Latest / Financial Survival Network / The Feds Eye on Inflation and Rising Interest Rates - Michael Busler #6016

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The Feds Eye on Inflation and Rising Interest Rates - Michael Busler #6016 · Financial Survival Network

• 0:00
  Well, so the Fed wall cut interest rates, and I believe if inflation
• 0:05
  flares up style to three point one percent. Although the core rate, which
• 0:11
  is holding food and energy prices constant, what's happening to everything else? The
• 0:16
  core rate has been at four percent or more for the last two years.
• 0:20
  That's not going down. So with the core rate where it is, and
• 0:23
  with energy prices probably starting to head up, I think we could be seeing
• 0:28
  a four to five percent inflation rate by the middle of the year. You're
• 0:32
  listening to Carrie Let'sa's Financial Survival Network where you get valuable information you just can't
• 0:38
  find anywhere else to thrive in today's trying times. You need the Financial Survival
• 0:44
  Network now more than ever. Go to Financial Survivalnetwork dot com and get your
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  free newsletter and gift. Financial Survival Network now more than ever. Come you
• 1:00
  are listening to and watching the Financial Survival Network. I'm your host, Kerry
• 1:03
  Lutz. Well, we're in the midst of an inflationary cycle, whether the
• 1:08
  administration wants to admit it or not. It reminds me back in the seventies
• 1:14
  there was a McDonald's commercial and the little kid says, Daddy, what's inflation
• 1:19
  and he says, son, that's when the price and everything goes up and
• 1:23
  your father's salary stays the same. I mean, that is the very definition
• 1:29
  of inflation, the silent tax, and there's no end in sight. Professor
• 1:34
  Michael Butler is with US Economic Expert and teaches the subject in Stockton College in
• 1:42
  New Jersey. Haven't seen it a while, Professor Butsler, it's great to
• 1:45
  have you back. So Hey, GDP went up a four hundred plus trillion
• 1:52
  last quarter, but debt went up eight hundred I'm sorry, GDP went up
• 1:57
  four hundred plus billion, GDP GDP went up four hundred plus billion, but
• 2:04
  debt went up eight hundred plus billion. So are we just treading water here?
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  Is there really any economic growth at all? Are we really in a
• 2:13
  recession? Well, technically the economy is growing. And President Biden says,
• 2:19
  Look, I don't understand why people don't approve of my handling of the economy.
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  Look, since I've been in office, the economy has grown steadily.
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  We had a little decline in twenty beginning of twenty twenty two, but pretty
• 2:31
  much growth has been steady. Unemployment is under four percent. I saved us
• 2:38
  from the lockdown from the pandemic. Wages are now starting to go up a
• 2:46
  little faster than prices, at least the last quarter of last year, he
• 2:49
  says, So everybody should approve of my handling and not disapprove. So question
• 2:53
  is why do they disapprove? And they disapprove because they feel badly out the
• 3:00
  economy. Why is that since Biden came into office, on average, prices
• 3:06
  have gone up nearly twenty percent, yet people's income haven't gone up nearly that
• 3:10
  much. So what it means is the things you bought in January of twenty
• 3:15
  twenty one you can't afford to buy today, So you're either buying less things,
• 3:21
  buying lower quality things, trying to find some substitutes for what you're used
• 3:25
  to buying. All of that means there's a decline in the standard of living.
