The 2024 presidential race is heating up. It does seem to be more interesting than normal.

There are interesting Republicans with Trump, DeSantis, and Ramaswamy. They each have their good points and bad points, but at least they aren’t all bad points like Biden.

On the Democratic side, there is Robert Kennedy Jr. Even though the DNC, the corporate media, and the rest of the establishment will try to censor him, there is alternative media to the rescue. When the establishment can no longer ignore him, they will smear him.

On the Libertarian Party side, there is the possibility of Dave Smith, who is a great spokesman for liberty. I could envision Dave not running for the LP ticket if he thought Kennedy had a decent chance to win. It’s not that Kennedy is a libertarian, but he has the potential to restore a lot of sanity to our world when we really need it.

Kennedy actually tweeted a link to a LewRockwell.com article about the middle class being decimated. This is a good sign in several ways. Just the fact that Kennedy is mentioning an article from a more radical libertarian website is something. It is also encouraging that one of his talking points will be how the middle class is getting destroyed.

It is interesting to see the different candidates and how it might play out. A lot of focus is on personalities, which do tend to matter a lot in politics. But one thing that is largely being ignored is that Biden and the Democrats (excluding Kennedy) might be in real trouble in 2024 if we hit a deep recession. With the inverted yield curve, this is looking highly likely.

It’s the Economy, Stupid

The focus on the economy by James Carville and Bill Clinton in 1992 wasn’t wrong. It’s not that they had the right answers, but it appeals to people’s self interest.

It’s nice for some people to wave a flag for Ukraine, but are they really willing to sacrifice their lifestyle to funnel tens of billions of dollars to the military-industrial complex and a bunch of corrupt oligarchs in Ukraine?

A Bill Clinton presidency actually sounds pretty good these days compared to Biden. Even though Clinton was and is a criminal, at least he cared about how others thought of him. So he wasn’t purposely trying to destroy civilization.

The middle class is already getting hammered with high price inflation and wages lagging behind. If you throw in a major recession and deflating asset prices within the next year, it is hard to see how Biden wins re-election. It is hard to see how any Democrat not named Kennedy would win the presidency. The only reason Kennedy would have a chance is because he has already separated himself from the establishment Democrats.

The Winning Message

It’s sad to say, but a family of four making around $100,000 is barely getting by these days. It’s not that such a family would struggle to put food on the table, but there is an expectation to have some joy in life.

When you take out taxes, health insurance premiums, other insurance costs, housing, and food, it doesn’t leave that much.

Sure, you can cancel cable and streaming services, give up your smartphone, and never eat out at a restaurant, but who wants to live like that?

You can say “no” to taking the kids to their favorite amusement park. You can cancel all of their sports and other activities and not throw any birthday parties. If you do all of that, you will be just fine.

Is that a winning message for middle class America? “Just suck it up and live very frugally, and you will get by just fine. We have to send more money to Ukraine.”

This is partly why Donald Trump won in 2016. If Rand Paul had sold this populist message, maybe he would have stood a chance.

This is why Dave Smith and Robert Kennedy have a good chance of really stirring things up in this presidential election. Neither one has a good chance to win, but they sure can disrupt the establishment.

While it is very important to oppose the wars and infringements on civil liberties, the winning message is to tie it all back to the struggling middle class.

Sometimes people just want acknowledgement that life is a struggle. If you start there, then a certain trust is automatically built. I don’t think anyone actually believes that Biden is working hard to help the lives of ordinary Americans.

In 2024, it is possible to have a pro liberty message and a populist message at the same time. It starts with acknowledging that the middle class is being hit hard.

It’s hard to believe, but the yield curve is getting steeper in the wrong direction. Well, it’s the wrong direction for anyone not prepared for a brutal recession ahead.

This week, the financial media and even some Fed officials are saying that another 25 basis point rate hike by the Fed might be necessary. This is in order to fight that stubborn inflation that the Fed created in the first place.

With this, the short-term yields went higher this week. The one-month yield went from 5.69% on Monday to 5.95% on Thursday. At the beginning of the month, it was at 4.49%. The other short-term yields did not go up this dramatically.

