 It's Wednesday. It's February the 16th, 2022. I'm Tim Apachele, your host for What Now America. Today's topic is inflation. And the title is The Fed's Response to Rising Inflation. Inflation is here. Apply the brakes slowly. For those in the baby boom and Gen X, they may recall the inflationary times back in 1979, 1980, 81, 82, where the prime rate was 21%. Fixed rate mortgages hit a high of 18%. Your money just wasn't earning enough to keep up with inflation. We had something called stagflation, which means you had a stagnant economy and high inflation. For those who are in the Gen Z and the millennial generation, this is probably a nuance to you. You haven't experienced this yet. Well, we'll see if it's going to be similar to what we saw 40-some years ago, and hopefully not. So with me to talk about inflation and how maybe this time is different than previous is the following. My guests, Jay Fidel, Winston Welch, Cynthia Lee Sinclair, and Karen Buzzard. Welcome, everyone. Thank you. Here's the question of the day. If we're in a rising inflation scenario, now bear in mind that we only have the consumer price index increases of January and February. I believe January was 6%, the highest in 45 years, and January was 7.01%. Is it premature, in your opinion, that we're in an inflationary environment, or is this just a nuance? Is this just something that was caused by a shortage of supply? We have supply shortages, something that was caused by a whole variety of add-ons. What do you think? No, this is not temporary. This is not a small cycle. It's a big cycle. I think one of the reasons, and you guys maybe have other thoughts about this, is that a lot of people have stayed home for the past two years, plus two years and almost one calendar quarter. Now, they haven't gone out. They haven't spent money. They haven't done their regular spending. And for one person, one family, that doesn't make maybe too much difference. But if you multiply that by all the families in the countries, by hundreds of millions, then you see all that money has been stuck all this time. And then we have the phenomenon last fall. Well, it's safe to go out again. And actually, it's becoming safer now. Today, the advertisers reported as yesterday less than 500 cases. That's really a remarkable drop in the number of cases. And that's happening in other places in the country too. So it's all a question, economics is all a question of confidence, public confidence. And it seems to me, people have the confidence and they have the money that they haven't spent over the past two years. And they're spending that money. They're going to continue to spend that money. Furthermore, as you said, Tim, we have supply line problems. We have supply and demand. You don't have to study a lot of economics one on one to know if you have a short supply and high demand, which is what we have, you're going to get inflation. And furthermore, I just like to say in a way retrospectively, I'm glad that you lost our bet. Because you thought the social programs and build back better would be passed. And we'd be spending trillions on that. We're not spending trillions on that. And in a way, thank goodness, because that would have put an enormous jolt into the money supply and made it worse. I'm not conceding to that yet. It's build back better too, which is coming in two months. Okay, all right. Maybe we should double our bet. Okay, so in any event, what we have is too much money. And what we have is a lot of demand, what we have is a problem in supply. So that's the recipe for inflation. The other thing is, if you do study economics one on one, which I did in school, I majored in economics. What I learned after two or three years in college about economics was that it is an art, not a science. Here we have all this fabulous technology. We have artificial intelligence. We have people who can put it in a black box and get out a complete answer on any discipline you want, any science you want, but they can't seem to figure out the social aspect, the public confidence aspect of inflation. And it's a disappointment because you would have thought by this time in the development of the country's technology and the discipline of economics, we wouldn't have figured it out. We haven't figured it out before. We really had very little control of it. And it's now 7.5% increase in inflation over the past year. This is very troublesome. And I don't know if age or Biden can do it. And whether Joe Biden has the government will and expertise and in Congress to stop inflation. So I think inflation, to answer your question, is here to stay for a while. It's going to be an organic process and it's not too much that we can do about it, assuming we all continue our spending habits. Let me go to part B of my question. That is, the Fed has given us a money supply environment for years by quantitative easing, buying back, you know, its own treasuries. M1, M2 money supply is abundant. It's free money basically to borrow at such low interest rates. To what degree has the Fed spurred this on by not treating the wheel fast enough? The overnight rate is zero to a quarter of 1%. Is the Fed a little late, in your opinion, or not, as far as increasing the overnight rate fund? Absolutely not. Absolutely not late. We could have seen this coming months ago and the Fed did nothing. There was a hangover from Trump, you know, he wanted low rates so he could make lots of loans. But in fact, that hurts the country. We should have done something a long time ago. We should have anticipated this. It's not that big a surprise, but we didn't