Joe Biden’s Oppressive Government: Inflation, Gas, and the Omnibus Blowout

by | Mar 13, 2022 |

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Did you buy a new car? It probably feels like it. Inflation has reduced the average household income (in real terms) by $300 a month since Joe Biden took office, so it’s like having a new car payment, only without the car. This is what 7.8% inflation looks like.

Joe Biden in the meantime said, “I’m sick of this stuff. The American people think the reason for inflation is the government spending more money. Simply. Not. True.”

Nancy Pelosi echoed the President, saying “When we’re having this discussion, it’s important to dispel some of those who say, well it’s the government spending. No, it isn’t. The government spending is doing the exact reverse, reducing the national debt. It is not inflationary.”

Joe Biden and Nancy Pelosi were speaking in defense of the new Omnibus bill that funds the government through September – and also brings back earmarks.

Does government spending cause inflation? On a related note, can the government bring down the price of gasoline (which government does not factor into inflation but has the same effect on our pocketbooks)?

We will start with inflation ⏤ and to understand whether or not the omnibus bill will cause inflation it helps to know what exactly inflation is.

‘Gold is money,’ or at least so goes an old Austrian School saying. According to this view, the value of gold is relatively constant and it is the value of money that changes over time.

For the statement ‘gold is money’ to be true in an absolute sense (rather than a relative one), the amount of gold would have to grow at the same rate as the world economy, and gold is a commodity mined from the Earth, so its value is not 100% constant, but gold is the best leading indicator of inflation we have.

We can check to see how good of an indicator gold is by looking at the value of gold relative to central bank balance sheet holdings. If money moves around gold, then when the money supply expands investors would buy more gold. There should be a correlation between the price of gold and the supply of money. I’ve seen a lot of charts comparing the supply of US Dollars, or Yen, or Euros, or some other major currency to the price of gold, and the correlation seems weak. Gold, however, is a global commodity, so to get a true view of the relationship between the price of gold and the rise in the supply of money, one would have to look at all money in circulation, using all major currencies. Here is that graph.

This graph should dispel any question regarding the cost of gold relative to the supply of money. If you are wondering where the Chinese Yuan is, it was pegged to the US Dollar in the period the graph covers and did not need to be included.

Inflation is not complicated. If we had an economy consisting of nothing but four dollars and four apples, each apple would cost a dollar. If we added four more dollars but no more apples, each apple would cost two dollars. This is inflation, we see it in the cost of gold almost immediately, and it really is that simple. What is complicated is not the process of inflation, but the global economy it works through.

Gold is a leading indicator of inflation, meaning that as money supplies change, the price of gold follows almost immediately. Other precious metals, like silver, move next, and if we look at the price of silver (below), we can see that it too tracks upward, along a similar trajectory.

 

Eventually, non-consumable commodities begin to rise, such as iron ore. The price of consumable commodities, like butter, milk, eggs, and wheat (shown below) climb next.

Inflation can appear ‘transitory’ while it moves through commodities, but once an economy grows to the point where workers can tell their employers that they need a raise, suddenly the price of manufactured goods and services go up in price too. Commodity prices go up again as well, reflecting the labor needed to mine metals, to milk cows, to harvest wheat, and to bring commodities to market.

Workers respond by asking for yet more money, raising the costs of everything yet again. Workers respond yet again by asking for yet more money, raising the costs of everything yet again.

Once inflation hits wages, it appears to come in waves, until a new balanced price level is found.

Note that because labor is a trailing indicator, inflation hits workers much harder than it hits the rich. The rich can move their investments around to hedge inflation, and actually, see the value of their investments grow while inflation works its way through the economy. Only after labor has caught up with the price of everything else do workers see any form of parity again – up until then, incomes stay flat, and everything workers buy costs more. Inflation is a hidden tax on savings and labor.

Inflation may be the worst kind of tax, for it is terribly regressive, hitting the poor harder than anyone else and not hitting the rich at all.

We live in a global economy, and labor is a global resource. When the price of labor begins to climb it often climbs overseas before it climbs here. The chart below shows the cost of labor in the United States dropping, while the cost of labor in South Korea, Canada, and China is growing. The cost of labor in China is exploding. Why? Because labor is cheaper in China, so as the demand for labor grows, employers expand in China rather than in the United States. Wages will eventually go up here too, but not until companies can no longer utilize labor in cheaper countries quickly enough to keep up with demand.

The point to all of this is that everything we purchase costs more today, even though the American Worker is not getting paid more. We are currently poorer on an absolute scale than we were in the year 2000, and the reason is inflation – which is rising at a rate we have not seen in more than 50 years.