The longer-term yields have gone up a little bit this month, but not to that degree either. So the inverted yield curve gets more inverted, at least using the 1-month yield.

The spread on the 3-month yield and the 10-year yield is 155 basis points. It is even worse comparing the 1-month to the 10-year, which is 212 basis points.

The crazy thing is that the yield curve has been inverted in most spots for the entire year (since January 1, 2023). How long will this go on for?

Timing a Recession

While the market forecasts another federal funds rate hike, it also projects that the rate will be lower than where it is now by the end of the year.

If the Fed is in this desperate fight against inflation, why would it start lowering rates again in 2023? The only answer is that we will be in a brutal recession, which will include more failing banks.

The timing on all of this is hard. It is typical for an inverted yield curve to become uninverted (if such a term exists) before the worst of the recession hits. It’s hard to say what will happen this time.

It’s also not clear if there is causation or correlation. If a recession becomes evident, then investors are likely to go into long-term bonds, which would drive long-term yields lower. But the Fed would also likely react with a lower target rate.

The Price Inflation Factor

The additional complicating factor in all of this is price inflation. When the financial crisis hit in 2008, price inflation wasn’t a big factor like it is now.

If price inflation is coming down with the onset of a recession, then expect the Fed to drop rates again and possibly go back to QE (i.e., creating money out of thin air).

But what if price inflation is still stubbornly high? If the CPI numbers are still coming in at 5%, will the Fed risk losing control of the dollar in order to “save” the economy.

As I have said many times, I don’t think the Fed is going to intervene to save the stock market. I don’t think the Fed will intervene to lower unemployment. I think the Fed will only intervene if major financial institutions need to be bailed out or if the bond market is in major turmoil.

The Fed does not want to further jeopardize the dollar’s status as the world reserve currency. It certainly does not want to destroy the dollar. The Fed is reckless, but not as reckless as Joe Biden and company. If the Fed loses control of the dollar, the Fed officials risk their own power.

The Fed is also not going to purposely try to save Biden’s presidency. Fed officials care more about themselves than who is president.

The recession should be in full swing by the 2024 election. This is a major factor that isn’t getting much discussion in all of the political talk out there.

Now that the Durham report has been released and shows how the FBI, CIA, Obama, Clinton, and Biden all colluded to make up a story about Trump colluding with Russia, it is time for the Democratic establishment media to come up with a new plan.

I’ve got it for them.

You see, John Durham himself is actually a Russian agent. He has been colluding with Russia to make up this report exonerating Donald Trump.

The Durham report has all of the earmarks of a Russian disinformation campaign. Durham is obviously a Putin puppet.

That’s all you have to tell the people watching CNN and MSNBC, and they will understand that this is more Russian meddling. They clearly understood that the COVID vaccines were safe and effective and that we had to fund Ukraine’s fight for democracy against Russia, so this should be no problem.

Actually, now that I think of it, why mention anything at all? The establishment media doesn’t have to say anything about the Durham report at all. It’s not as if the viewers will question anything they hear about it. They may not hear anything about a Durham report anyway. They don’t trust any alternative media.

But just in case one of their Facebook friends mentions something, or perhaps they catch something about it on a Tik Tok video, maybe it is best for the establishment media to just briefly mention the story and move on.

They can just say that the Durham report was released, and it did not recommend prosecuting anyone involved. It did not, however, 100% prove that Donald Trump is not a Russian asset.

All of those things are technically true by themselves. The media should be able to cover this story in 15 seconds and move on to more important things like climate change and white supremacy.

As long as the people don’t get curious and consider alternative media, then everything should be fine. Trump is still a Putin asset for at least half the country.

The mortgage rates today are a lot higher than they were a couple of years ago. They are still not considered high by historical standards, but it is painful for someone who needs a new mortgage today because of the big difference from the recent past.

I was incredibly lucky to have refinanced in very early 2021. I got a 15-year mortgage at 2%. I am often an advocate of paying down the mortgage (with certain exceptions) during more normal times, but it does not make much sense for me to pay extra on a 2% loan. I can easily get a better return on a cd or Treasury bill, even accounting for taxes.