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  And all the data you put forth and tell them how good the growth
• 3:35
  is and how unemployment as well, and all this good information may influence their
• 3:40
  thinking, but you can't influence the way people feel. And they just feel
• 3:46
  terrible, terribly about this economy because they can't afford to buy the things that
• 3:51
  they bought in the past. Let me add one other point, if I
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  can eric sure. The Biden administration says, look inflatial, way out of
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  hand in twenty two twenty two got up to nine percent, over nine percent
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  in June of twenty twenty two. I brought it down the three point one
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  percent. That's a real good thing. And of course that is somewhat a
• 4:10
  good thing. But two things. One, I don't believe the consensus view
• 4:15
  that says inflation will continue to fall and the Federal Reserve will cut interest rates
• 4:20
  a number of times this year. I think inflation is going to start the
• 4:26
  head back up again. And I don't think the Federal Reserve will cut interest
• 4:30
  rates at all this year. And in fact, I wouldn't be surprised if
• 4:33
  they raised rates one or two times before the end of the year. So
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  it was a couple of reasons for that. One large wage increases that people
• 4:46
  got at the end of twenty twenty three. Say that's good that people are
• 4:49
  getting higher wages, but it's bad in that all of those higher wages will
• 4:56
  lead the much higher labor costs for business. For instance, United Oral Workers
• 5:00
  signed a four year contract that essentially gives them close to a seven percent annual
• 5:05
  raise. That big health organization in California, Kaiser Permanente. They settle for
• 5:14
  wage increases, also in the six to seven percent range for the next four
• 5:17
  years. Once the average workers saw that, they said, well, we're
• 5:21
  titled more wage increases too. So wage increases are going up, there's no
• 5:28
  increase in productivity, or it's much smaller increase in productivity, which means labor
• 5:33
  costs are going up. And if business is going to maintain profitability, they're
• 5:38
  going to have to raise their prices. So I think wage inflation is going
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  to lead to more price inflation. Secondly, most of the decline and the
• 5:46
  inflation rate was due to falling energy prices. Energy prices stopped falling in the
• 5:53
  last couple of weeks, they started to go up. I don't know what's
• 5:56
  going to happen in the Middle East. You know who's fighting you and what's
• 5:59
  going to add happened, but it could lead to a disruption and the supply
• 6:02
  of oil. If that happens, oil and energy prices will go up even
• 6:08
  more and that will lead to even higher inflation. Oh man, so you
• 6:12
  think we could get higher inflation than we have now? And where leave the
• 6:16
  said, well, so the FED won't cut interest rates, and I believe
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  if inflation flares up style to three point one percent, although the core rate,
• 6:28
  which is holding food and energy prices constant, what's happening to everything else.
• 6:33
  The core rate has been at four percent or more for the last two
• 6:36
  years. That's not going down. So with the core rate where it is,
• 6:41
  and with energy prices probably starting to head up, I think we could
• 6:46
  be seeing a four to five percent inflation rate by the middle of the year.
• 6:49
  That much Wow, yeah, I would think so four or five percent.
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  That leaves a sed new wiggle ring, does it. They can't raise
• 6:59
  it, They can't reduce interest rates, and in fact, they may have
• 7:02
  to inch interest rates up a quarter of a point once or twice by the
• 7:08
  end of the year. Let me just say that's not the consensus view.
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  You talk to most economists. They believe that inflation will continue to go down,
• 7:16
  and they believe the Federal Reserve will cut interest rates. Now, back
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  in November, they said we could see six rate cuts in twenty twenty four.
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  Now they're saying, well, we're going to see three rate cuts in
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  twenty twenty four. Originally they said you'll see the first rate cut March.
• 7:33
  They said, well, that's not going to happen, So we'll see the
• 7:35
  first rate cut may Maybe that's not going to happen either. The earliest we
• 7:40
  could see one is June, and I believe when the data comes out that's
• 7:45
  not going to happen either. So the Fed, you're right, is in
• 7:47
  a tough spot. They can't cut interest rates with that inflation going up,
• 7:51
  and indeed they may have to raise them, which you'll tend to slow down
• 7:56
  economic activity. So the Fed is really stuck, aren't they, Like,
• 8:01
  Yeah, you know, last week in my Newsmax column it was entitled stagflation
• 8:09
  could be here by the end of the summer. So stagflation means we have
• 8:13
  higher inflation and the economy is not growing, stagnating, hence the term stagflation.