anticipate it. We didn't do anything about it. And you know what they say about inflation? It runs away on you. Once it's here, you know, you can't do much to stop it. And I think we're at that point now. Okay. I'm going to go to, thank you, Jay. I'm going to go to Cynthia. Cynthia, inflationary times are really tough. I'm going to assume that you may recall back in 1979 to 1982. What inflation had an impact in your life? What did it feel like to you? Well, not being really into all of the money and the economy and all that sort of stuff, I didn't really realize all of it. You know, I was pretty young at the time, but I'll tell you, I bought a house in 1982 and at 17% interest rate is what we paid for it. So, I mean, it's just ridiculous when I think back at what we're paying, people are paying now, and what I paid all the way back then was ridiculous. Other than the mortgage rate, did you find that times were tough as far as gasoline prices or food prices? Or was it relatively, did you notice all that much one way or the other other than your mortgage payment? Yeah, I didn't really notice much. To be honest, my husband had a really good job, and so I was a stay-at-home mom, and I didn't really notice a huge difference. Our budget didn't change that much, and I didn't get to have control of our money, so I didn't recognize things as well. But I do remember that the interest rate was just ridiculous, and it almost stopped us from being able to buy a house because of it. All righty. Winston, to you, do you agree with Jay that the Fed is, because the title of the show is The Fed's Response to Rising Inflation, do you agree with Jay that the Fed is a little bit lackadaisal, a little bit dragging his feet before it is starting to increase rates? And if so, to what degree? I think they've already indicated that they will be increasing rates. Of course, that gets built into the market expectations, but for the average Joe or Jane on the street, we are seeing price increases, especially in certain areas that might be in food areas. When you go to Costco, how much did that product cost before? How much is it costing now? Other things are strangely the same or cheaper. Some things, you go to buy a bolt, and it's $4.95 when it should be a quarter in your mind. Sometimes I think I'm stuck in 1980s prices. The last time that inflation was an issue in this country was when Ronald Reagan took office, and it was stagflation. Those days aren't here right now. It's very interesting to see how we're coming out of COVID right now with a 40-year high in the growth of the economy. The economy overall grew, I don't know, what was it? 6.5, 7% overall for the whole year, and the last quarter was even higher than that. So this is astounding, really considering everything. You mentioned M1. M1, which is essentially cash or near cash savings and that sort of thing, not stocks and bonds, tripled. Fund money was poured into the economy, and most people sat on that money or a chunk of it that was coming in from COVID relief. They were sitting at home, they were afraid, they didn't know what was going to happen, and they wanted to have some cash in their pocket, and I think they still do. I think we're still seeing savings rates at historical highs amongst people as well as bulk buying and those types of things. So that's not gone away yet, and yet M1's money supply has gone from something like $6 to $20 trillion in the last couple of years alone. This is a lot of cash out there. People want to go shopping. They have a lot of pent-up demand to buy everything. You try and I hear from my friends who are getting home remodels or even wanting to buy a car. It's just not out there because, well, there's some supply chain things, of course, those are going to settle out, but people want to go shopping. This is a nation driven by consumers. It's the majority of the economy. They've been frustrated until now, and they're going out and buying stuff. So it's no surprise that inflation, which is a charge what the market will bear, is what companies do. And eventually it will equal out, assuming that our monetary policy has any rationality to it. And I studied economics too, like Jay did, and I don't understand how the whole thing just doesn't collapse like house of cards. But let's just assume that it doesn't. And we all have faith in the system. Inflation is set to go down. The economy is set to cool down a little bit. Supply chain issues will abate as COVID now seems to be, it's not going anywhere, but we seem to be just kind of pretending that it is and opening up everything everywhere. So I would say that this is a lot to do about nothing. Let's just come back here in a year. And if we see sustained inflation or something that's really meaningful, you could still get a home loan. What's the 30-year rate now? 3.2, 3.4%. This is insanely low if you still think about it. Now, can you afford the house that's just gone up 50% in price in the last two years? That's another matter. But if you have the money, which of course, another inflationary pressure on homes, your loan is going to be cheap. Well, I think you hit something very important that is what sector of inflation are we really dealing with here? We're looking at CPIs saying, oh, the sky is falling, but you have accurately described the housing market, which I'm sure the inflationary numbers not just here in Hawaii, but in many, many states where supply is limited and the valuation increases are astronomical. And it's putting a lot of people out of reach from buying their first home or certainly graduating to another larger house