As of this writing, a 30-year fixed rate mortgage would have an interest rate around 7%. A 15-year fixed would be a little under 6.5% for most people.

If you look at a 5-1 ARM, the rate is a little below 6%. This means the rate would be fixed for the first five years before adjusting. So for the first five years, this is the best deal.

If you are buying a house that you are likely to sell in the next 5 years, then this would make more sense than a regular fixed-rate mortgage. But I don’t recommend doing this in most situations due to the high transaction costs of buying and selling real estate.

Which Direction Will Interest Rates Go?

Your guess is as good as mine.

The price inflation significantly above the 2% mark indicates that rates could go higher. If the Fed has to keep a tight money policy to fight inflation (that it created), then this could mean even higher rates.

On the other hand, the yield curve is highly inverted, mid-size banks are failing, and a recession looks highly likely in the next year or so. This points in more of a direction of lower rates. If price inflation isn’t too much of a problem, then investors will seek safety in U.S. bonds, which will drive rates down.

It is hard enough to figure out where rates will be in a year or two. If we knew this for sure, then we could get rich playing the bond market. It is even harder to take a good guess where rates will be in five years or more when a mortgage might adjust.

Therefore, you shouldn’t really take this into consideration when making a decision. Even though it is the only factor that will ultimately make it a good or bad decision to get an adjustable rate mortgage, it is a complete unknown. So the decision has to be made on the assumption that either scenario will happen.

Budgeting for the Worst

One way to decide is to figure out the worst-case scenario if interest rates are higher 5 years down the road. Will the higher mortgage payment be crippling, or could you still handle it?

Getting the fixed-rate mortgage is really a form of insurance against higher interest rates. You are locking in the sure thing.

Beyond your monthly budget, which is also hard to predict five years down the road, your overall financial picture does matter.

Some people have savings, but they don’t want to drain everything in order to not take on a mortgage. But five years down the road, maybe you will have enough saved to pay off or significantly pay down your mortgage. If you get the balance low enough at that point, then the higher rate may not matter that much to you.

Most people are not in this situation though, so a fixed-rate mortgage tends to make more sense. Also, if rates drop a lot, then you can always refinance.

Right now, the difference between a fixed-rate mortgage and an adjustable-rate mortgage is not that significant. It probably isn’t worth the risk to most people to get the 1% better interest rate with the unknown risk after five years.

Waiting to Buy

Right now is a terrible time to refinance. Unless someone had really bad credit with a really bad rate, then refinancing doesn’t make sense for most people. Rates are higher now than they have been in a long time.

But what if you are purchasing a new house?

My first recommendation is to wait. Even though we are in an inflationary environment right now (in terms of consumer prices), we are also likely in a bubble. Housing is part of that bubble in most places.

There is a good chance that prices will fall in the coming few years.

There may be some good bargains at that time, at least compared to what we see now.

It seems like a terrible time to buy a property because prices haven’t fallen much, but interest rates are much higher, which makes the monthly payments higher.

The exception, of course, is to someone who has the money to pay for a house without taking on a mortgage. Then you are in the driver’s seat. You can also get a better price with this negotiating power.

It still might make more sense to wait for prices to fall in this case, but at least interest rates don’t matter if you don’t need a mortgage.

For most people, it probably makes sense to wait to buy, but it always depends on your personal situation. If you are going to buy, it likely makes more sense to get a fixed-rate mortgage for 30 years. You can always refinance later.

The FIRE (financial independence/ retire early) community is better off financially than most, but even they are hurting. I recently read in an FI forum some people complaining (justly) about price inflation.

One woman said her husband is considering going back to work part time in order to help pay for the higher prices they are experiencing. I’m sure this couple could have stayed retired for several more years, but the problem is that they would run out of money eventually.

If you are truly FI (financially independent), then you should ideally be able to live off of your investment assets/ savings forever without them being depleted.

If you have two million dollars in assets, and you are able to generate a 5% return above inflation every year, then you can live off of the $100,000 in interest/ income produced from your investments. Meanwhile, the principal balance won’t go down.

