By Gary Brode, Deep Knowledge Investing
In Part I and Part II, we covered several aspects of Inflation/CPI. It’s the single most important financial issue for 2022 so we explored the topic in depth. Cutting to the end, a combination of higher interest rates, comparisons with last year’s high CPI, and falling real estate and auto prices will ensure the CPI falls in 2023. However, given higher mortgage and loan rates, affordability on many items won’t improve even with lower prices. That will also be true for food and services.
Today, we’re going to cover bad government policy, and how Congress, the White House, the Federal Reserve, and other central banks created the problems we’re experiencing today. Just so I don’t have to cover it multiple times in this piece, this is not a partisan issue. Overspending and bad government policies are a problem for both political parties in the US.
Harmful Governmental Policies:
Most of the negative issues we’re seeing in the economy and markets have been caused by poor government and Fed policy. Let’s take a closer look at some of the key decisions that led to inflation, reduced affordability, and expectations for a recession in 2023.
The Underlying Cause of Inflation:
We’ve seen all kinds of tortured explanations for the rise in inflation that started in the fourth quarter of 2021. It’s true that there were supply chain problems and a war in Ukraine but those issues are secondary in understanding the inflation problem. The old expression is that inflation is what happens when too much money is chasing too few goods.