or something like that. So it depends on what sectors we're talking about. I guess it goes to the question is, to what degree has the COVID stimulus added on to our CPI numbers or did they? Or is it just the fact that we've been pent up and M1 has just been sitting around way too high and people want to go back in debt like we used to be? All of the above. And people have actually reduced their debt in this environment as well. So they don't want to carry as much debt. I don't think that's what people expected. That stimulus money was there to keep people in their homes. It was there to keep them fed. It was there to make sure that they had enough to survive this pandemic. And it did what it was supposed to do. I mean, this is a classic case of Keynesian, this is government economic intervention when we needed it. And it kept us from collapsing all over the place. So I mean, looking back with the last two years, it's really quite amazing that we're in the economic overall macro economic situation that we're in. Yes, housing prices have become absolutely out of reach. Other things are have spiked. But our economy did not collapse and has not collapsed. Is it hard out there for a lot of people? Yes, do we have insane wealth distribution in this nation? Yes, are there issues? Yes. But the fact that we seem to be almost back to business as usual compared to a couple of, you know, three years ago, I find it quite amazing how we've sort of come out of this car pile up and walked away from it more or less intact. Alrighty. Thank you, Winston. Karen, to you, you know, there's a lot of the demographics of the United States is, you know, it's getting older. The baby boom generation is getting older. And they're starting to file for their social security benefits. And that means they're more or less on a fixed income with their own 401k savings, hopefully, and social security and other supplemental funds that they've collected throughout their working lives. But the question is, for those on fixed income, even though they got a 5.9% increase in their social security benefits for 2022, how do you think they respond if this inflationary trend continues to increase? Well, I don't think that money is going to keep up with the inflation. 5% is not that, you know, 5% and change is really not enough to keep up with, you know, say the housing market. If you see, I believe there's a bubble right now in all three markets, the bond market, the housing market, and the stock market. So, you know, if you're not in the stock market, depends on, you know, those boomers that are in the stock market or not. If they were in the stock market, then, you know, the stock market's been going up and up and up. If they're not, they're in a severe disadvantage, I think, because, you know, real income is going down. But I also want to disagree. I think the one of the key reasons we're seeing inflation is because of this federal policy that is really just an experiment that started in 2008 called quantitative easing, which is basically the feds are putting trillions of dollars manufacturing it out of, you know, they have a printing machine in the basement, as they say, putting it into the hands of banks, the idea and corporations, the idea where they were supposed to use it to stimulate the economy by creating jobs and helping labor and so forth. Instead, the banks kept the money. So, it was sort of a trickle down theory that the banks were going to trickle the money down. Instead, they kept it. The corporations, instead of putting in new jobs and creating more of a labor market, they started buying back their own corporate debt. And then they learned that that raised the prices on their stocks. So, the more stock they bought back, the higher their stock went up. So, instead of using the money to trickle down to the ordinary person, it in fact stopped at the banks and the corporation. So, it was even Joseph Stiblitz, what's his name? Joseph Stiblitz, who is a famous economist, indicated that this was a trickle down policy that was failed. And I think it has failed. And the result is these lower interest rates have basically stimulated unorthodox behavior in, you know, Wall Street, because they can borrow money at almost no cost and experiment with it, whereas it doesn't really go down to the consumer. The question is, can they now with the rates being out of control, inflation out of control, can they now kind of wage, can they put enough money back into the interest rates without scaring the economy, you know, causing it to crash? Because I don't know if you remember this, but Ben Bernanke tried to do that. And Wall Street had a temper tantrum, they called it at the time, where he tried to raise the interest rates. And they all reacted very negatively. The market crashed. He got so afraid that he had to come back out and state that he wasn't going to tamper with the interest rates. So it's sort of like an addiction for Wall Street now, they're used to being bought out or saved, you know, from their bad behavior. So some say they've created an environment which rewards bad behavior now. Well, that's a great point. You know, you could have Wall Street protest all they want, but what's different between the Ronald Reagan years and these years is we're now in a worldwide economy. And, you know, Europe is starting to feel their inflationary numbers and they may not really care what Wall Street thinks one way or the other. They may start increasing rates on their own, you know, whether or not the United States starts to or not. We'll see. This leads me to a point about corporate. You