Underestimating Inflation, Overestimating Returns

I saw some people comment and generally agree with the woman. They agreed that price inflation was taking a bite out of them too. This could be the case for someone already retired or for someone trying to save for retirement. Some people have had to postpone their retirement due to the increased prices.

I was also proud of a few people who pointed out that the slightly lower inflation numbers coming in just meant that the rate of increase was decreasing, but prices are still increasing. There was also some debate about how much price inflation would be over the coming years.

I think the only thing to criticize the woman who originally commented is that her and her husband underestimated price inflation. They did not take that into enough consideration in their planning. But at least they are not now in denial. They clearly understand the situation and are talking about doing something about it.

But there were a few people critical of her. They said that she doesn’t understand the 4% rule. They said that inflation would be back down to a 2% average soon. But in all of their criticism, I felt like it was they who didn’t understand.

The problem is that this woman who originally posted was really pointing out a major flaw in the FI/ FIRE community. In general, many people tend to underestimate price inflation and its impacts, while overestimating returns from investments.

The 4% rule itself tends to mislead people into retirement.

Returns Above Inflation

Many in the FI community will say that, over the long run, you should be able to get at least an 8% average annual return. They tell you to just invest in broad-based index funds.

This in itself is flawed. I have to point out that if you invested in the Japanese stock market in 1989, you are still down to this day. I don’t think what happened in Japan will happen in the U.S., but it shows that a long-term downtrend is possible in stocks.

On top of this, many people believe that price inflation will run around 2% per year. This assumption has been blown out of the water in the last couple of years.

When people talk about returns, it isn’t always clear if they are talking nominal returns or real (inflation adjusted) returns. This makes a major difference.

We’re now in an environment where price inflation is currently running around 5% (according to government statistics), while the stock market is shaky at best. Last year, most people lost money in the stock market while prices continued to go higher.

This combination of higher price inflation and low or negative returns is absolutely devastating to a portfolio. Someone’s dream of retirement can be shattered in the matter of a couple of years.

And I think this is just the beginning. Don’t count on price inflation returning to 2% or less with stocks returning 8% or more per year. It is a fantasy, and I think some people are starting to wake up to it.

The nightmare is finally coming to an end. Perhaps it was the most authoritarian U.S. government action perpetrated on the American people this century.

The corrupt and evil Biden Administration has finally thrown in the towel on vaccine passports, at least for now. The White House announced on May 1, 2023 the following:

“Today, we are announcing that the Administration will end the COVID-19 vaccine requirements for Federal employees, Federal contractors, and international air travelers at the end of the day on May 11, the same day that the COVID-19 public health emergency ends.”

We can only wonder why Biden and his handlers finally threw in the towel. It’s not because the vaccines don’t stop you from getting COVID. It’s not because the vaccines don’t stop transmission. It’s not because the COVID vaccines have led to many thousands of deaths and disabilities. Even though all of those things are true, they were true and well-known a long while ago. So why now?

Maybe they figured the damage, destruction, and chaos they wanted to throw on society was already mostly done. Now they have to worry about the next election. They figured they could lightly take their boot off of the throat of the American people and give them a gasp of breath.

Even the authoritarian Trudeau let go of the vaccine passports for international travelers in 2022. Maybe international tourism means more to Canada.

Never Forget the Damage Done

These vaccine mandates caused massive chaos in 2021 up until now. Many millions of people took the jab because of these mandates. It is impossible to know anything close to the exact number.

So even if all of the taxpayer-funded propaganda didn’t get you, the mandates came for you next. You were told to get the shots or else you were not allowed to keep your job and feed your family.

There are so many Americans who were faced with a really bad choice. Some stood strong and fought the mandates, and some really did lose their job. Many people folded and took the shot because they weren’t in a financial position to say “no”. I do not blame these people. I feel for them. It was essentially forced on them.

Even if you were willing to get fired, it was a very scary situation in late 2021. The corrupt Biden people were trying to force everyone to get jabbed who worked for an employer with 100 or more employees. This would have accounted for approximately two-thirds of the whole American workforce.

So if you got fired from your job for not take the medical experiment in your arm, then your future job choices would be severely limited. Remember, it wasn’t known for a little while if the Supreme Court would strike down that mandate.

