From inflation to recession

Editor's note: This is a lightly edited transcript of the accompanying video by Professor Peter St. Onge.

Regime journalists across America were freaking out last week when year-on-year inflation fell below 3% for the first time since 2021. As the New York Times put it, “Easing inflation is handing Democrats a victory.”

That's a lot for an annual inflation increase of 0.1% – assuming you believe the numbers – especially when you consider that inflation has actually increased month-on-month.

A more sober interpretation is that inflation is stuck well above the Federal Reserve's target, while the famous transitory inflation is already in its 40th month with no end in sight.

More importantly, falling inflation in a weakening economy is not what the Party, the Communists – er, the journalists – believe.

Why? Because of inflation always sinks in recessions. In fact, recessionary deflation is the excuse that Wall Street oligarchs gave for creating the Fed: by conflating recession and deflation, they turned the public into a perpetual inflation machine.

The reason for this is that during a recession, there are goods left over that no one is buying, so prices have to be lowered to get rid of them. Combine that with defaults, which essentially make the dollar printable, and prices fall.

And not because the Fed or Treasury Secretary Janet Yellen have handled things cleverly, but because they have messed up so badly that the cash registers are not ringing and the debtors are not paying.

A look at the ticker symbols shows that inflation has fallen sharply in each of the last four recessions since 1990.

In 1990 it fell from 6.4% to 2.8% – a decrease of 3.5 percentage points.

In 2001 it fell by 2.5 points – 3.7% to 1.2%.

In 2008, there was a decline of 6.5 percentage points – from 4.4 percent inflation to 2 percent deflation. This decline was very large due to the defaults during the 2008 financial crisis.

Even in the 2020 recession, it fell by almost 2.5 points – from 2.5% to 0.2%.

All things considered, inflation has fallen by an average of 3.7% over the past 35 years, including during recessions.

In other words, the 0.1 percentage point drop that is so popular with the media may just be a premonition of a lot of trouble to come.

The media will continue to try to make mountains out of molehills in the hope of crossing the finish line with laughter in November.

But we know from rising government spending that inflation isn't going away. That means any improvement will likely come from the slowing economy itself – unsold goods, unemployed people and lower energy prices as people drive less – and that's already happening, polls show.

So what happens next? In theory, the Fed is supposed to carefully balance inflation and unemployment. In reality, however, the Fed is increasingly caught in a bind: it is caught between spending-led inflation and inflation-led job losses.

The only solution – cutting federal spending – is the only solution they will never implement. Because federal spending is the whole point of a central bank. It is the government's revenge for giving Wall Street a license to print money.

I mentioned last week how easy it is to get out of this situation by supporting the dollar with hard currency to prevent inflation.

Instead, the Fed will continue to pretend everything is fine – and the media will play along – until the day they all sing in unison that no one could have seen it coming.

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