The Fog of Stagflation

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Interest rates have finally risen from their artificial lows, giving savers ADIATS (A Different Investment Alternative To Stocks) and thus a reward to being prudent in managing their fiscal affairs, unlike the Federal Government. Ever wonder why politicians clamor for low interest rates..? The past few years have been as classic case study in that “We can justify spending because interest rates are low and can adequately service the debt” thereby giving away money with little regard to paying it back. Yet now that interest rates have made the U-turn, heading north, AND the Federal Reserve is employing QT (Quantitative Tightening) thus soaking up excess liquidity, the free money train has stopped. No more handouts, but hyper-importantly, legislators need to actually govern within a budget (not Continuing Resolutions) AND anyone that used the rent and student loan moratoriums, since March 2020, it is now time to pay back what one borrowed. Period, end of story. No sob stories that “I can’t pay my student loan” or another “Loan Forgiveness” attempt by the Biden Administration, which is a poke in the eye to every American who paid their obligations. The golden opportunity to pay on and/or back your loan(s) at ZERO, has come and gone, so be an adult, pay and stop whining.

The missive above lays the groundwork for why I believe we are in or will be entering a period of stagflation, where growth slows, the cost of goods stays high, along with interest rates. See gas prices lately? How about your grocery bill? Politicians and Wall Street are screaming for the Fed not only to stop raising, but start lowering interest rates. Nope, no sale. This is the price of free money and the bill is now due. If inflation needs to get mostly eradicated back to 2%, more belt-tightening (pain) is on the way. The Fed lost its credibility with its stupid “transitory” comment and will not relent now, until PCE/Core inflation is very near 2%. Until then, buckle up, buttercup. Or for savers, enjoy what you so richly deserve, higher fixed income earnings…

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Greg Zandlo

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