International Travelers

Aside from the employee mandates, let’s not forget the pain and suffering for those who live in a foreign country who are not U.S. citizens or residents. Not everyone coming to the U.S. is going to Disney World or playing in a major tennis tournament like Novak Djokovic.

Imagine someone who was born in Europe and is married to an American. This person was not allowed to travel to the U.S. to see relatives without being jabbed. Think of the people who couldn’t travel with their spouse to see a dying relative or to celebrate an event.

This isn’t a tiny number of people. There are over 7 billion people in this world who aren’t American. Some of them have relatives and friends in the U.S. Some of them have business to do in the U.S. Some of them just want to visit Disney World.

This all adds up to this travel mandate likely impacting many millions of people over the last couple of years.

Chaos and Destruction, For What?

All of this chaos, death, destruction, heartache, lost sleep, anxiety, and depression was caused for what?

It was to line the pockets of the pharmaceutical companies. It was to enhance the power of the ruling elite. It was to give a thrill to the creepy depopulationists like Bill Gates. It was to cause chaos and destruction to civilized society for the people who want to destroy civilized society.

Let’s be clear. These so-called vaccines did nothing to stop infection of COVID. They did nothing to stop transmission. They cause death and disease in at least a small fraction of those who get them, and we still don’t know the long-term consequences with things like cancer and auto-immune diseases down the road.

But even if you naively believe that the COVID vaccines are “safe and effective”, the mandates are highly immoral. They were also illegal.

Yet, nothing happens to Biden and company and all of the shills who pushed the shots. But trust me on this. There are many millions of people who won’t forget what happened. They are not going to forgive the evil criminals who tried to force these shots on all of society.

Now the mandates are over, at least for now. It’s just like all of the other corrupt and illegal things done by Biden and company. They declare student loans forgiven. They declare COVID vaccine mandates on the majority of the population. The Supreme Court strikes some of it down. “Oh well, they declared it unconstitutional. Back to the drawing board for our next illegal and immoral edict with no consequences.”

I will never forget the evil that has been perpetrated on the American people from lockdowns to vaccine mandates.

We Won

To end on an optimistic note, somehow our side has won, at least for now. The non-vaccinated suffered discrimination and humiliation like no major group has experienced in the last many decades of this country. Not only were our jobs threatened, but many places like stores and restaurants prohibited the non-vaccinated from entering.

Despite all of the government edicts and the mass propaganda campaign that even continues to this day, we somehow fought it back. The ruling elite wanted vaccine passports to be the new norm, yet we were able to defeat it.

This seemed far from inevitable in late 2021. But here we are. I’m sure they are already planning their next stunt.

The road of tyranny is not inevitable. If there are enough people paying attention who refuse to consent to the evil, the authoritarians can be defeated. We should use the example of vaccine passports as hope that we can achieve greater liberty.

The latest consumer price inflation (CPI) numbers came out. The CPI was up 0.4% in April 2023. The year-over-year now stands at 4.9%, which is the first time in well over a year that this number came in below 5%.

The more stable median CPI also came in at 0.4% in April. The year-over-year median CPI stands at 7%.

Perhaps this is good news that the rate of price inflation is coming down. While it could certainly be worse, it is important to acknowledge that the situation is bad for the average American.

The financial media can celebrate the “improvement” of an annual 4.9% reading, but prices are still going up 4.9% per year. It’s better than 9%, but things are still getting worse. They are just getting worse at a slower pace.

Prices are still 4.9% higher than they were last year, and that is on top of the higher prices that had already happened at that time.

When anyone says that inflation is improving, it doesn’t mean that prices are going down or that they stopped going up. They are just going up at a slower pace than before.

For anyone who shops at the grocery store, it is quite evident that prices continue to rise. The price of eggs or meat is not going back to 2020, or even 2022. At this point, I think most people would be happy if they just stopped going up.

No Relief for the Fed

While the American people continue to suffer, the Federal Reserve is still in the same predicament. The economy looks weak, and with the inverted yield curve, it could get a lot weaker. There is a banking crisis happening, despite any comments from Jerome Powell to the contrary.

