Can Our Government Help Our Economy? “I’m from the Government and I’m here to help you.”

With lagging leadership and a potential recession the US economy is in turmoil. This article explores how the relationship between economic stagnation, the Misery Index, and election season is affecting our economic stability.
The post Can Our Government Help Our Economy? “I’m from the Government and I’m here to help you.” appeared first on Gold Alliance.,

A national survey in August 2022 found that almost 60% of Americans think the country is in a recession, and that they blame Joe Biden and the Democrats. The continued problems of Covid infections and inflation hit low- and middle-income citizens especially hard in 2022. 

What is the Fed thinking?

The Federal Reserve failed to recognize the rise of inflation in 2021. Chairman Powell proclaimed, “We welcome slightly higher inflation, somewhat higher inflation,” to make up the years when inflation was lower than the Fed’s 2% goal. “The kind of troubling inflation that people like me grew up with seems far away and unlikely.”

As inflation spiked in June 2022 to over 9%, the Fed continued to play catch-up. Their interest rate raises knee-capped the economy, reducing GDP growth during the first two quarters of 2022. The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Nevertheless, President Biden declared, “That doesn’t sound like a recession to me.”

Even those in his party push back Biden’s assertion. Wisconsin Representative Gwen Moore noted, “People are experiencing this. This is not an abstraction for those folks. When they pull up to the gas pump, the grocery store, they’re experiencing their own personal depression or recession, no matter what the numbers are.” 

What is happening with the Misery Index?

The Misery Index is the combination of the unemployment rate combined with inflation and can be a very useful tool for judging the overall health of the economy. President Lyndon Johnson’s economic adviser Arthur Okun created the term due to the high jobless numbers and inflation the world was facing at the time – two immensely powerful factors for people fighting to make a living.

Bloomberg’s Misery Index projects that inflation will continue to be high as unemployment rises in 2023, possibly the first signs of “stagflation” – a lack of economic growth with rising unemployment and prices. The United States experienced a decade of stagflation in the 1970s. A simple glance at the chart above reveals how high the index is with a relatively low unemployment rate. Imagine what will happen if the economy continues to stall and more people are laid off.

What will happen to our “leadership”?

The national mood suggests that Republicans could gain majorities in both houses of Congress in the Fall election. About forty seats (10%) in the House of Representatives and a handful of Senate seats will be competitive in the 2022 mid-term elections.

History suggests that Republicans are favored to gain seats. However, neither party will likely gain a significant majority in either institution. The absence of a dominant party will continue Congress’ inability to act quickly or forcibly.

The lack of top-down leadership and direction means that 

The Federal Reserve will continue to print money to finance an ever-growing pile of debt.

Social programs (Social Security and Medicare) will remain in jeopardy and may fail.
Future economic stimulus packages will most likely be political, not strategic.
The government bureaucracy will continue its trend of expansion and becoming more inept and less responsive to the public.

The state of our economy

Global tensions, a lame duck President (Biden is unlikely to seek a second term), and the heightened partisan political environment complicate the investment environment and put retirements and savings at risk. How can we trust a government to look after our interests when they can’t agree on the definition of those interests?