Jeff Danziger lives in New York City. He is represented by CWS Syndicate and the Washington Post Writers Group. He is the recipient of the Herblock Prize and the Thomas Nast (Landau) Prize. He served in the US Army in Vietnam and was awarded the Bronze Star and the Air Medal. He has published eleven books of cartoons and one novel. Visit him at DanzigerCartoons.
For a long time, inflation has been the phantom of the American economy: often expected but never seen. But the latest Consumer Price Index, which showed that prices rose by five percent from May of last year to May of this year, raises fears that it is breaking down the front door and taking over the guest room.
The price jump was the biggest one-month increase since 2008. It appears to support the warning of former Treasury Secretary Larry Summers, who wrote in February that President Joe Biden's budget binge could "set off inflationary pressures of a kind we have not seen in a generation." Senate Republican leader Mitch McConnell charged last month that the administration has already produced "raging inflation."
For anyone who lived through the turbulence of the 1970s, when the CPI climbed year after year, peaking at a rate of more than 13 percent, the specter of inflation is enough to induce night terrors. One of the great governmental marvels of the past 40 years was the Federal Reserve's complete conquest of this malady. To let it return would be a grievous setback.
There are reasons to think that could happen. The Fed has pumped huge sums of money into the economy to offset the effects of the pandemic, and the Biden administration got Congress to approve a huge economic relief package. Americans saved a lot over the past year, and if they decide to burn through all that cash, they could push prices still higher.
At this point, though, watchful concern is a more appropriate attitude than outright alarm. For now, I'm not worried — not very worried, anyway — about inflation.
Why not? One reason is that a spike in prices is not inflation any more than a stretch of rain is Noah's flood. It's no surprise that prices in May were appreciably higher than a year earlier — when much of the economy was shut down because of the pandemic.
Prices will keep going up as life continues to return to normal and Americans rush to spend money on all the things they missed because of COVID-19. Lingering supply chain snarls will put additional pressure on prices. But this should be a one-time phenomenon. Inflation is not inflation unless it persists over months and years.
Another reason for optimism is that even when it was trying to raise the inflation rate, during and after the Great Recession, the Federal Reserve found it remained stubbornly low. The central bank's monetary expansion should have brought about the higher inflation it sought. But it didn't — suggesting that something has changed about the connection between the money supply and consumer prices.
Back then, conservative critics forecast an outbreak of inflation caused by easy money and excessive federal spending. In 2009, economist Arthur Laffer wrote, "We can expect rapidly rising prices and much, much higher interest rates over the next four or five years." Sen. Rand Paul (R-KY) said Americans should be "prepared to carry money to the grocery store in a wheelbarrow."
Let's hope their hallucinations have subsided. If those policies didn't cause inflation then, they may not cause it now. Stable prices have become the intractable norm over the past quarter-century, for reasons we don't fully understand. Loose fiscal and monetary policies don't seem to matter the way they once did.
One danger is that the recent price increases will fuel inflationary expectations, prompting businesses to raise prices and workers to demand higher wages, setting off a self-perpetuating upward spiral. But what inflationary expectations are we talking about?
Data compiled by the Federal Reserve Bank of St. Louis indicate that, as of June 10, the expected inflation rate over the next five years is just 2.23 percent. Interest rates on 30-year mortgages have fallen below three percent, compared with nearly five percent in 2018.
Given their performance over the past 13 years, it's not unreasonable to believe that the Federal Reserve officials who set monetary policy actually know what they're doing. When the pandemic hit, the economy was well into the longest peacetime expansion ever — and inflation was still subdued.
Fed Chairman Jerome Powell and his colleagues have earned the benefit of the doubt. They haven't forgotten the trauma of the 1970s, and they don't want to go down in history as the people who brought it back.
When prices jump, vigilance against inflation is entirely justified. But we should also watch out for false alarms.
Steve Chapman blogs at http://www.chicagotribune.com/news/opinion/chapman. Follow him on Twitter @SteveChapman13 or at https://www.facebook.com/stevechapman13. To find out more about Steve Chapman and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
Washington (AFP) - Even in the face of rising inflation, the lackluster progress on restoring jobs lost during the pandemic means the US Federal Reserve is unlikely to budge on monetary policy when it meets next week. Central bank chief Jerome Powell has made it clear the Fed will hold the line on its massive bond buying program and rock-bottom lending rates until data reflect lasting improvement in employment across all economic strata. But the recent surge in inflation in the world's largest economy is ramping up the pressure on policymakers to begin to pull back on stimulus programs. Hints ...
Reprinted with permission from DC Report
Lots of luck right now trying to find a bicycle for under a thousand dollars. And if you insist on building a new house right now the price of lumber will be dear, adding perhaps $4,000 to construction costs for a typical home.