It will be a lot more difficult for the Fed to step in and bail out banks and bail out the entire economy with easy money when price inflation is still running near 5%.

We should have no doubt that the Fed will not allow the banking system to fail, but I don’t think we should expect much in the way of bailouts beyond that. The Fed will protect the dollar over protecting the stock market.

The positive aspect of higher price inflation is that it does serve as some protection from the Fed going wild with another recession. The Fed is far less likely to engage in QE (or whatever term you want to use for creating money out of thin air) when price inflation is still elevated.

During the financial crisis of 2008/ 2009, the Fed went on a wild money creation spree, but we didn’t get significant price inflation. Even though the money creation and artificially low interest rates misallocated resources and made us poorer, the low price inflation let the Fed get away with it. The damage done was not as apparent.

In this scenario, the consequence of rising prices from the previous monetary inflation is in everybody’s face. The Fed doesn’t get a free lunch this time.

Expect a “Neutral” Fed Until It Can’t Be

There really is no such thing as a neutral Fed. Just its presence as a lender of last resort serves a function for the banks. It also supports the bond market. Bond investors are never really worried about an outright default from the U.S. government because the Fed can always create more money.

But in terms of any major changes coming from the Fed, I don’t think we will see any until there are more major banking problems.

With the rate of price inflation coming down, the Fed may or may not hike its target rate by 25 basis points one more time.

It will probably keep its pace, for now, of slowly draining its balance sheet (if you ignore the bailout of Silicon Valley Bank).

Overall, I don’t anticipate much action from the Fed until the economy starts blowing up. Even then, I think the Fed will only step in for the financial institutions.

The Fed isn’t going to bail out the stock market. The Fed will only bail out the bond market if there is a chance of default. It isn’t going to bail out housing unless it starts to significantly impact the banks.

I am still of the opinion that you should invest (or not invest) accordingly. There will be no bailouts for the stock market.

I recently had dinner with a bunch of old friends. I found out that one of them has become something of a prepper. I don’t actually know how much “prepping” he has done, but he was talking about an Armageddon-type scenario.

I have never known him to be political in the past. Maybe he still isn’t, but he is paying attention on the economic front.

I said I thought we would have a big recession and mentioned the inverted yield curve. He said something to the effect of, “Forget a recession; it will be a depression.”

I have written about prepping before. It is a good idea to prepare for events that may or may not happen. It is always a good idea to have some extra water, food, and cash on hand.

I think most people don’t fully realize how much trouble most Americans would be in if there was a complete breakdown of the division of labor. Even most people who identify as preppers go to the grocery store. If there was a complete breakdown in civilization and the trucks stopped delivering food to the grocery stores, I don’t think it would be an exaggeration to say that the majority of the population would be dead within 6 months.

The Good News, If History is Any Indication

The worst scenario any place can experience is war. You would not want to live in Ukraine or Yemen. You would not have wanted to live in Iraq or Afghanistan, and you probably still wouldn’t.

If there is no nuclear war or a major war on the soil of your country, then you are probably doing better than others around the world.

Barring a crazy scenario such as a meteor strike, then the biggest threat is your own government and the economy that you live under.

But even looking at some really bad situations in the past, life somehow went on for most people. Think about hyperinflation in Germany in the 1920s. Think about the more recent hyperinflation in Zimbabwe.

Maybe Zimbabwe isn’t the best example because it was already a poor country to begin with. But even in the worst hyperinflation scenarios, most people figured out a way to survive. It was a terrible experience, but they managed to live.

I don’t think we will have hyperinflation in the United States, but I can’t rule it out with complete certainty. But even in this situation, people find a way to barter or use other things as money.

As long as the government isn’t brutally authoritarian, some commerce is likely to continue.

Prepare Without Making Yourself Worse Off

If you want to be a prepper, I certainly have no objection. I would just recommend doing things that will make your life better even if the worst-case situation you envision doesn’t come to be.

If you store up extra food, then make sure it is something that you will eventually eat. Even if we just end up with 10% price inflation, then you will benefit from having bought your food earlier. But you don’t want to buy boxes and boxes of food only to see it wasted because something horrible didn’t happen.

