The Labor Department announced this morning that inflation continued rising in February by 0.4%, for an increase of 6% from a year before. I still think that anyone who believes prices are only 6% higher than they were a year ago hasn’t been in a grocery store in at least a year.
Adding to the problem is that the failures of SVB and Signature Bank, and the massive stock plunge for the banking industry in general, may have spooked the Fed into postponing any more interest rate hikes to curb inflation.
Because of years of bad economic management and runaway deficit spending, the government has accrued a massive debt of around $32 trillion, and banks have become dependent on the endless flow of easy money printed by Washington. Meanwhile, our debt service is taking up more and more of our federal revenues (I mentioned recently that we pay over $60 million a day in interest on our debt just to China alone.) We actually have a national fiscal policy indistinguishable from that of a college student with his first credit card: “It doesn’t matter how much I charge as long as I can cover the minimum payment!”
All that deficit spending fuels inflation, and the only way to curb inflation is to raise interest rates. But if we raise interest rates, it makes the cost of servicing all that debt unsustainable and crashes the economy. That’s the Catch-22, or to put it another way, the rock and the hard place we’re stuck between.
Both Washington economic officials and banking executives seem to be competing to see who can most ignore their real responsibilities while pursuing irrelevant political side issues. For instance, the Daily Wire reports that SVB went for eight months in 2022 with nobody in charge of risk assessment in the US, while the person in charge in the UK was focused more on “diversity initiatives.” Meanwhile, as multiple banking failures were rising like a tidal wave last week, Treasury Secretary Janet Yellen was in Ukraine, promising a blank check to their war effort against Russia.
Andy Kessler at the Wall Street Journal also noticed SVB’s fixation on identity politics over sound banking practices, writing, “Management screwed up interest rates, underestimated customer withdrawals, hired the wrong people, and failed to sell equity. You’re really only allowed one mistake; more proved fatal. Was management hubristic, delusional or incompetent? Sometimes there’s no difference.” You could say the same about the government regulators supposedly overseeing them.
Back in Washington, what MAD magazine would call “The usual gang of idiots” (the Biden White House, Elizabeth Warren, etc.) are trying to blame SVB on (guess who?) Trump, because he loosened some banking regulations (with the support of many Democrats.) But just as with the attempt to blame him for the Ohio train derailment, that dog won’t hunt. The regulation changes under Trump didn’t give banks carte blanche to ignore their fiduciary duties while pursuing leftist virtue-signaling, nor did they allow federal regulators to fail to do their own jobs.
New Jersey Democratic Rep. Josh Gottheimer said the SVB mess wasn’t because of Trump, it was because the people running SVB made dumb decisions and took big risks, and federal regulators failed to catch it.
Even Maxine Waters declined to jump on the “blame Trump” bandwagon, which should show you how shaky it is.
Finally, Victoria Taft at PJ Media has a good article on how we really got here.
Of course, defining the problem is easy, solving it is the bear. Trump and the Republicans spent too much (Trump had the excuse of dealing with the pandemic), but at least their pro-growth, pro-business policies increased tax revenues and helped to offset the debt. But Biden came in from day one like an economic wrecking ball, vastly increasing spending while shutting down major parts of the economy like the energy sector, destroying border security, depleting our petroleum reserves and either giving our military equipment to Ukraine or leaving it to the Taliban. Yet in fairness, his decisions were only the latest and worst in a long line of politicians who ignored fiscal reality while trying to kick the can just a little further down the road and put off the day of reckoning.
The real solution to this would have been to elect competent, responsible leaders who didn’t spend us into oblivion 30 years ago, but sadly, that ship has already sailed.