# Economic Turmoil: The Rise of Stagflation and Recession
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Chapter 1: Current Economic Landscape
The current state of the economy is concerning, as inflation rates have surged. Recent statistics indicate that prices rose by 1.3% from May to June, pushing the annual inflation rate to a staggering 9.1%, marking a new peak not seen in 40 years. Analysts previously forecasted that inflation could approach double digits by summer's end.
> Despite what government reports might suggest, the economy is contracting, indicating we are in a recession.
In the coming weeks, further unsettling updates are expected. The Federal Reserve is anticipated to raise interest rates by a minimum of 75 basis points, possibly even 100 basis points. Shortly after this announcement, the government will reveal its initial estimate for GDP growth in the second quarter, likely showing a negative figure, potentially around -2.5%. This would mark the second successive quarter of negative GDP growth, aligning with the traditional definition of a recession.
The National Bureau of Economic Research (NBER), the agency responsible for officially declaring recessions, will likely point out that the unemployment rate remains below 4%, thus denying the existence of a recession.
Section 1.1: Job Market Challenges
The low unemployment rate is primarily a result of a labor shortage. Currently, there are over 11 million job openings while fewer than 6 million Americans are unemployed. However, this situation is expected to change dramatically in the upcoming months.
Even if the NBER insists that a recession is not occurring, it cannot ignore the stagnation in economic growth. The combination of stagnant growth and rising inflation is termed stagflation, a situation we are undeniably facing.
Section 1.2: Inflationary Pressures
Inflation rates are projected to increase further. Although there was a welcomed decrease of about 8% in gasoline prices between late June and mid-July, many other products continue to see price hikes. This trend is especially evident in food, housing, and energy costs, such as natural gas.
Despite assurances from President Joe Biden and his administration that efforts are underway to mitigate rising prices, the reality is that their actions have been minimal, and some policies may even exacerbate the inflation crisis.
The root cause of this inflation is largely attributed to excessive demand. While Russian oil production has risen since the Ukraine invasion, its impact on energy prices is limited. However, food shortages resulting from the conflict are likely to contribute to rising inflation.
Chapter 2: The Role of Government Spending
The first video titled "STAGFLATION? | US Treasuries Lose Value, Fed Gives Up on Inflation as US Declines Ahead of November" provides insights into how the current economic climate is shifting and what it means for the future.
The prevailing inflation in the U.S. has been largely driven by governmental excesses, particularly the nearly $6 trillion spent beyond tax revenues during the COVID-19 stimulus initiatives over the past two fiscal years.
> Instead of making efforts to curb this excess demand, the Biden administration appears to be leaning towards increasing spending.
Even now, the administration is reportedly overspending by approximately $130 billion each month. Should any new spending measures be implemented, they would only serve to heighten demand, thereby exerting further upward pressure on prices.
The second video titled "RATES EXPLODE | Economy is SCREWED | STAGFLATION" discusses the implications of rising interest rates on the economy and what it means for everyday Americans.
In March of this year, the Federal Reserve finally acknowledged the inflation issue, albeit belatedly. Back in March 2021, it was evident that inflation was becoming a concern, yet the Fed dismissed it as a temporary issue and continued to expand the money supply while maintaining near-zero interest rates. This only added to the excess demand, worsening the inflation scenario.
At this juncture, the Federal Reserve must aggressively increase interest rates and curtail the growth of the money supply. As rates rise rapidly, the Fed is also beginning to sell the bonds acquired last year to manage money supply growth.
The Biden administration should consider decreasing government spending to alleviate excess demand. However, with a focus on increasing spending instead, inflation is likely to persist.
We require competent leadership willing to heed the advice of economists focused on achieving stable prices, full employment, and economic growth. Unfortunately, the current advisors seem more preoccupied with addressing social issues and climate change, inadvertently fueling the inflation crisis.