When it comes to your finances, it should be the same way. You don’t want to have all of your wealth in gold, or cash, or guns, or real estate, or whatever you think is the best way to survive.

Ask yourself how things will turn out if we just have a deep recession, the government bails some people out and runs up more debt, and then life goes back to somewhat normal. Will your portfolio be higher or lower than when it started?

No matter what happens, almost all of the time the fundamentals are still the best path to follow. This means paying off debt and not taking on too much debt. It means having a diversified portfolio such as the permanent portfolio that will hold up in virtually any economic environment.

Conclusion

I think it is positive that many people are anticipating bad times ahead. It’s not because I want people to be pessimistic, but because I want them to be realistic.

It also means that more people are waking up to the threat that our own government poses. As long as government is somewhat held in check, then Americans can survive almost any situation. There will always be a marketplace where people voluntarily come together and trade.

The FOMC released its latest statement on monetary policy on Wednesday, May 3, 2023. The Fed hiked its target rate 25 basis points in the face of a heavily inverted yield curve and a banking crisis.

While the 25 basis point hike was widely expected by the markets, it is still somewhat surprising given the economic conditions. Sure, the CPI is still showing consumer prices rising at 5% annually. But it took the Fed long enough to realize price inflation was a problem before it actually stopped expanding its balance sheet just over a year ago.

In the course of just over a year, the Fed has hiked its target for the federal funds rate by 500 basis points (5%). It has gone from near zero to just over 5%.

The inverted yield curve that has been there for months appears to not bother Jerome Powell and other Fed officials. Maybe they really are worried about the dollar enough that they are willing to throw us into a recession.

A recession is baked into the cake anyway, but at this point in the boom/ bust cycle, it is still a bit surprising that the Fed is still hiking rates with most people realistically expecting a recession in the near future.

This Would be Funny if it Weren’t so Damaging

Jerome Powell held a press conference after the statement was released. The first point he addressed was the banking system.

He said, “the U.S. banking system is sound and resilient.” Just a couple of hours later, another regional bank announced it is exploring all options in order to stay afloat. In other words, it’s another major bank in default.

Powell’s comments came just a few days after First Republic went bankrupt and was taken over by JP Morgan Chase.

We are in the midst of a banking crisis and Powell is standing there saying that the system is sound and resilient. He might as well just stand there and repeat, “Don’t worry guys. I’ve got everything under control.”

When he says it is sound and resilient, maybe he is just displaying his own confidence in the Fed’s ability to create money out of thin air. Perhaps any system that is backed by the ability to create endless money is always sound and resilient.

My family budget would be quite resilient if I could just print money any time it was “needed”.

Even though this is serious business, it is still hilarious. You’d think Powell could have at least timed his comments a little better if he is going to try to gaslight everyone.

Who Pays?

With these somewhat major banks going belly up, who is paying for all of this? So far, it hasn’t been depositors. That was made clear with Silicon Valley Bank.

When these banks are acquired by the biggest of banks such as JP Morgan, you can bet that they aren’t just taking on a bunch of unnecessary risk. The Fed is probably taking on the bad assets from the bankrupt banks, or else they are giving some kind of guarantee to the big banks buying them out.

Ultimately, it is the average American who is paying for all of this. When Silicon Valley Bank had to be bailed out, the Fed’s balance sheet went from slowly declining to expanding by almost $400 billion in the matter of a few weeks.

So while the Fed is supposedly in tightening mode with higher interest rates, there is little doubt that the Fed will take care of one of its primary duties when called upon. That is to bail out the banking system.

Its other main job is to fund the deficits from Congress, but it hasn’t been doing that lately. It seems that this is a secondary job compared to bailing out the banks.

Anyway, we all pay in the form of a depreciating dollar.

The Financial Crisis is Here

Jerome Powell can say whatever he wants, but it doesn’t change the facts on the ground. The yield curve is heavily inverted while the Fed just hiked its target rate again.

This points to a hard recession coming up.

If that weren’t enough, now we have somewhat big banks (not the biggest banks) going under, largely because of the rising interest rates.