• 8:20
  If what I'm forecasting turns out to be and inflation does go up and
• 8:26
  energy prices go up and the FED has to react to that by raising interest
• 8:31
  rates, the economy is already slowing down. To read about large layoffs,
• 8:35
  partically the tech sector, but large layoffs by a number of companies, and
• 8:39
  that's indicative I think of the economy beginning to slow down. So if the
• 8:45
  FED has to react to inflation by raising interest rates. That will cause the
• 8:50
  economy to slow down further. And it could be that we have higher inflation
• 8:54
  and an no growth economy by the end of the summer, and that's what
• 8:58
  we call stagflation. One semi encouraging note is China is imploating, so a
• 9:03
  lot of the capital there is flowing out at a rapid pace finding its way
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  in the US, especially with higher rates. You think that trend's going to
• 9:15
  continue. Yes, China, when they did that lockdown completely, I guess
• 9:20
  at the end of twenty twenty two, their economy never recovered. So all
• 9:26
  of twenty twenty three that had extremely slow growth. It's hard to tell from
• 9:31
  China because you're not completely sure that the information you're getting is reliable. But
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  nonetheless, most of the indications are that the economy in China is doing very
• 9:41
  poorly. That's reducing the demand for energy and that's one of the reasons why
• 9:46
  energy hasn't gone up in price. But their economy is not doing well.
• 9:50
  In real estate sector, which was built on debt, is not doing well
• 9:56
  at all. Ever, Grand which is the largest real estate developer in China,
• 10:00
  as filed bankruptcy and a couple of other large ones are perhaps on the
• 10:05
  verge of defaulting. So the Chinese economy has some problems, and you're right,
• 10:11
  any investors there looking for a safe haven may move some of their money
• 10:16
  to the US. Yeah, well, Country Garden I think was the other
• 10:22
  one, and you know they got nothing but problems going on there. So
• 10:26
  what's your take. What do you think is going to happen with China?
• 10:30
  Do they go much lower or what happens? So, remember, China is
• 10:33
  not a market economy. It's a planned economy that's run by the government.
• 10:39
  They tried to put some market forces into their economy and attack some mixed results.
• 10:45
  But because it's a planned economy, their government will not allow them to
• 10:50
  slip further. So they'll start pumping a lot of money into the economy to
• 10:54
  try to revive it and start to add growth. Sure, how effective that's
• 11:01
  going to be, and even if it is effective, it's going to take
• 11:05
  it's going to take some time. That means China's has less money to spend
• 11:09
  on some of the more nefarious things they do around the world. That's a
• 11:15
  good thing for us. A lot of nefarious stuff going on, that's for
• 11:20
  sure. Hey, So when we have this conversation in a year here,
• 11:24
  Professor Butler, where are things going to be? So I think if we're
• 11:26
  having a conversation a year from now, I believe that the American voters will
• 11:33
  change the administration and probably change the setate. So if we get a Republican
• 11:39
  administration in there, the first thing they'll do they'll want to tackle inflation as
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  quickly as possible. There's two things you can do to bring inflation down.
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  Number one is energy prices are about thirty percent of the consumer price at next
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  So literally from day one, the Republican president will say, look, we're
• 12:03
  going to start to rescind all of the things that Biden did. Remember Biden
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  canceled the Keystone pipeline. If that was going today, that would be nearly
• 12:11
  a million barrels a day more we'd be able to pump. He withdrew leases
• 12:18
  to drill on federal lands, and that took a big chunk of valuable real
• 12:22
  estate where a lot of oil can be found. He made the permitting process
• 12:28
  extremely difficult. So it took these oil companies years to go through the permitting
• 12:33
  process and come up with a permit to be able to drill it all.
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  And fourthly, he tolled the bangs be careful lending money to the petroleum industry
• 12:43
  because there's no future. So the Republican president, probably Trump, will end
• 12:50
  up reversing all of this. That will increase oil production, that will bring
• 12:54
  oil prices down. That'll bring gasoline prices down back from I think the average
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  today is about three point thirty gallon, could go down to the two fifty
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  gallon range. That'll put downward pressure on all prices, help bring inflation under
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  control. The second thing is that the federal government has run up huge deficits.
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  In the last five fiscal years twenty twenty one, twenty two, twenty
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  three, and twenty four. The federal government as we running deficit spending of
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  over eleven trillion dollars. That's eleven trillion dollars spent more than they brought in
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  in exactly. Yeahvan was trillion. So of course that's why the public debt
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  is now up that thirty four trillion dollars. So I believe the Republican administration
• 13:43
  will be more fiscally responsible and will work to if you can't balance the budget,
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  at least bring the size of the deficit doll such a second thing they
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  can do. Okod But professor, what about the president Melee in the Argentina.
