Imminent recession looms

Consumer inflation reported by the U.S. Bureau of Labor Statistics [on July 13] ticked up to 9.1 percent the past 12 months, the highest since 1981. It has to be a crushing blow to any chances of avoiding a recession in the U.S. this year.

Food prices are up 10.4 percent unadjusted the past year. Energy has increased 41.6 percent. Gasoline is up 59.9 percent. Electricity prices have increased 13.7 percent. Piped natural-gas service is up 38.4 percent. Shelter prices have risen 5.6 percent. Transportation is up 8.8 percent. Medical-care commodities are up 3.2 percent, and medical-care services have increased 4.8 percent.

“In 2022, the story involves price increases not seen in the U.S. for more than 40 years…”

You get the picture. All of that comes in just the past year. In 2021, inflation was largely correcting from near-deflationary conditions in 2020. No longer. In 2022, the story involves price increases not seen in the U.S. for more than 40 years, coming on the heels of the continued supply crisis and food and energy shortages.

Making matters worse, producer inflation increased 11.3 percent the past year, as the increasing costs on employers will continue to weigh on labor markets that are already showing signs of contraction.

In addition, increasing interest rates are still nowhere near real inflation rates, with 10-year treasuries still at [about 3] percent. The effective federal funds rate currently is just 1.58 percent, according to the Federal Reserve Bank of New York.

As a result, interest owed on debt — a mechanism for removing dollars from the financial system — have come nowhere near close to sucking all of the additional dollars that were created by COVID-stimulus actions by Congress and the Federal Reserve.

The national debt has increased by $7.3 trillion since January 2020 to $30.5 trillion, of which the Federal Reserve monetized half, or $3.4 trillion, by increasing its share of U.S. treasuries to a record $5.7 trillion.

As a result, the M2 money supply has increased by $6.4 trillion to $21.75 trillion, a 41 percent increase. More than 90 percent of every new dollar of debt was paid for by printing it.

The inflation that has resulted is little wonder. And neither are its impacts.

The news comes as 58 percent of Americans say America is already in a recession, according to a recent Economist-YouGov poll, despite continued happy talk from the Biden administration.

Just in June, President Joe Biden was saying that a recession this year was “not inevitable.”

Adding to the misery, 44 percent of respondents are saying the prices of goods and services was the best indicator of a recession with 57 percent saying the current inflation is impacting their lives “a lot.”

All this has to also be bad news for Congressional Democrats hoping to hold onto meager majorities in the House and Senate in the November midterm election. The American people will get to register their approval or disapproval for the state of the economy. That usually impacts the incumbent party. The question is by how much. Stay tuned.      

Robert Romano is the VP of public policy at Americans for Limited Government (ALG). The organization says it is a “non-partisan, nationwide network committed to advancing free-market reforms, private property rights, and core American liberties.” 

The United States contributes more than any other nation to the search for global peace and prosperity. Our leadership is essential in dealing with the world’s difficult and confounding problems. 

We are the foremost guardian of that peace and prosperity, shaping the international order more than any other nation. We have strong partners, especially the European Union and democracies in Asia and elsewhere. But we are the only player on the planet with truly global reach. 

We aren’t perfect, of course. We’ve made mistakes in foreign policy and will likely continue to do so. At home, our institutions are under stress, and we are divided politically. Neither are we the uncontested power we once were after the fall of the Soviet Union. China challenges our influence in some regions. Russia is not a world power, but it can cause real problems, as we’re seeing in Ukraine. 

Our actions and effectiveness also are constantly scrutinized. Our relationships with allies are always in flux, subject to political forces at home and abroad. Our role is always evolving. 

Even so, the U.S. has maintained its leadership position for decades, certainly since World War II. How have we done this? In part, we can credit our values. 

We know what we stand for: liberty and justice for all, in the words of the Pledge of Allegiance. We strive for a more perfect union. We oppose tyranny and the abuse of human rights. We try to treat all people and institutions decently and without arrogance. People understand that, if we follow our ideals, we will try to do the right thing. 

We also are the global leader because of our military power, our strong economy, and our political stability. 

The U.S. military is by far the world’s most powerful. Our armed forces are professional and well trained. Our technology is modern and effective. We spend more on the military than anyone else: three times as much as second-place China. Many Americans, of course, believe much of this spending should be redirected to domestic needs. That’s a valid argument, but there’s no question a strong military serves our interests. 

We can maintain a strong military because of our economy. Our gross domestic product of over $20 trillion is the world’s largest by far; it’s considerably larger than the economy of China, which has more than four times our population. 

We are blessed with abundant natural resources, but our greatest advantage is our people. Our immigration policies bring in new talent all the time. Our institutions of education produce an endless line of talented people who want to solve problems. Our economy benefits from the dynamism of capitalism and the cooperation of the public and the private sectors. The 2007-08 recession and the COVID-19 pandemic took a toll on our economy. Today, inflation is hurting consumers and shaking confidence. But our overall economy is solid and resilient. 

Finally, America’s political stability is central to our ability to lead. Our government is responsible to the people through free and fair elections. Our system of checks and balances has largely served us well. 

This is a challenging time for our political system. When politicians reject election results and question the peaceful transfer of power, we’ve got problems. We need to strengthen our democratic institutions, and bolster our faith in them. As a world leader, we also need to maintain a sense of humility. We have made mistakes when we tried to impose our values and interests on other countries. 

We have to remember that we cannot solve all the world’s problems by ourselves. But with the right blend of idealism and pragmatism, we can often make progress toward solutions. Peace and prosperity should be our goals, and we have a duty to lead.       

Lee Hamilton, 91, is a senior advisor for the Indiana University (IU) Center on Representative Government, distinguished scholar at IU Hamilton Lugar School of Global and International Studies, and professor of practice at the IU O’Neill School of Public and Environmental Affairs. Hamilton, a Democrat, was a member of the U.S. House of Representatives for 34 years (1965-1999), representing a district in south-central Indiana.