Morton's Fork for Government

Tasked with two unpalatable political choices, more can kicking down the road is likely to be on the agenda.

Morton's Fork for Government
Photo by Aron Visuals / Unsplash

There's a lot of talk about recessions lately.

Politicians loathe having to admit the economy is going backwards which is why the Biden administration is trying to redefine the word.

He's being aided and abetted by the Democratic shills in the media and those nursing at the taxpayer's expense.

But if the definition of recession was changed to reflect real growth then we'd likely be in one too.

Let me explain.

The established definition of recession is two consecutive quarters of negative growth. That's just happened in America and they are now desperately trying to redefine it away because it's a political problem ahead of the midterm elections.

In my mind we should be looking to redefine the term to account for real growth rather than just nominal growth in the economy.

Real growth is the growth after accounting for inflation.

Running those numbers on the USA, where annual inflation is officially 9.1%, would suggest the real economy is going backwards by a rate of around 2.3% in the past three months.

Whilst imperfect, this figure was derived by dividing the annual inflation rate by four and adding the quarterly negative growth.

In Australia, that calculation would also provide a negative result. Growth in the first quarter of this year was 0.8% and inflation was 5.1%. Using the same methodology the real economy would have gone backwards by around 0.5%.

While the second quarter GDP isn't yet known, I'd hazard a guess it was lower than the previous measurement. Inflation is also higher at 6.1%.

Little wonder so many of us think we are going backwards financially despite the official figures saying everything is okay.

The reserve bank raising rates at the fastest pace in decades won't do much to improve the economic outlook either.

I cannot help but think we are in for a hard landing as the decade long government debt and spending binge catches up with us.

It was just last year that a number of 'experts' were claiming that debt doesn't matter as government can just print money to pay it off without consequence. That nonsense was known as Modern Monetary Theory and was the alchemy of our time.

Frankly I don't see an easy fix to the current woes. The regular boom and bust business cycle has been artificially suppressed and that allowed enormous excess to build up within the system.

That has to work it's way out in one way or another.

It can happen quickly, with a deep recession, or slowly, likely resulting in a prolonged period of real economic decline.

It's like Morton's fork for the government. Whatever they do, it will be politically painful for them and financially painful for the rest of us

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