had mentioned that during the interest rate, corporate rate cut that corporations didn't take their money and reinvest it in capital improvements or workers' wages, but they bought back their own stock. We're now starting to see that again, where stock buybacks are occurring and of course, like all good things, CEO compensation is increasing quite greatly, actually. And the question is, are they starting to blame inflation as the reason why this is happening, why they now need to increase their prices? I heard Serial is going to go up 20%. Journal Mills is going to increase Serial to 20% in a price hike, where in fact, it may look like they're just buying back more stock and giving the CEO a lot more money. To what degree do you think corporations are gaining on the bandwagon and blaming inflation for something they've been wanting to do for a long, long time? Karen? Oh, me? I think it's basically, I don't know if you follow this, but Jerome Powell just bought back the bad stock from the corporations, the corporate debt. So he took the whole idea of quantitative easing one step further by even buying back the bad stock from the corporations that were in debt. So not only, so I think that a lot of it is the federal policy that they've been following and that the Wall Street has been come addicted to being bailed out. So we're seeing the federal the Fed basically bailing out more and more of the bad behavior of the companies. So the question is, are they going to have another tantrum if he tries to raise the rates, which would mean one of the results of the lower interest rates is that this kind of half of the economy is booming, the stock market, but these main street is not booming. So it's a disproportionate, this whole policy of quantitative easing has led to disproportionate money for those on the stock market versus those who are not in the stock market. Okay. Thank you, Karen. Gtu, you know, the COVID pandemic really highlighted and amplified the differences between the haves in America and the have nots. And that could account for a lot of the grievances that Trump was able to tap into the economic disparities. He also, you know, peppered that with racial disparities. Does this inflationary environment, if it continues, does that play well to those Trumplicans that are trying to inflate grievances and using inflation as part of their springboard? Yeah, absolutely. And by the way, I really agree with a lot of Karen's points, really sophisticated points that we need to talk about maybe on another show. But I think the disparity hasn't gone away. The income disparity is great. And the tension is between people who work in Walmart or in low-end retail, they're not making a lot of money. They're still having trouble paying the rent. They don't own much. And that hasn't gone away. In fact, that's increasing inflation makes it harder for them. So to the extent that this, you know, what Jerome Powell brought in from Trump to Biden, you know, has a negative effect on their lives, that effect is probably increasing right now. And so if you're worried about the, you know, reverse effect of the disparity in wealth as against the, you know, the political troubles we have, I think the disparity is increasing and will increase and more so by the inflation. And that will create more political problems. That's what we have. I want to add one other point. And this sort of, this is around the whole thing we're talking about. It amazes me that we can't settle on good policy here. We change the policy with our underwear. We change the policy every time you have a different administration. I don't think Jerome Powell has been a great fed. I think we do need experts that we'll carry on from administration to administration. We also need policy that's more than visceral. And it's more than reacting to political. I remember how Trump was always pushing Powell around and Powell was responding to that. I think we need to use our best technology. All that AI, today on our website, our ThinkTech website, our daily advisory, we have a reference to an article by Ezra Klein and take a look at it. So what can the U.S. provide to the world, including of course Europe, to help deal with inflation, to help deal with these economic problems? It's not just the regular social stuff, the regular political and constitutional and liberal order stuff. It's technology. Technology that can be applied. We are not applying our technology to our economy. We have got to learn to do that. Can you give us an example of how technology could address this issue? Sure. I was going to say, you talk about CPI, right? It's a metric. There are a lot of metrics. I'm not so sure, as Karen is not so sure, that CPI is all that good a metric, but there are a lot of metrics. So you make an algorithm, remember that? You make an algorithm that looks at all of them and it goes daily. It goes as often as these metrics are issued and it gives you suggestions about the rate, about the money supply, about any number of things the government can do. And you know, either Congress has to come along and do stuff or you have to delegate all of that to somebody who runs the black box. So I think it's a question of an algorithm that is tested that works for the academic economists in our country that has some control over inflation and everything else around the money supply and the economy. And it has built in principles, moral and ethical points to avoid the disparities. We have to make policy and we have to implement the policy with technology. We have not done that, Kim. We better do it soon. I'm talking