This almost seems like a perfect storm of disaster. This could make 2008 look like a picnic.

The crazy thing is that stocks were going up last week. In the face of an inverted yield curve, rising rates, and a banking crisis, apparently some investors are still bullish on stocks.

This Everything Bubble is going to implode hard. The warning signs are everywhere. The banking crisis is a symptom, but sometimes it is important to pay attention to symptoms and not ignore them.

I went to the grocery store over the weekend. I spent $254 and change on groceries. It was actually $334, but I took advantage of a deal where I could spend $80 and get $100 in gas cards.

As we left the checkout, the cashier told us we saved 90 something dollars. I kind of chuckled. We did try to take advantage of some “buy one get one” specials and some other discounts, but it didn’t seem like almost a hundred dollars in savings. It felt like I had just spent $254 on groceries.

We didn’t even get all of our meals for the entire week for the family. There were a few purchases that may be for things that we only have to buy once a month, but it was still a lot. I was just noticing the prices on items from meat to nuts to eggs to fruit to chips. Everything just seems absurdly expensive.

Not Much Wage Inflation

I can tell you from personal experience and anecdotal experience that wages are not keeping up with price inflation at the grocery store. And no matter how the government calculates the CPI, virtually everyone has to buy food from a store. Maybe there is a tiny fraction who grow their own food, but even here I find they still have to shop for certain items.

For someone making an exceptionally high income, the price increases at the grocery store are not a big deal. If you’re making $400,000 per year, an extra 50 bucks at the grocery store is barely felt.

But for most of America – and that includes many people making six figures – the higher prices are a major drain. Some people have to save less. Some people can barely save at all. Some people have to make major cuts in other expenses. Some people even have to take on debt just to buy necessities.

Struggles Before a Recession

During an economic boom, it is believed that most everyone is happy and living well. It is when the recession or depression hits when nearly everyone struggles.

But the struggling happens before the bust phase. The recession is especially hard for those who lose their employment. It is also hard because asset prices like housing and stocks are likely to go down.

But for most people, a recession is just hard because it is a realization that the supposed good times can’t keep rolling. It forces some fiscal discipline, which means belt tightening.

If you go on vacation and live it up for a week, everything seems great. But you know that life can’t continue because you have to keep earning money to pay for it. So reality eventually strikes and you leave your vacation to go back to work.

But the analogy fails a bit here because the hard times start before the recession hits. That’s where we are now.

American families are struggling greatly. Many don’t want to talk about it because of the fact that we aren’t in a recession, at least according to the official data and the official definition. People will make comments complaining about prices, but they won’t be really open about how much of a struggle it is.

The fact is that consumer prices are rising faster than wages. Food is one of those things going up in price faster than wages, and almost everyone buys food. So in that category, most people are falling behind.

And even if price inflation slows down to 2%, prices are still going up. They are just going up at a slower pace. It’s not like food prices are ever going to go back to what they were a few years ago.

We Need Relief

America – especially middle class America – needs a good hard recession. Sure, it will be painful. But you know what? Right now is quite painful.

At least with a recession, we can hope to repair some of the damage (the misallocations) and set the stage for some actual prosperity in the future.

Unfortunately, the Fed often steps in and creates more money to “cure” the problem while setting the stage for more trouble down the road.

But even if there is some Fed intervention, we still need a recession to clear out some of the malinvestment and to bring everyone back to reality.

With the heavily inverted yield curve, a recession is baked into the cake at this point. It’s just a question of how soon it will happen and how severe it will be.

Again, this will be painful for many people. It will be especially painful for people who lose their primary source of income. But if we don’t have a correction, the hard times will just keep going and keep getting harder.

The tight Fed policy of the late 1970s and early 1980s (after an era of loose money and high price inflation) brought about multiple recessions. But the 1980s ended up being pretty good, economically speaking. It was probably the last time there was a good cleansing of the malinvestment.

At this point, Americans should actually hope for a recession. It is going to happen anyway, and most people are already struggling. We might as well get the pain over with and have some hope of returning to some kind of genuine and sustainable prosperity.