But don't assume that ruinous inflation is on the way. It's not. These are just temporary bumps and those who just wait a bit will see prices fall back.
It may be hard to appreciate this given all the scary stories in the news about inflation, stories that often lack context and nuance. But don't be scared.
And don't pay attention to the brief ups and downs in the price of stocks because half of American stock tradingis done not by investors but by traders whose computers move so fast they can be in and out of a stock in less than a second. Besides, stocks don't make goods or services so they aren't part of the economy that creates jobs and produces paychecks.
Yes, the news is full of unsettling stories about inflation, but if you read carefully, you'll notice that the talk is about prices rising perhaps four percent this year. Not a big deal.
Indeed, the highest inflation rate ever in our country was 29.8 percent in 1778. Since 1913, the highest rate was 19.7 percent in 1917, according to Investopedia. In 1946, inflation was 18.1 percent
In 1979 and 1980 combined, prices rose by a quarter. Now that would be scary today, but that is not what is happening.
Post-World War II Boom
This is more like 1946 when soldiers and sailors came home and wartime rationing left huge deficits in people's demand for goods. No cars or trucks had been built in America, other than to prosecute World War II, since 1941. People were getting married, so they needed homes and apartments and there was a boom in babies that lasted until the end of 1964. That made prices soar even though the economy fell into a brief recession as we moved from a wartime economy to a peacetime economy.
That was then; this is now. The pent-up demand from the pandemic is for only 15 months, not almost four years as in the 1940s.
Also, today, we have 8.2 million fewer jobs than before the Covid pandemic. We should have added another three million or so jobs since the coronavirus first appeared in America. That means millions of households are struggling just to pay the rent and eat. But for the social safety net spending under both Trump and Biden, we would be in a very deep recession. Instead, our economy grew six percent in the first quarter, roughly double the growth under Trump in his first three years.
At the same time many millions of households, a large majority of them, continued working. Their spending fell, however, because they didn't have to go into work. They stopped going out to restaurants as they ate at home. Dry cleaners saw their customers evaporate. These people deferred spending on vacations and big purchases like cars and trucks.
Some of those who kept on working paid down or paid off their debt. Others added to their savings. In both cases they are primed to spend. That will mean a surge in consumption, but it won't last.
These folks can afford to be what economists call price indifferent. They may not be happy about it, but if the price of a bicycle doubles, they can just hand over the money. That won't go on for long. Bicycles are still being manufactured and once the surge in demand is fulfilled retailers will no longer be able to charge premium prices.
For the 12 months ending in April overall inflation, before adjusting for seasonal factors, was 4.2 percent, according to the government Bureau of Labor Statistics. That's the highest rate in this century, but it's not ruinous.
Prices of used cars and trucks accounted for a third of the inflation in the past 12 months. These prices were up ten percent in April, the government reported. Prices surged because people who have put off buying used vehicles rushed to market as the economy and jobs began opening.
The prices of some foods are up right now because after 15 months of limited mobility, some shortages of crop workers and weather, both droughts and deluges. Trump's tariffs that savaged the price of American soybeans and enriched Brazilian soybean farmers also played a role.
These are temporary effects. We always see such temporary effects after a major shock to the economy.
We still have a shortage of money in the hands of most Americans. Purchasing by those who were able to save a great deal more during the pandemic in the short term is causing this blip of inflation.
Think Peaches vs. Plums
This is pretty much the same effect we see when bad weather ruins the peach crop and prices rise so much that many people decide to eat plums, apricots, or apples instead. Likewise, when a bumper crop of peaches hits the market and prices fall, people buy fewer plums, apricots. and apples.
The key reason inflation is not going to turn long-term and ruinous is the huge excess cash held by those toward the top of the income and wealth ladders. They have far more cash than can be profitably invested. Just a year ago there was serious talk the banks might start charging people to hold their cash, which we have seen in a very limited fashion in Europe.
America is so awash in cash, though highly concentrated cash, that banks pay a tiny fraction of one percent on savings accounts. If you have $25,000 in your bank it may pay just 20 cents interest each month.
That's because demand for cash in the business world is extremely weak compared with the oceans of greenbacks being held in checking, savings, and money-market accounts.
Every day, banks pitch mortgages to people with solid credit scores at about two percent interest. Back in the early 1980s, mortgages ran 12 to 14 percent.
So, if all the flowers budding in the warming Spring weather are making you desire a new bicycle, just hold off for a bit. Ride your old bike, arrange to borrow your neighbor's, or take a walk. As soon as the people who are price indifferent have fulfilled their demand for new bikes, prices will fall back.
