Hard landings v. soft landings

It is important to know the history of government spending, supply and demand, economic growth, and debt as they are all connected in controlling “Price Stability”—which avoids inflation and/or deflation. This is very similar to flying an airplane—you need both a good pilot and a good Control Tower to effectively coordinate all factors to have a smooth flight and soft landing. The ‘Independent’ Federal Reserve is our pilot specifically mandated to “promote effectively “Price Stability”, maximum employment, and moderate long-term interest rates.” The President and Congress is our control tower coordinating economic matters. So how are they doing today?
Today we have both inflation and deflation, with declining economic growth. Fed Chairman Jerome Powell tells us that the Fed will continue to increase interest rates to bring inflation under control (by killing demand). However, Judy Shelton (an economist and author of “Money Meltdown”) reminded all of us in her recent Wall Street Journal article (“Paul Volcker’s Recipe for Prosperity”) that to promote effectively “Price Stability” you need to not only control inflation, but you also need to increase supply—which is exactly what Fed Chair Paul Volker did in 1981 when he let interest rates climb to 20%--but only after he and President Reagan agreed to grow the economy by reducing federal spending, taxes, and regulations. By 1983 the Recession was over--inflation and interest rates were declining and GDP was rapidly increasing, i.e., a ‘Soft Landing’.
Today Chairman Powell and President Biden have apparently lost radio contact because they are headed in opposite directions—Powell is killing demand by increasing interest rates, while Biden is killing supply by increasing taxes, regulations, spending, and debt. As a result, the Middle Class are now seeing their values of their homes, 401-k’s, and ‘real wages’ falling along with GDP, while at the same time seeing their cost of food, gas, insurance increasing, i.e., a ‘Hard Landing’ with no “Price Stability”. To be fair though, the Biden Administration has achieved ‘Equality’ as the Poor now take home as much as the Middle Class—and also achieved ‘maximum employment’ by effectively promoting a declining labor participation rate by paying people to not work.
Contrast that to the Reagan Administration and Volker whose basic beliefs was that you needed to reduce the growth of government drastically to increase growth of the economy—as they lowered tax rates, cut government spending, and provided incentives for individuals to work, to save, and to invest. Reagan stated that government was “the problem, not the solution”—while Volker pushed for balanced federal budgets as soon as possible, noting “that balanced budgets cannot be achieved in a sluggish economy.” Yes, knowing history is important because there is also such a thing as ‘Crash Landings’!!

Steve Gardes is a Certified Public Accountant (CPA) and Certified Valuation Analyst (CVA) with over 40 years of public accounting experience.