The latest financial figures are in, and they aren’t good.  In fact, we are all paying more for everyday items thanks to all the stimulus spending last year.  But, to Joe Biden, inflation is like a game of Jeopardy: “I’ll give you inflation for $5000!”  For the rest of us, inflation limits our choices.  Back when I was reimagining my life at the age of thirty, I walked into my boss’s office and said, “I need to pretend I’m 18 and start my life over.  I’m ready to get a degree and at this point I don’t even care what it’s for.  Any ideas?” 

Her answer, much to my chagrin, made perfect sense.  She told me I was a great writer and therefore shouldn’t bother with a communication degree.  I was plenty creative, and thus a marketing degree was pointless.  On the other hand, she knew I couldn’t balance my checkbook to save my life.  “Cameron, at the end of the day, it will always come down to money and you don’t understand it at all.  Get a finance degree.”  I wish more people understood finance.  Especially our current political class.  As December’s inflation numbers percolate through the news cycle, The Hill lays it out succinctly:

“The White House is grappling with another gloomy inflation report that threatens both President Biden’s sweeping social spending bill and Democrats’ prospects in the midterm elections. “

I guess Joe Biden didn’t get the memo:

Today’s inflation numbers show a meaningful reduction in headline inflation over last month. We are making progress in slowing the rate of price increases. But there is still more work to do — I remain focused on lowering costs for families and maintaining strong economic growth.

— President Biden (@POTUS) January 12, 2022

Really, meaningful reduction?  Not according to Mark Zandi, chief economist for Moody’s Analytics.  

“It was an ugly report,” said Mark Zandi, chief economist at Moody’s Analytics. “But I think we’re past the worst of it. We’re pretty close to past the worst of it.”

I’ve been watching a lot of Seinfeld recently.  The way Zandi phrased that sounded a lot like something George would say.  “It’s bad.  Really bad.  Oh God, I’ve never seen it so bad.”  Except we have seen it this bad, you know, 40 YEARS AGO! , none of the kids just graduating from college have ever seen anything like it, making it that much harder for them to understand what’s coming next.

What comes next is a domino effect of problems that will cascade for months, if not years.  If Joe Biden understood finance at all, he would understand how inflation and the subsequent playing with monetary policy affects people’s wallets and choices.  According to Investopedia, here are some of the core effects:

Erodes Purchasing Power:

Every day now, as I help young homebuyers understand the process of buying a home, I have to give them a mini finance lesson.  I have to explain that the home they want to buy is going to cost much more than they are anticipating.  The Federal Reserve has already signaled plans to raise interest rates multiple times this year.  That dream of a 2.99% rate is unlikely.  I am having them calculate their monthly payments at 3.5% at minimum.  That affects their purchasing power in stark terms they can understand.  They have done everything “right” by saving money and maintaining excellent credit scores.  Yet for all their effort they wonder if they can afford the home they planned on.

Encourages Spending Now:

“For consumers, that means filling up gas tanks, stuffing the freezer, buying shoes in the next size up for the kids, and so on. For businesses, it means making capital investments that, under different circumstances, might be put off until later. Many investors buy gold and other precious metals when inflation takes hold, but these assets’ volatility can cancel out the benefits of their insulation from price rises, especially in the short term.”

Causes MORE Inflation:

As folks rush out to buy items now, more money floods the market.  As Investopedia continues to outline:

“Unfortunately, the urge to spend and invest in the face of inflation tends to boost inflation in turn, creating a potentially catastrophic feedback loop. As people and businesses spend more quickly in an effort to reduce the time they hold their depreciating currency, the economy finds itself awash in cash no one particularly wants. In other words, the supply of money outstrips the demand, and the price of money—the purchasing power of currency—falls at an ever-faster rate.

Reduces Employment and Growth:

As businesses find it harder to borrow money, they are less likely to hire new employees.  While unemployment is currently trending downward to 3.9% currently, we may see an uptick in the coming months.  Additionally, as goods continue to cost more, businesses will have to make the tough choice of offering fewer options or charging more to the consumer.  Either way, you see a dip in economic growth.

I am, at this minute, looking to purchase a small local business in the Austin area.  We are already struggling to find employees, just like every other business with a “Help Wanted” sign in the window.  We are finding it harder to find the materials we need to do the work we do.  I want to see the business venture grow, and I do believe it is possible, but at what cost?  

CBS News tries to spin this in Biden’s favor in the first minute or two, but even they acknowledge what the rest of us have been feeling for months now:

Look, I’ll be thrilled if inflation takes down the Biden administration and the Democrats dreams of continued spending, but I hate to see the fallout hit the average American in negative ways.

As Vladimir Lenin once said: 

“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.”

Joe Biden may not understand finance.  He certainly seems to understand how to crush us.

Featured image: “Finance” by Got Credit is licensed under CC BY 2.0, modified