Trump’s claim on Tuesday morning that the country is not experiencing inflation was contradicted by data from his very own Labor Department.
At 8:49 a.m., Trump tweeted about his disastrous trade war with China. After mentioning currency devaluation, Trump claimed, “Prices not up, no inflation,” ending his missive with, “Fake News won’t report!”
However, just 19 minutes before Trump opined about the state of the economy, the department released data showing inflation had hit a six-month high. Bloomberg ran a headline at 8:30 a.m. saying, in part, “U.S. Core Inflation Hits Six-Month High,” and used the same language in their tweet about the topic at 8:36 a.m.
The department’s report also contradicted Trump’s claim about prices, which are, in fact, going up as a result of Trump’s trade war with China.
“[It] is clear tariffs are beginning to drive goods prices higher,” Sarah House, a senior economist at Wells Fargo & Co., said, according to Bloomberg.
Tuesday is not the first time one of Trump’s lies has been corrected by his own administration.
In January, U.S. intelligence leaders outed Trump as a liar about North Korea, ISIS, Iran, and Russia during congressional testimony. Trump handled the situation by yelling at those leaders to “go back to school.”
In April, Trump falsely accused Mexican soldiers of drawing their weapons on National Guard personnel. Afterward, a military spokesperson was forced to correct Trump, explaining that the situation was a brief misunderstanding between U.S. Army soldiers and Mexican soldiers that was solved with a simple conversation between the two groups.
In May, Trump falsely claimed missile tests by North Korea did not break a U.N. agreement. Two days later, his acting defense secretary went on CNN to correct Trump, saying the tests were, indeed, a violation.
In June, Trump falsely claimed transgender soldiers could not serve because of the medication they take. A Defense Department spokesperson corrected Trump, saying there is no medical reason why transgender soldiers cannot serve.
Also in June, Trump made the bizarre claim that the moon is a part of Mars and that NASA should not be talking about going to the moon. A few days later, NASA Administrator Jim Bridenstine had to clean upTrump’s mess with a statement.
It is not always just the U.S. government that corrects Trump. In April, French officials made a public statement rebuking Trump’s suggestion of how to put out the fire engulfing the Notre Dame cathedral. Trump’s idea to use “flying water tankers” could have led the entire structure to collapse.
Before Tuesday, the Washington Post cataloged more than 12,000 lies Trump has told since being in office. It is unclear how many of those lies have been corrected by his own administration, but that number grew on Tuesday.
Published with permission of The American Independent.
Jeff Danziger lives in New York City. He is represented by CWS Syndicate and the Washington Post Writers Group. He is the recipient of the Herblock Prize and the Thomas Nast (Landau) Prize. He served in the US Army in Vietnam and was awarded the Bronze Star and the Air Medal. He has published eleven books of cartoons and one novel. Visit him at DanzigerCartoons.com.
It’s common for American workers to stay later than their hours suggest – “face time” being seen as a measure of one’s commitment to the job. According to a Gallup survey released last November, the average full-time American worker now works 47 hours a week, nearly a full day longer than the standard 40-hour week. And most of those workers don’t get paid anything extra for those additional hours.
President Obama is hoping to change that. In a proposal announced Tuesday, the Department of Labor would extend overtime pay to nearly 5 million Americans. The plan would simplify and update rules so that millions of workers can determine if they are eligible for overtime pay.
As of now, most full-time employees are classified as being exempt from receiving overtime because they are considered managers, administrative personnel, or professionals of some description. But bestowing those titles, especially “manager,” has become a convenient loophole for employers, who can offer meaningless promotions as a way to get out of paying employees overtime.
Currently, employers can avoid paying overtime if an employee makes more than $455 a week or $23,660 a year. The new proposal would more than double the threshold, to $970 a week or $50,440 a year.
According to the Wall Street Journal, the new proposal recommends that, moving forward, these numbers should change automatically, tied to either wage growth or inflation in order “to ensure the threshold’s buying power doesn’t erode in time.” Because that’s exactly what has happened since the 1938 Fair Labor Standards Act originally established the federal minimum wage and overtime rules. Those numbers have only been changed eight times since then, and only once since 1975.
Housing costs are rising, so much so that minimum-wage workers can’t afford to rent a one-bedroom apartment anywhere in the country. At the same time, real wages – after inflation has been taken into account – have been stagnating for decades.
The numbers the Obama administration are using in their proposal are the 1975 threshold, last updated in 2004, adjusted for inflation. The 2004 changes made it so that more employees were exempt from overtime –such as managers who did low-level work and supervised employees simultaneously. Due to inflation, the percentage of salaried employees who fell below the overtime-pay threshold steadily decreased, from 65 percent in 1975 to 18 percent in 2004 to 8 percent in 2014, according to the Economic Policy Institute, a nonprofit and nonpartisan think tank focusing on the needs of low- and middle-income workers.
