May 16, 2022

Permission to republish original opeds and cartoons granted.

 

With inflation still above 8 percent, why aren’t interest rates rising more?

 

By Robert Romano

Ever since inflation first rose above 5 percent in June 2021, the Federal Reserve has kept its policy rate far below that of the inflation rate, even as it reached more than 8 percent the last two months, in order to keep a more accommodative policy stance coming out of the brief 2020 Covid recession.

Even now, with the Federal Funds Rate at just 0.75 percent to 1 percent, it will come nowhere close to the rate of inflation, which stood at 8.3 percent in April. And with just five meetings left in the year for the Fed’s Board of Governors, Fed Chairman Jerome Powell, who was just confirmed to another term by the Senate, has ruled out any more than a half a percentage point interest rate hikes, telling reporters on May 4, “Seventy-five basis points is not something the committee is actively considering.”

Meaning, even if the Fed did half a point rate hikes at each meeting for the rest of the year, the Federal Funds Rate would still just be 3.25 percent to 3.5 percent by December, much lower than the current rate of inflation, even with the recession signals flashing red all over the place and the economy clearly overheating.

But what about market-driven interest rates? While the Fed’s policy rate is set by the Board of Governors, rates such as 10-year treasuries at 2.9 percent or 30-year mortgage rates at 5.3 percent are very much set by markets and what banks and investors are willing to lend the government and home buyers, and while they have increased some, those too have similarly remained below the rate of inflation.

Now, part of that is driven by the Fed itself keeping lending costs artificially lower than they otherwise might be by keeping rates low. That is, when it is cheaper for banks to lend, then they can afford to pass on some of those savings to borrowers.

During Covid, the government spent, borrowed and printed more than $6 trillion to fight the pandemic and the ensuing economic lockdowns. The Fed’s purchase of treasuries and mortgage securities during this time similarly have kept interest rates lower than they would have been.

Then, there is just the flight to safety. Government and financial institutions around the world now see another recession coming with the war in Ukraine worsening along with the supply chain crisis and incipient inflation, and so they are flooding into U.S. treasuries markets. This action requires selling their own currencies to purchase treasuries in dollars, causing the U.S. dollar to strengthen and interest rates to drop.

In short, lenders, in offering relatively low interest rates are pricing in a lower rate of economic growth in the near future. That is, with the economy overheating and prices surging, banks are betting that the imminent recession will keep inflationary pressures lower in the near-term.

In history, other times in recent economic history when inflation sat above market-set interest rates were in 1973 through 1975, and 1979 through 1980 — even as the Fed did act to hike rates in real-time. Both resulted in recessions, and because inflation was already very high headed into each of them, it remained higher coming out of them, compressing the subsequent business cycle and hastening the pace to the next recession after that.

Which is why it is preferable to prevent the inflation in the first place. Unfortunately, with the supply chain crisis not yet resolved and the Fed’s blast of liquidity after Covid still sloshing around the economy, higher prices look as if they will be persistent even headed into the next recession. Only time will tell how severe it is. Stay tuned.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government Foundation.

To view online: https://dailytorch.com/2022/05/with-inflation-still-above-8-percent-why-arent-interest-rates-rising-more/

 

Cartoon: The Hunger Games

By A.F. Branco

To view online: https://dailytorch.com/2022/05/cartoon-the-hunger-games/

 

 

Newt Gingrich: There's a real opportunity in 2022 to begin to build an American majority, not just a Republican majority

By Newt Gingrich

I wrote this four-part series on creating an American majority, not a Republican majority for a reason. I am convinced the radicalism of the Big Government Socialist, woke politicians and their performance failures create a unique opportunity to propose a dramatically different future for our country. This future is based on different principles and focused on unifying all the American people who reject leftism and are fed up with failure.

There is a chance to create an America that works. We can replace the Big Government Socialist woke world that fails.

Moving forward to a new renaissance of a successful, working America requires winning the simple performance argument – and the more complex policy-values arguments. The importance of winning both arguments is captured in Claire Berlinski’s invaluable book, "There is no Alternative: Why Margaret Thatcher Matters."

Berlinski describes how Prime Minister Thatcher set out, from her first days as opposition leader, to destroy the moral legitimacy and performance promise of socialism. She did such an effective job of discrediting socialism as a moral force that no openly leftwing leader has been elected Prime Minister of Great Britain for 40 years.

It was during this period of intellectual and moral hammer blows against the left that Thatcher said "first you win the argument, then you win the vote."

Thatcher is as important a leader as President Ronald Reagan for those who want to understand how to win cultural arguments and move America from Big Government Socialism to a more rational, work-oriented, success-based policy of creating a better future through free enterprise and entrepreneurship.

Before Thatcher, the Conservative Party in Britain had been dominated by elitists who were used to accepting the core attitudes of socialism. They were comfortable operating within a framework slightly right of the Labour Party – but nothing too bold. 

Thatcher had come from a solid middle-class background and grew up with Winston Churchill as her hero. She saw herself fighting to save Britain from the moral and economic decay of socialism fully as much as Churchill had fought to save Britain from the mortal threat of Adolf Hitler.

Thatcher had the toughness and firmness of a wartime leader. For a woman to express these characteristics in 1975 Britain was astounding. Even through a modern lens, her determination is astounding regardless of her sex.

She once pulled F.A. Hayek’s "The Constitution of Liberty," a nearly 800-page classic work on freedom, out of her purse and slammed it on the podium at a party meeting and declared, "this is our platform. This is what we are fighting for." And she won.

Her greatest achievement may have been Tony Blair’s development of New Labour built around Thatcherian principles. Paul Johnson called Blair, "Thatcher’s adopted son." 

Like Thatcher, we have an opportunity in 2022, 2024, and 2026 to win both the performance and policy-values arguments.

