The 3 trillion dollar recession and the price of tea

LI finds it clarifying to refer to baseline numbers when thinking about big events, like wars and recessions. For this recession, we hold to the number, 3 trillion dollars – which reflects the growth rate for consumption over the growth of GDP over the last ten years, according to Michael Mandel at Business Week. And that growth, in turn, reflected the magic economy of assets inflation in a world in which inflation was supposedly dead. The magic was in simply not registering the extent of the assets inflation – it was put in a black box, technically diminished so that the information it gave to the Fed could be ignored. When you fix the information that you are supposed to respond to, you destroy the integrity of the machine. It is that simple.

And now, of course, we have asset deflation and inflation on other fronts. This story captured LI’s attention. As, apparently, hardcore members of the bottom 20% on the American wealth scale – oscillating between being in the straight poverty class and just above it – inflation is our biggest worry. At the same time, there has been a sort of cone of silence over the real rate of inflation that has affected our class. It is as if the poor live in some sub-Argentina in this country, where the prices are always going up dramatically, while the rest of the country lived somewhere else.

“Over all, Americans are spending about 13 percent more on food and energy now than a year ago. The figures, as are all the figures shown in the charts accompanying this article, are based on three-month moving averages of seasonally adjusted figures, and compare this year with last year.
The biggest cause of that increase is gasoline, of course. Americans are spending 22 percent more now at gasoline stations than they did a year ago. Food costs are up nearly 6 percent, a smaller amount but still a drain on budgets.”

This is pretty huge. If, as we think, the 3 trillion dollar gap is going to be closed, or at least the start on that closure is what we are going to see, then the recession is going to be deeper than anybody is forecasting. And if inflation on ordinary goods continues at this rate, compounded by the inflation on lifestyle goods like education and healthcare, the American middle class is going to be joining our Argentina soon. It is no fun, alas.