Back Into the Stagflation Hole, and It’s Not Putin’s Fault

I’m more than happy to blame the Russian dictator for as many things as possible, but I can’t blame him for massive federal deficit spending and Federal Reserve money creation.

Inflation and energy prices have been rising for more than a year. President Biden March 4, 2022. AP/Patrick Semansky, file

Inflation popped up to nearly 8 percent for the 12 months ending in February. President Biden has said it’s all Vladimir Putin’s fault, and there’s nothing he can do about it.

Wrong, and wrong. Inflation and energy prices have been rising for more than a year.

In fact, the last monthly price report in 2020 was 2 percent, hitting the Fed’s target during the Trump administration. At this point, I’m not sure we’ll see 2 percent inflation again in my lifetime.

As far as blaming Mr. Putin, I’m more than happy to blame the Russian dictator for as many things as possible, but I can’t blame him for massive federal deficit spending and Federal Reserve money creation.

Those two factors, along with Mr. Biden’s regulatory octopus that is strangling the oil and gas industry, are responsible for the four-decade-high inflation rate we are now experiencing.

As far as blaming the Ukraine war and related economic sanctions, that’s going to be the March CPI story — it had virtually no effect in February.

Meanwhile, if you took all energy out of the CPI, the remaining items would still be up 6.6 percent. Or, if you just excluded gasoline, the index would still be up 6.4 percent over the past year. 

In other words, the increase in prices is widespread, covering virtually all aspects of American life.

People now are really being hurt, not only from gasoline at the pump and groceries when they’re on the shelves, but pretty much everywhere. 

Housing, rent, apparel, cars, recreation, commodities, services: You name the item, and I’ll tell you its price is rising.

That can only happen as a result of fundamentally flawed government policies. Yes, we last saw this was in the stagflationary 1970s — a dark hole that I’m afraid we are falling into, again. Curing this problem is not going to be easy.

One step toward a cure would be a president and an administration that owns its policy failures. That does not seem likely.

Another step would be to stop federal spending. Just pause it. Stop building new debt, and stop the Federal Reserve from pumping new cash into the economy in order to finance the deficits. We did Save America and Kill the Bill, but the Congress is back.

With overwhelming support in the House, the omnibus discretionary spending bill of $1.5 trillion — roughly 7 percent above the 2021 level — passed overwhelmingly. Defense and nondefense: None of it is financed.

Earmarks, which had been banned for many years, are back with a vengeance. So much for a federal spending pause.

The third step would be to stop the Fed’s rabid money creation, which is still running in double digits. This has not happened yet. Instead of being bold, they’re going to be meek. Raising the target by a quarter of a point with an 8 percent inflation rate provides no restraint whatsoever.

It may be that Senator Toomey will carry the day and stop the Fed confirmation of the left-wing climate radical, Sarah Bloom Raskin, even forcing the White House to pull the nomination.

Even if so, the prevailing view at the central bank will still be backbone-free. By the way, they’re liable to repeat a big mistake from the 1970s. 

When oil prices shot up then, the Fed accommodated the price hikes with easy money, thereby turning an individual price increase into a generalized, economy-wide inflation. In other words, monetizing the commodity price shock.

Finally, the administration must deal with the supply side of the economy by rolling back the $200 billion-plus regulatory assault on business and the economy, especially the regulatory octopus that is strangling the oil and gas industry.

This is a woke green octopus whose outstretched tentacles extend to the Interior Department, the Energy Department, the EPA, FERC, the Treasury, the Fed, and the SEC — oh, and the electric car Transportation Department. The idea is to suffocate the supply of oil, natural gas, coal, LNG, and pipelines.

Here the issue is how the Bidens have stopped exploration and drilling in the private sector, on private lands, by using crazy metrics like the social cost of carbon and invoking regulatory rules for endangered species, clean water, NEPA permitting, and others.

In fact, the Biden FERC aims to prevent any new pipelines.

Here’s something the White House press secretary, Jen Psaki, doesn’t understand when she says “it’s just a delivery mechanism, and not an oil field, so it does not provide more supply into the system.” 

Kind of like milking a cow and leaving it on the barn floor. Meaning no disrespect to Ms. Psaki.

The trouble is, the frackers won’t frack if pipeliners are prevented from pipelining. Distribution is important.

Mr. Biden should take Senator Perry’s suggestion and send a special envoy to Midland, Texas, to reach a peace treaty with the oil and gas industry, instead of sending his diplomats to Iran and Venezuela.

Or he can send another envoy to Alberta, Canada, which is on friendly terms with America and would love to send 800,000 barrels per day via pipeline through Nebraska and to the Gulf — a project that even today could be completed by the first quarter of 2023.

Of course, none of this is going to happen.

A Reagan-Volker solution to strengthen the dollar and deregulate and cut taxes is not on the horizon in

Mr. Biden’s woke Washington. That’s too bad, because what’s likely to happen is the story will end badly in another rough recession, which once again will fall most heavily on the shoulders of the great American working people.

One ray of hope: The cavalry is coming.

From Mr. Kudlow’s broadcast on Fox Business News.


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