about reform with a capital R. All right. Thanks, Jay. You know, we've run out of time. I'd like to go around the table and get last thoughts about what you think about inflation, whether this is premature in the discussion or are we right on time to discuss it? And will we be discussing this six months from now? I agree with you, Jay. I think we will be. So let's go around the table, Karen. I'll start with you. Your final thoughts. I think the inflation is here to stay. I think the Build Back Better Plan is an attempt to address those who didn't get the bailout from the stock market, that those are in the stock market and the corporate halves that got huge profits out of printing trillion dollars of money by the Fed and handing to them with no stipulations basically instead of ensuring that it went down to where it was supposed to to the to the ordinary main street businesses. So I think that they need to realign the federal policy, but it's going to be very difficult because Wall Street is going to react if they start. They have to raise the rates very carefully and minutely in order to not get extreme reaction from the stock market. Alrighty, just so I can alleviate Jay's concern about the payoff of the bet that we made some time ago. Do you think there's a Build Back Better too or do you think it's done? I think it's going to be in smaller packages rather than try to be a huge overarching bill. I agree. Some parts of it will get passed. I agree. I lose the bet anyway. Okay. Thank you, Karen. Winston, to you, your final thoughts. Let's come back in six months or a year and see what's out there. Like I said, we're walking away from a multi-car pile up relatively over the last couple years. A lot of pain points in the economy, certainly inflation, certainly affecting all of us in various ways. But as Karen said, we're the quantitative easing in 2008. Let's not forget that Barack Obama inherited an economy in freefall collapse, and we had to have government intervention right then. Wall Street got bailed out. Yes, they did. But who is Wall Street? We are Wall Street. We own these stocks, do we not? By saving Wall Street in some sense, we're saving ourselves. Was there plenty of pork to go around? Absolutely. What shocked me the most about these last two years was the amount of direct, not the pork to the corporations. That was to be expected. Was the money that went to actual individuals these last couple of years to keep them afloat? No trickle down, direct payments from the government to people. That was what was most surprising about all of this, and that's why it's gone away. It's not coming back. I know this is last thoughts, but I do want to ask you this. The stock market now is controlled by institutional investors versus mom and pop. In fact, a lot of America, mom and pop, they're not in the stock market. They're just trying to get by and paying what's in their pocket each and every month, and there's not much left over. To what degree do the individual stock market investors, do they pull out or do they just keep riding the wave? Oh, I don't know. I mean, it's on the roller coaster. You get on the coaster for the ride, and history tells us that over the long term, it is the best investment for people. Now, if you're in a downturn, you're going to experience something different. We also have to remember that when we have two or 3% growth in this economy, assuming those numbers are true, that's a massive, massive increase in overall GDP because our economy is so huge. It's nothing to sneeze at in a mature economy like ours. Those are normal numbers that we would expect. Alrighty, great. Thank you very much, Williamston. Jay, you get the final word and the final thought. Yeah, well, I appreciate the discussion about the economics and about inflation, but I don't think we should forget for one second that it is directly connected with everything else that we've been talking about here on America what now. The fact is we're in a political free fall. We have all kinds of very bad surprises in store for us, actually not surprises, as we get closer to the election. We have the possibility, very likely possibility, that both houses of Congress will turn Republican and they have no agenda. They have no ability to address these issues. They have no way to develop good policy. So you've got to connect the two. And however good or bad it may be in this crucible of our discussion today, that's a limited crucible. The larger crucible is what we have to consider, and that has to include all the risks and vagaries and troubles and tragedies that are going to come out of our political crisis. Got a couple of seconds left. Does the federal government, other than the Fed, intercede in this? It has to, but much more sophisticated. I mean, it seems to be driven by what happened in politics today, what the polls say, what the Republicans want, what the Democrats want. And as Karen points out, what Wall Street wants, we have to have better policy. This is the core of our lives together in this country. And I mean, I think, I think we have to have reform at the governmental level so that policy can be achieved, evaluated, achieved and implemented through technology. All right, you get the last word, Jay. Thank you very much. I'd like to thank everyone for this discussion. I'd like to thank you, Jay Fidel, Winston Welch, Karen Buzzard, and Cynthia, who left us, but Cynthia, Lisa and Claire. Thank you, everyone, for contributing. And we will see you next Wednesday at 11 o'clock for What Now, America. I'm Tim Apachele, your host, and we'll see you then. Aloha.