The government does not have the $1.5 trillion it just spent. It is going to borrow that money, just as it borrows everything else.

Joe Biden and Nancy Pelosi are correct that government spending is not historically the primary cause of inflation, but today our deficits are so high that 60% of all government bonds are being purchased by the Federal Reserve. The Federal Reserve expands the supply of money when it buys bonds – and that IS the primary cause of inflation. So yes – government spending is absolutely the cause of inflation today. Joe Biden and Nancy Pelosi are liars. Our nation is bankrupt, and the result is that we all essentially have a new car payment – without the car. The Omnibus bill will contribute to making it a house payment instead.

How about the government’s impact on the cost of energy? Joe Biden says he has no control of that either, so let’s look…

Oil and gas are traded on a global market, and it is true that there is very little Joe Biden can do to affect global demand or global supply.

What Uncle Joe and his Administration are NOT saying, however, is that gas prices reflect gasoline FUTURES markets, and not actual supply and demand. You pay at the pump the higher of two things: what the gas station actually paid for the gas you are pumping (plus a modest profit), or what the futures market says that gasoline will be worth in the future (plus a modest profit). Whichever is higher – that is what you pay.

The United States is the ONLY major oil producer whose economy benefits from LOWER oil prices. All other major oil producers have economies that are highly dependent on oil, and as such, they benefit from HIGHER oil prices. This puts the United States in a unique position with regard to the oil and gas futures markets.

If Joe Biden announced today that the United States was going to go all-in on oil and gas leases on federal lands, and that he would encourage fracking around the country, the futures markets would note that the profitability of fracking would in a few months effectively cap the price of oil to about $45 a barrel. The futures market would reflect that expectation immediately, and the price at the pump would start coming back down, and would continue to do so until it reflected the price of gas when oil is $45 a barrel.

When Joe Biden’s Administration instead says that we need to reduce our consumption of fossil fuels, and that $12 a gallon or even $15 a gallon would be OK (those are the numbers Jennifer Granholm and Pete Buttigieg threw out as targets to encourage EV usage), the futures markets note that the United States is NOT going to impact oil and gas supplies, and reacts to the expectation that OPEC can set the cost of oil to whatever it wants, which is at least $100 a barrel. OPEC would like nothing more than $200 a barrel.

Joe Biden could have a HUGE impact on the futures markets, and really he IS having that impact. By doing nothing and claiming to be powerless, he is causing gas prices to explode.

And this is true for natural gas too. When American families have to decide whether to heat their homes or feed their children next year, Joe Biden did that too.

And if you use an air conditioner, get ready for the day when all you can afford is to open a window. How hot does Florida or Las Vegas get? People who live in hot places will soon have to suck it up.

We cannot survive without cheap and reliable energy, but with Joe Biden in charge, we will increasingly have to try. His complete ineptitude is the cause, and his weakness on the world stage only makes things worse.

Barack Obama told us, “Never underestimate Joe’s ability to f things up” (Obama used the full word). Perhaps more of us should have listened. Instead. many Americans (though not 81 million) decided that f-up Joe was their guy.

And now we are paying for it.

As for earmarks – something this new Omnibus brings back after they were banned during the Trump years. An earmark is something added to a bill that has nothing to do with the bill. They are often used to essentially buy votes in Congress. It’s a practice in which one member of the House or Senate decides not to support a bill, and so the author of the bill throws money at something that Congressperson wants, in return for their support of the bill. Before earmarks were banned, many bills were little more than a string of earmarks all bundled together, and it is the process of writing earmarks (along with insider trading) that helps make members of Congress rich.

Congress just made earmarks legal again, so while our nation burns under the weight of too much government, and while we see our effective incomes erode right before our very eyes, Congress will continue to enrich itself at our expense.

You might not have the new car you are paying for, but some member of Congress does have it, because at the end of the day inflation acts just like a tax, and with earmarks, Congress can buy itself all the cars and houses it wants.

Wallace Garneau

Wallace Garneau is a two-service military veteran, with four years in the United States Marine Corps Reserve, and four years in the US Army. He has twenty-three years of experience in process improvement roles, having served as the E-Commerce Manager, IT Manager, and Director of Business Systems for a variety of medium to large manufacturing companies. Wallace holds a Bachelors of Science from the University of Phoenix, and an MBA in Lean Manufacturing from the University of Michigan. Wallace is currently finishing a Masters of Science in Lean Manufacturing, at Kettering University.

Wallace is a published poet and essayist, and recently finished his first book - The Way Forward: Lean Leadership and Systems Thinking for Large and Small Businesses.

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Michael Wachocki
Michael Wachocki
2 months ago

True story. Math is hard.

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