We Will Enter Into a Recession — But Don’t Blame Any One Person

There was no way to escape the pandemic without (more) major financial repercussions

Image by Gerd Altmann from Pixabay

When the pandemic struck, America and the global economy were bound to face a recession. Production halted, meaning people stopped working and, most importantly, stopped spending.

Thanks to fiscal stimulus from the government and the Federal Reserve, the recession was short, lasting just two months — the shortest on record.

The unemployment rate spiked then fell. The GDP started growing again. Asset prices — even bullshit “assets” — soared. It seemed like we were past our pandemic woes and onto greater economic heights.

A perfect storm drove up demand and limited supply, helping to send the inflation rate soaring. Many will blame our sky-high inflation on Russia’s invasion of Ukraine, and it’s true that it hasn’t helped. But inflation started rising about 10 months prior.

Pandemic-punished companies that couldn’t produce as much product helped prices rise. But the Federal Reserve’s “cheap money” strategy to help our economy rebalance was also a huge factor.

Making money cheap to borrow is a sure-fire way for a central bank to help boost the economy. Fed interest rates were 0.10% or lower for two years, meaning people could borrow for a mortgage, car loan, or anything else and not have to worry much about interest.

This encourages spending, which helps the economy thrive. But the more spending (demand), the higher prices go.

The Fed also printed a shit ton of money to stimulate the economy. With no productivity to back that money supply up, money had no choice but to become less valuable.

It was always going to be a lose-lose when the global economy shuts down. The Fed was either going to have to sit back and let millions of people suffer through a pandemic-fueled recession or risk what’s happening now, which is crazy-high inflation and another potential recession.

The Fed believed this would be the better route. And maybe they were right. But either way, things are still bad, and that may not change for a while.