Well, there’s another “economist” who can be set into the folder of ‘no longer useful’. During his appearance today on CBS Face The Nation, Mohamed El-Erian, chief economic adviser for Allianz, finishes his segment by revealing his underlying precept: Climate Change policy is now the economic policy driver of all his investment advice.
Within the interview, El-Erian said the “characterization of inflation as transitory is probably the worst inflation call in the history of the Federal Reserve.” Additionally, El-Erian said inflation is likely to remain high into the next year and perhaps beyond. Unfortunately, other than those two points of generally well educated accuracy, everything else is wrapped up in the political correctness of climate change…. which, you don’t really discover until the very end of the interview. WATCH:
The baseline for El-Erian saying the Build Back Better spending fiasco is a good thing, is based on accepting the pretense that massive amounts of federal spending will be needed to structurally change the U.S. economy from fossil fuel use to the Green New Deal. If you do not believe in this transformation, there is no merit to any component of the BBB spending proposal. It really is that simple.
As a consequence, El-Erian is staking the position that climate change agenda politics is now the focal point from which all other economic policy will be determined. He has conceded in his mind and worldview, perhaps based on his associations and peer discussions, that any forward economic analysis must therefore establish itself from the alternative fuel position.
It is only from the position that climate change is baked into forward economic outlooks that El-Erian can state inflation is structurally survivable, at the current level, with additional spending by federal government.
If he’s right…if congress does pass the BBB/GND at a level they are currently debating, then inflation will rise at/near current levels through Jan, Feb, March, then plateau around March/April for a few months, and then spike again -even higher- sometime around the spring 2022.
Keep in mind, in order for inflation to spike again in 2022, it will be building upon the prior massive inflationary step of 2021, because inflation is a measure of the percent change in prices year over year.
In 2021, we experienced around a 5% jump in overall CPI prices starting in the spring. That initial inflation jump cycles through at the same time next year, and you would expect the rate of inflation to drop or stabilize once the comparison period is passed in 2022. If the BBB bill is passed, the rate will jump again even when it cycles through the calendar.
- Example: December 2020 bread was $3.00
- December 2021 bread is $4.00 (25% increase over 2020)
- June 2022 bread at $5.00 is a 20% increase over 2021. Price difference same, but the rate of inflation is lower.
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Imagine the prices in the scenario above if the rate of inflation in 2022 is the same or higher than 2021. That’s the part people need to start thinking about now.
- Example-2: December 2020 Gasoline was $2.00/gal
- December 2021 Gasoline is $3/gal (50% increase)
- June 2022 Gasoline is $4.50/gal (50% increase), $5/gal, $5.50/gal etc
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The downstream consequences of interim energy policy shifts are major increases in current energy costs.
Few people realize how much everything jumps in price simply because oil, gas and energy costs increase. The entire process of creating stuff (raw materials), moving stuff, processing stuff (intermediate), transporting stuff, finishing stuff, shipping stuff, storing stuff, distributing stuff and selling stuff becomes a rising cumulative cost inside the supply chain.
When energy prices go up, a snowball effect starts traveling down the mountain getting bigger and bigger as it heads towards your house.
As Obama said, “Under my administration, energy prices will necessarily skyrocket“, but he could never actually do the structural energy change because: (1) Republicans took control of the House in January 2011; and (2) the economic blast damage would have been just too catastrophic for any attempt at re-election in 2012.
Joe Biden frees the leftists from those ideological constraints.
Everything you would normally consider to be a concern, anything that would limit the extremes of any legislative effort, has been removed. They plan to lose next year, so they have nothing to lose right now.
Joe Biden is an appointed figurehead for a background agenda driven by Obama’s Chicago Marxists and the global leftists.
The Biden far-left policy agenda is strategically a massive throw everything at the legislative process, in an effort to create major change in a short period of time. COVID is being used as the cover story, Biden is the disposable front man, and Nancy Pelosi is the facilitating legislative cohort.
Massive inflation, skyrocketing gas prices, collapsed supply chains, empty shelves or shortages in products, increased crime, devalued dollar, diminished international influence, horrible polling, predictable political consequences, none of this matters because Biden is disposable to the agenda.
Additionally, there are no limits to the obvious lies they will tell, because no one inside the administration cares about any public impact. This current effort is to drive the agenda regardless of political damage that can only catch them, or block them, in the 2022 mid-term election.
The “Green New Deal” legislation *is* the “Build Back Better” legislation. Once they get that bill passed, it’s mission accomplished. This is a legacy move for Nancy Pelosi, Chuck Schumer, Mitch McConnell and Joe Biden. This is the fundamental change part.
It appears in the interview with CBS Margaret Brennan, Mohamed El-Erian is accepting this Build Back Better legislation (or something similar) will pass the Senate and be enacted into law. At the very least, he is accepting that ‘climate change policy’ is now fundamentally accepted by U.S. voters. That perspective forms the baseline for him saying the climate change agenda is now baked into the U.S. economy, and inflation will have to be accepted – albeit at a debatable scale.
I hope El-Erian is wrong, because he is massively underestimating the scale of what will happen with total economic inflation as a consequence.
Factually, I think his analysis is corrupted by his associations on Wall Street. The elites (in his circle) think We The People are not smart enough to see what can happen if this complete transformation of the U.S. energy system is changed; or as healthcare policy architect Jonathan Gruber later said publicly, “We relied upon the stupidity of the American voter” to create Obamacare, the transformation in the healthcare system.
I am cautiously optimistic they are both wrong right now, although I can also see how this COVID noise is providing them a lot of cover.
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