A year ago, I began promoting Navigating the Boom/Bust Cycle on talk radio and podcasts. I also was invited to write articles for several business publications. In December Fortune magazine posted my article forecasting the next recession.
In the article I made the following points.
· Inflation will accelerate in 2022
· The Federal Reserve would raise interest rates throughout the year to cool down the economy
· The next recession would begin no later than the third quarter of 2023
· Biden may impose wage-price controls to deal with the inflationary spiral
So far, the first two forecasts have been right on the money. I underestimated how aggressive the Fed would be in raising interest rates. In past cycles, the Fed typically raised rates in .25 percent steps for most of the “tightening cycles.” This time, the Fed has raised the fud funds rate by .75 percent three times since the spring and may raise the rate again tomorrow by 75 basis points (100 basis points is one percent). How high the fed funds reach is anybody’s guess, but with price inflation still at 40 year high and running at 8 percent well above the Fed’s 2 percent target, much higher interest rates may be necessary to slay the inflation dragon.
A recession in 2023 is going to happen. The housing market is cooling as the 30-year mortgage rate hit 7 percent for the first time since 2001. Other sectors should slow down as well such as autos, and the unemployment rate should begin to climb markedly next year. In short, the Fed caused boom/bust cycle is unfolding before us.
Biden and his advisors have not called for wage-price controls…yet to deal with high prices. But yesterday, Biden alluded to imposing a “windfall profits” tax on oil companies. This is in effect a form of price control on the most common products most Americans pay—gasoline, heating oil and natural gas.
The statists in DC have one thing in common…use the power of the federal government to deal with problems they caused in the first place. Higher prices in general have been caused by the Fed’s easy money policies it has pursued since the Great Recession and the Covid lockdowns. The price of fossil fuels has been rising markedly because of Biden’s energy policies that have reduced the domestic supply of oil.
In other words, the boom/bust cycle, price inflation, energy dislocations are made in DC by the Fed and the federal government.
The solution to the boom/bust cycle is stopping the Fed from manipulating interest rates and creating money. On the supply side, the federal government must get out of the way of entrepreneurs so they can produce the goods and services the American people want. In other words, a free-market economy would give us slowly falling prices, the hallmark of laissez faire.
My latest book, The Finance of Health Care, reveals how businesses can lowers their medical insurance costs markedly. Medical entrepreneurs from around the country are showing us the way to provide quality medical care at much lower prices.