it to say that this was a massive disaster in the making. So here we are in the land of plenty and suddenly, seemingly out of nowhere, the babies can’t get food! Cross the border to Mexico and the shelves are full of products. Same anywhere in the world. This is a U.S. problem, owing to our disastrous deep state. 

So what did Biden do? He invoked the worst-ever Cold War emergency law, to mandate that planes fly formula into the U.S. from abroad, but that too faced a problem because laws and regulations strictly control these imports. So the administration is working to liberalize that too. Trouble is that none of this will happen in time. The fix is likely months away. 

The very clear answer here would be to simply free the market. Let all kinds of producers jump in right away, with the full knowledge that this is not rocket science. Another option would be to allow imports of all kinds immediately. Even without any edicts, and enough of a profit opportunity, the market would be cleared in a matter of days. 

But no! For these people, the answer is always and everything the same: more force!

The Poor Fed 

All financials are now under intense pressure. By now, the usual response by the Fed would be to support the markets. But look at where we are: the Fed is babbling on and on about how they are dedicated to crushing inflation by reducing their balance sheet. So you have a stated policy at war with a long-practiced policy. How will this be resolved? If anyone expects bravery from the Fed at this point, they haven't been paying attention. 

We can fully expect some sporadic interventions day to day from the Fed with various attempts to protect against plunges, in the hope of walking down the highs more gradually than the market wants to go. This is because the Fed truly does fear contagion. 

Meanwhile, inflation is running loose as never before. Food prices have started to rise again. Rents are way up. Meanwhile, defaults in cars and housing loans are already starting to make an appearance. 

What a world: load defaults amid inflation and falling financials! No one is prepared for what this reality could mean for American life. 

And what is the administration’s answer? Publicly, it is nothing but prattle about making the rich pay their fair share. The new White House spokesperson stumbled very badly on this point. She tried three times but failed to explain how raising taxes fixes inflation. 

Meanwhile, the more radical voices in the party have already started pushing price controls in the form of anti-gouging legislation, exactly as we predicted last fall. This is absolutely certain to happen: no strict and legislated prices (not yet) but just threats not to raise too many prices, too fast! 

No History, No Future 

Yesterday we wrote about the tragedy that people cannot learn from history. Check this weird and not-at-all unexpected news from the WSJ this morning:

“Consumers with low credit scores are falling behind on payments for car loans, personal loans and credit cards, a sign that the healthiest consumer lending environment on record in the U.S. is coming to an end. The share of subprime credit cards and personal loans that are at least 60 days late is rising faster than normal… Delinquencies on subprime car loans and leases hit an all-time high in February.”

Will cars be the new version of housing in 2008, a trigger that causes financial disruption in all lending markets? Maybe, but housing is not off the hook either. Commentators today are utterly mystified about how slowing sales can coincide with continual rising prices. Gosh, no one can explain this, hahaha! 

What sector will be hit next by the brutal effects of the great bust? If we really are talking about a lost decade, we have a very long way to go before this ends. 

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