Under the Fair Labor Standards Act, the president has the authority through the Department of Labor to set new rules without lawmakers’ approval, but the Department of Labor will hold a 60-day public comment period before they adopt any changes. It’s expected that businesses and industry groups will push back, arguing that instead of individuals receiving more money, the hours and pay will be spread out among more workers – which could increase part-time employment. Others, like the National Retail Federation, warn that businesses could reduce base pay and compensation, and make it less likely for workers to advance to become actual managers, since businesses will end up cutting the number of higher-ranking jobs.
According to the Economic Policy Institute, the proposed rules would disproportionally affect those who work in food service, insurance agencies, policy processing, customer service, office administration, and retail. Demographically, those likely to be affected include people under 35, women, blacks, and Hispanics, as well as workers with lower levels of education. The White House estimates that of the 5 million workers expected to benefit, 53 percent have at least a college degree and 56 percent are women.
The New York Times, in its editorial supporting the decision, cautioned Republicans to “think twice about” aligning themselves with business interests that oppose the proposal: “No party and no politician that opposes the new overtime rules can credibly claim to care about the middle class.”
As of this writing, no Republican presidential candidate, with the exception of Rick Perry, has commented on the proposed changes. In a statement, Perry, who believes that government should not set policies on pay or benefits, said, “As businesses are forced to spend more on payroll, those costs will be passed on to consumers in the form of higher prices for everyday goods and services.”
Hillary Clinton, however, praised the decision on Twitter.
President Obama is right to update overtime rules for the modern workforce—a win for our economy and workers nationwide. -H
— Hillary Clinton (@HillaryClinton) June 30, 2015
Photo: Workers, like this woman, who process claims could be part of the millions of people affected by the Labor Department’s new proposed changes to its overtime rules, which would expand the definition and scope of who would be eligible for overtime pay. fatheroftheweasel via Flickr
Washington (AFP) – The relentless fall in oil prices and Russia’s plunging currency pose big challenges as the U.S. Federal Reserve opens a two-day meeting Tuesday.
The Fed’s last meeting of 2014 was expected to confirm its path toward monetary policy normalization after holding its base interest rate at the zero level for six years to bring the country out of the Great Recession.
But stagnating economies in Europe and Japan and slowing growth in China, coupled with the threats to markets and the financial system from the oil price and Russian crises, could force the U.S. central bank to weigh a pause.
While the world’s most powerful central bank is unlikely to make any immediate changes to its interest rate and liquidity stance, it could signal via comments and economic forecasts a readiness to stick to that stance for longer than expected to help the global economy through a rough period.
The main focus of the Fed, the U.S. economy, has been growing strongly enough for the central bank to begin pulling away from the extraordinary easy-money policies in place since 2008.
Unemployment has come down to 5.8 percent; job generation in November was unexpectedly strong; and year-end retail sales show consumers comfortable with spending and confident about the year ahead.
The one question that has dogged the members of the Federal Open Market Committee, the Fed’s policy arm, has been inflation: it has been too weak to confirm that the economy is motoring under its own power.
And sinking prices of oil and other key commodities and many general imports have in the past two months slowed inflation even more.
For weeks analysts have guessed that the main outcome of the FOMC meeting would be a change in the language it uses to steer market expectations on interest rate policy.
Over the past year, the panel has repeatedly said that a Fed funds rate increase would only come a “considerable time” after the end of the quantitative easing program, which was wound up in October.
That language could be dropped for an even more opaque qualifier that would give the FOMC more flexibility, to either move quickly if growth and prices pick up unexpectedly, or hold off indefinitely if growth stalls. One Fed official has suggested the FOMC just say it will be “patient” before lifting the rate.
Any other signal change from the meeting would come from the collective forecasts of FOMC members of economic growth, unemployment, inflation and rates, which are studied closely for signs of when a first rate hike will come.
For the past year the general view has been that the Fed would move in the middle of 2015. Economist Chris Low of FTN Financial noted that two senior Fed officials known to be more hawkish on raising interest rates both represent US regions where growth could slow significantly due to the oil price drop.
“They may back away from (their hawkish stance) in their forecasts,” he said.
Even so, the 50 percent fall in the price of crude in just six months could turn the US central bankers’ focus to global issues and how Fed policy might help or hurt the world economy.
The steepness of the fall in crude prices, many fear, could spill over into the financial sector and foment more shock waves through the economy.
And Moscow’s inability to stem the ruble’s slide despite hiking interest rates overnight to 17 percent could further sink its economy and spread collateral damage into already-struggling Europe.
(AFP Photo/Mandel Ngan)
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