The deflation of the money supply necessary to cure raging price increases would send the economy into a depression. From MN Gordon at economicprism.com:
President Biden and his cohorts in Congress and at the Federal Reserve have delivered an early Christmas present. They’ve given Americans the gift of raging price inflation. The cost of just about everything has gone through the roof.
Consumer prices, as measured by the consumer price index (CPI), have increased 6.8 percent over the last year. This marks the largest 12 month surge since the period ending June 1982. In truth, the CPI is rising at more than double the rate of what’s officially reported.
Can the Fed stop raging price inflation without triggering a deep recession?
Former U.S. Treasury Secretary Larry Summers doesn’t think so.
Summers, if you didn’t know, has an axe to grind. He always fancied he’d be Federal Reserve chairman one day. But he’s too much of a dirty fellow to ever get the job.
Summers is better suited to the ivory tower of Harvard academia. There, sequestered from public life, he can play Fed chairman from the ease of his lounger. He’s good at it.
Summers is also a paid contributor to Bloomberg. For entertainment purposes, Bloomberg makes a habit of dripping out utterance from Summers when the time is right.
Last week, for example, in anticipation of this week’s Federal Open Market Committee (FOMC) meeting, Bloomberg treated the world to Summers’ tedium. From Bloomberg:
“Former U.S. Treasury Secretary Larry Summers said inflation has become entrenched, lowering the probability that the Federal Reserve will be able to tame price increases without causing a recession.
“Summers now sees 30 percent to 40 percent chances for a recession over the next 24 months. The Harvard University economist also estimates that the odds of a so-called soft landing, in which tighter monetary policy doesn’t sharply constrict economic growth, at 20 percent to 25 percent.”
How Summers came up with these odds was not disclosed. We put the odds of a recession much higher and the likelihood of a soft landing much lower.
By our back of the napkin calculations we estimate a 100 percent chance of a recession over the next 24 months. We also put the odds of a soft landing at 0 percent.
We’ll have more on why we’re headed for an epic crash and burn scenario in just a moment. But first, some context is in order…