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  You know, Argentina ran deficits for eleven or twelve years in a row.
• 14:05
  In ninety days, he has them running a surplus. Now, I
• 14:09
  don't know if they're going to be marching on the Presidential Palace with pitch for
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  us, but yeah, but you know, and he's he's done a lot
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  of stuff for a very short period of time, which brings us back to
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  Milton Friedman's one hundred days. You got one hundred days to set your administration.
• 14:30
  If you fail, you're not going to get anything done. You think
• 14:35
  that still applies. Yeah, im meilely did it very well in Argentina.
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  He's one of my heroes. He came in there and did exactly what a
• 14:43
  conservative economist would do. Now, they're very unpopular because what you have to
• 14:48
  do to balance the budget is you don't want to raise taxes too much it's
• 14:52
  at all, because that tends to slow economic activity. So you have to
• 14:56
  cut spending, which means there's a lot of spending. People were used to
• 15:00
  get free handouts from the government and they're not getting them. Anymore. So,
• 15:03
  you reference the fact that they could be protesting on the steps of his
• 15:09
  office and that could happen. It tends to be popular, unpopular in the
• 15:15
  short run, especially from people who have been given handouts for all these years
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  and the handouts are now being stopped. As time goes on, though,
• 15:24
  that'll turn out to bring on more prosperity to Argentina, and people will tend
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  to think that's a good thing. Now your other comment about one hundred days,
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  it's true you really have to set what your agenda is on need to
• 15:37
  get everything asked, but you have to set what the agenda is. Here's
• 15:41
  what I'm going to do on day one, the president can reverse all the
• 15:46
  executive orders and let the oil industry start producing again. We have a terrible
• 15:52
  problem with I don't know how many million people have gotten into the country illegally.
• 15:58
  It's now spread almost every city across the country, and regardless of what
• 16:03
  all the rhetoric says, it leads to very negative outcomes here. These people
• 16:07
  are coming in with no means of support. Now, some cities, like
• 16:11
  New York, Mayor Adams says, we'll just give you free money and free
• 16:17
  credit cards. Well, that's not It maybe may make sense of the short
• 16:22
  run, in the long run it makes it worse. But now people come
• 16:25
  into the country and they say, hey, if we don't have any money,
• 16:26
  we'll just go to New York City and they give you all this free
• 16:30
  stuff, or go to California where they give you all this free stuff.
• 16:34
  So they've got to find a better way to handle us. The best way
• 16:37
  is to secure the border. Just secure. Don't tell us about all the
• 16:41
  presidents that had problems. President Trump had the border secure. I undid it
• 16:47
  through executive orders. He can fix it through executive orders. So interestingly enough,
• 16:52
  this reminds me of that back in the day when someone would apply for
• 16:56
  welfare in like Houston or Dallas. Instead of paying the money, they would
• 17:02
  give them a bus ticket to New York City. And that's effectively what the
• 17:07
  world is doing, just setting their people. But you know, this is
• 17:10
  all Trump's fault because for a real simple reason, if he'd finished building the
• 17:15
  wall, it wouldn't be an issue now. So it's all Trump's fault.
• 17:19
  No matter what, everything is Trump's fault, and you always have to remember
• 17:25
  that. But this is a family show. We don't talk politics. We
• 17:27
  talk economics, which is why you're on the show. Appreciate your coming on,
• 17:33
  been a while. We always always look forward to your view on things.
• 17:37
  And you can find Professor Bustler's work on newsmax dot com as well as
• 17:44
  just do a search. We'll put his LinkedIn profile link on the show notes
• 17:49
  to this interview on Financial Survival Network dot com. Do you have a question
• 17:53
  for myself or the good Professor, Shoot me an email kl at Carrie LEDs
• 17:59
  dot com forget to sign up for your free newsletter Professor Butler. Always a
• 18:03
  pleasure. Thanks for stopping by, Thanks for having me Carey, look forward
• 18:06
  to doing it again. Thanks for listening to Carrie Lenz's Financial Survival Network,
• 18:11
  your solution to today's trying times. For the latest, go to Financial Survivalnetwork
• 18:17
  dot com. Financial Survival Network now more than ever.