If the American people conclude that the Joe Biden-Kamala Harris-Chuck Schumer-Nancy Pelosi team has only failed on performance, they might be comfortable replacing them in a few years with other similar Big Government Socialist leaders.

However, if, in the Thatcher tradition, the American people conclude that the woke policies, beliefs, and values are the ultimate cause of the Biden-Harris-Schumer-Pelosi team’s failure, then they will be reluctant to return them to power for decades – and possibly even generations. Look at how long Republicans remained a minority in the Rooseveltian revolution after 1932. Republicans really only began to achieve parity under Reagan (himself a former FDR Democrat) after nearly 50 years.

It is impossible to win victories on this scale if we are solely focused on trying to create a Republican majority. There are millions of Americans who are deeply (and increasingly) unhappy with the current system. But they are not ready to become Republicans. 

The Reagan Democrats became a halfway step for conservative Democrats, who gradually transitioned into being Republicans. Similarly, there must now be an American focus to make it as easy as possible for people to be allied without having to repudiate their own identities.

Consider some of the massive American majorities that are already out there. They can potentially become a movement that focuses on a better life for all Americans. There is a great amount of this data available to everyone at AmericanMajorityproject.com, but here are a few examples.

Most Americans agree on our historic core principles.

*By 59 percent to 16 percent, Americans favor Free Market Capitalism over Big Government Socialism. When undecided voters were asked the same question without a "no opinion" option, the split was 82 percent for Free Market Capitalism to 18 percent for Big Government Socialism.

*78 percent agree the United States is the greatest country on earth, while 18 percent disagree.

*84 percent believe the founding ideals of America are something worth fighting for. Only 9 percent disagree.

*79 percent believe that people who believe in the values found in the Bible have the right to express them publicly, only 12 percent disagree.

*77 percent believe that canceling or blacklisting people over their opinions is wrong. Only 13 percent see it as helpful.

Most Americans agree about limiting government.

*73 percent agree that the federal government is a special interest group that looks out primarily for its own interests.

*80 percent think big government and big business work together against small businesses. Additionally, 74 percent of voters think they work together to harm individual citizens.

*A majority of Americans say federal government spending is wasteful, corrupt, and badly prioritized. There was little partisan or ethnic difference in this perception. Democrats agree (57 percent to 26 percent), Independents agree (53 percent to 32 percent), Republicans agree (63 percent to 25 percent), Blacks agree (61 percent to 15 percent), Whites agree (55 percent to 23 percent), and Hispanics agree (55 percent to 23 percent). Those who agreed also said that cutting wasteful spending and corruption would be enough to balance the federal budget.

*By 67 percent to 19 percent, Americans believe limiting federal spending and balancing the budget will reduce inflation, with 74 percent of Latinos offering the strongest support.

Most Americans agree on education issues.

*84 percent of voters believe that parents should be able to see all curriculum plans and materials for classes their children take. This would mean that parents would have access to teacher lesson plans, book excerpts, and videos shown in class.

*68 percent believe that public schools are lowering standards, rather than expecting stronger performance from students.

Most Americans agree about gender issues.

*75 percent of American adults agree that there are only two genders, male and female. That total includes 63 percent who strongly agree. Only 18 percent disagree.

*67 percent do not want teachers in kindergarten through third-grade discussing gender identity with their students.

*By more than 2:1, Americans believe transgender athletes should compete on teams aligned with their birth sex.

*Fewer than 10 percent of Americans want gender removed from a child’s birth certificate.

Most Americans agree about border security and immigration.

*71 percent believe legal immigration is good for the United States. Just 15 percent disagree.

*73 percent believe illegal immigration is bad for the nation. Just 13 percent disagree.

*70 percent believe the drug cartels operating at the southern border should be designated as terrorist groups.

*67 percent believe the border should be secured and illegal border crossers returned to their countries of origin.

*66 percent would support eliminating all government payments to people in the country illegally, while 22 percent disagree.

A majority of Americans agree about the importance of work and independence.

*74 percent approve of requiring able-bodied adults to work for taxpayer funded benefits such as food stamps, health care, or welfare, while 16 percent oppose.

*59 percent believe people should be encouraged to work and be less dependent on the government, while 33 percent favor taking care of people even if they may become dependent on government.

Most Americans agree about discrimination.

*91 percent agree with Rev. Martin Luther King Jr that the content of our character should matter more than the color of our skin. Only 6 percent disagree.

*91 percent also support equal treatment regardless of race when it comes to education, jobs, health care, and government services. Only 6 percent favor preferential treatment.

The majority in favor of race neutrality is strong among all demographics, including 78 percent of Blacks and 89 percent of Latinos. It also includes 87 percent of Democrats, 89 percent of Independents, and 97 percent of Republicans.

Most Americans also agree about health care issues.

*87 percent support health care price transparency to control costs and increase access to health care.

*75 percent believe we should fix health care by putting patients and doctors in charge instead of insurance companies and big government.

An American majority agrees on domestic energy production.

*63 percent agree that America can further develop domestic natural gas and oil production without putting the environment at risk. Only 28 percent disagree.  

Finally, Americans are clear about the importance of honest elections:

*85 percent support requiring all voters to show photo ID before casting a ballot.

*80 percent support a requirement for states to remove people who have died or moved from voter registration lists.

*82 percent support requiring all ballots to be received by Election Day.

In every one of these examples the majority is much larger than the Republican Party – and usually includes a majority of independents and a significant minority of Democrats. 

They are truly American issues.

The consistent scale of these majorities should be a road map for those who want to build a long-term, stable American majority rather than a smaller, and shorter lived, Republican majority.

To view online: https://www.foxnews.com/opinion/opportunity-2022-build-american-majority-republican-newt-gingrich