An economic downturn is on the cards, bearing in mind that is what the Fed’s restrictive tight monetary policy to put out the inflation fire will do,
crush aggregate demand in the economy.
Already a staggering 37% of Americans lack enough money to cover a $400 emergency expense, up 32% in 2021.
With household disposable income already tight, the Fed’s latest September rate decision to keep the Fed funds on hold was anticipated.
But don’t look at recent previous cycles for a heads up on when the Fed pivots.
An economic downturn as the war economy booms
The current economic downturn differs from previous economic cycles of the past eight decades.
“The wild card is the escalating war in Europe. War is inflationary, leading to supply disruptions,” written in a piece entitled, Economy Is On A Knife Edge.
War in Europe and rising geopolitical tensions have contributed to higher global food and energy prices, and higher Head headline inflation, a more accurate measure of the rising cost of living.
The economic downturn, hyper inflationary or deflationary?
The USD is the most valuable global brand, and the USD reserve currency is the US hegemon’s throne.
However, the exchange value of USD is hinged on the US having leverage over foreign policy, making global security international trade rules that support US global domination.
An Empire’s hard power is its military might, its ability to force the rules of the game on everyone and profit by doing so.
POTUS takes to the stage, talking about unwavering support for Ukraine, and that the US and its allies (the West) must stand up to aggression and the violation of a nation’s sovereign integrity by an aggressor.
It sounds righteous and morally correct, but what was the US doing in Iraq and Syria? The former had no WMDs, and the latter made no chemical attacks, yet their sovereignty was violated, based on fabricated lies.
Libya was also destroyed, was it also because of Gaddafi’s vision of gold back Dinar, a move away from USD?
Great powers in an existential threat as the economic downturn deepens
The Ukraine war is about two great powers fighting for their existence.
If the US proxy war against Russia fails, that would be similar to the Suez Crisis moment for GBP. If the hegemon fails to dominate Europe and loses the Ukraine war, the USD will likely wither on the vine in Europe. Equally, if Russia loses, she would become Europe’s Iraq, balkanizing pillage and plunder for its vast natural wealth.
Economic downturn as economy transitions to wartime
The Fed is likely to remain tight for longer, not so much to tackle inflation but to transition the economy into wartime.
The Fed would prefer a deflationary depression to a hyperinflationary one, the latter destroys the currency. Waging war is the most expensive human activity as it consumes human resources, materials and natural resources.
Fed will keep crushing demand until it sees inflation where it wants, even if it means the civilian population down to one meal a day, living with outdoor plumbing. The economic draft will tally Russia’s nearly million men mobilized. Great powers are gearing up for a fight for their lives.