July 3, 2022

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The Fed raises interest rates by 0.75%, the first time since 1994, and lowers GDP estimates. Because it’s an obligatory move – Corriere.it

From Federico Rambini

Prices haven’t gone up so fast in forty years. Reasons: Excess liquidity and public deficit in the wake of the epidemic, errors in the transition to renewable energy, the end of the “Chinese discount”

The Federal Reserve raised interest rates by 0.75% for the first time since 1994 in an effort to stem the rush of inflation, which has risen to a 40-year high. Thus the cost of money rises at a fork between 1.50 and 1.75%.


The Federal Reserve also lowered its US growth estimates, forecasting 1.7% GDP growth for 2022 and 2023. It previously estimated GDP at +2.8% for this year. Inflation is expected to be 5.2% in 2022 and 2.6% in 2023. The Fed has been firmly committed to bringing inflation down to 2%. What he read in the closing press release issued at the end of the two-day meeting.

The new increase in the cost of money in the United States is a mandatory measure of the Federal Reserve: Inflation is at a 40-year high and shows no signs of abating. The high cost of living surrounds Joe Biden, like all the rulers of the world. The US president is also considering the option of canceling some of the tariffs his predecessor imposed on products made in China.

This will not have the effect of calming inflation, which has various causes: for two years after the introduction of these tariffs, the price index has remained stable. The White House appreciates it Repealing Tariffs Could Cut Inflation by 0.25% While Cost of living increased by 8.6%.. For Biden, he was harassed by pressure of all kinds – including the pro-China lobby of American capitalism – to “do something,” anything. History shows that unfortunately, periods of high inflation lead to central bank monetary tightening which slows growth, often into recession..

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In Italy, there are those who associate the severe economic turmoil at the present time (energy shock, food shortages, high cost of living, debt financing problems) with the war in Ukraine and sanctions against Russia.. The hint, according to some, that it would be enough to abandon the penalties and that everything would be as before. I forgot that Economic tensions started much earlier War and sanctions. The history of gas price escalation, for example, goes back to last year. When the epidemic appeared, there was a convergence of factors: excess liquidity and public deficitErrors in the switch to renewable energy, the end of the “Chinese opponent”. If the sanctions on Russia disappear, it won’t solve those problems.

The world is floating on massive liquidity, as a result of the bold monetary policies with which the great crisis of 2008-2009 and then the short pandemic recession was cured. For thirteen years central bank actions have had an effect equivalent to coin printing At zero interest rate (albeit with moments of pause and turn like the one that led to the eurozone debt crisis). Doomsday prophets predicted that excess liquidity would cause inflation; These predictions did not materialize for a long time and we ended up believing that money could be made indefinitely.

also Cryptocurrency fever – which ends devastatingly – was the daughter of an era when everything seemed possible. Including the creation of public debt without having to pay it. The future may hold new surprises and black swans, right now we are seeing the revenge of less creative and more traditional economic rules. Nor has a left-wing economist heard, Larry Summers, a former Treasury Secretary with Bill Clinton and a former economic advisor to Barack Obama., when he attacked his party for the glut of public spending to fight the epidemic. Summers blasted Biden and Democratic lawmakers in January 2021, challenging the third maneuver to support the $1.9 trillion family. The US economy has already come out of its brief slump, and a strong recovery after the pandemic is underway.

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Adding to Donald Trump’s similar maneuvers, Biden signed $5 trillion in public funds seized by Americans: Only World War II saw high levels of spending in proportion to GDP. The consumption boom in the United States coincided with The “Great Discharge” phenomenonProtected with state assistance, many workers have given up heavy jobs and are not getting enough salaries. Labor costs began to rise, which is another cause of inflation.

China did its part. The prolonged shutdowns have caused this Shortage of many products. When Chinese factories began to operate at full speed, price lists increased. There are other bottlenecks in the transportation sector. Scarcity is a weapon in the hands of those with monopoly power: they can impose price increases at will.

Happened in shipping. Biden went to the Port of Los Angeles to denounce the role of shipping companies, the global oligopoly. Late to notice this in many sectors of the economy There is no real competition; Antitrust did not work. When conditions are created—an excess of demand over supply—some powerful forces extort enormous additional profits.

Then there is the energy. There are many elements to monopolyFor decades, Europe has given Russia tremendous power by committing itself to a killer addiction. We should also remember what happened a year ago in the North Sea when the winds blew less than expected. Major wind power producers – such as the UK – have suffered severe shortages. It turns out what you need to know: Renewable energies are unreliable 24 hours a day, 365 days a year, has breaks in the supply that must be compensated by the use of nuclear power or fossil fuels such as gas. The transition to a carbon-neutral economy is a long process that must be managed rationally and realistically; Converting it into an ideological dogma did not help us. Gas prices went crazy last summer, long before sanctions against Russia. Price increases attack only one cause of inflation: they dampen demand and reduce consumption and investment. Painful treatment. But allowing inflation to pass would have disastrous effects on the purchasing power of wages and pensions. Hyperinflation in the 1970s was a chaotic period, and the Law of the Jungle ruled. When prices go crazy, those who have the power to get rich take advantage Attempts to put a political end to speculation usually do not succeed: the experiment with managed prices failed even under Republican President Richard Nixon. Along the same lines, The temptation to cure inflation by capitulating to Vladimir Putin and Xi Jinping is an ideological and caring cure.Which has nothing to do with the causes of evil.

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Jun 15 2022 (change on Jun 15 2022 | 20:21)