Month: December 2021

Another ugly inflation report is cause for worry for working Americans

Posted on by j.giglio

After yet another ugly inflation report, the United States has its highest inflation rate since 1982, an eye-popping 6.8%. It was an increase that surpassed anything even the most pessimistic forecasters expected.

Inflation is up almost a whole percentage point in a single month and is three times the Fed target of 2%. It may climb higher still before it starts to come under control.

Inflation has become impossible to ignore. Working people are struggling to meet the cost of basics like food and housing because of skyrocketing prices. In November, food prices were up 6.1% from the year before, with meat, poultry fish and eggs up 12.8%, cereals and bakery products were up 4.6% and non-alcoholic beverages up 5.3%. Energy prices increased 33%. Used trucks and vehicles went up 31.4%.

All these items are basic necessities. Working Americans have had trouble this year affording basic needs amid soaring inflation.

Is it any wonder why the ordinary working American is anxious when they go to the grocery store or gas station? Basic necessities have become unaffordable for many middle- and low-income families whose salaries have not kept up with inflation. Ignoring these numbers is like going to the Grand Canyon and keeping your eyes shut.

The Federal Reserve, after having been caught flat-footed, is now struggling to get ahead of inflation.  After nearly a year of insisting that inflation is transitory, the Fed finally acknowledged otherwise. It will cut back its stimulus program more quickly than planned, ending asset purchases by March and raising interest rates as much as 75 basis points by the end of 2022.

That word “transitory” has been put to pasture as the Fed gradually tightens monetary policy to put the economy on a smooth glide path back to a growth and inflation equilibrium, and the promised land.  Good luck with that.

The Fed’s hawkish pivot comes as the economy faces the fastest inflation since the 1980s and a tight labor market. The Fed made a historic mistake that they now have to fix by slamming on the brakes without sending the economy into recession. Prices rise when goods become scarce or the money supply expands rapidly.

For sure, pandemic-induced supply chain disruptions have caused scarcity, but the Fed increased the money supply more than 40 percent in the past two years, creating excess demand that has contributed to inflation. Say what you want about inflation, and everybody does, today’s version is an unusual combination of both the demand and supply side.

Stopping inflation is a slow and painful experience for ordinary working-class Americans. Inflation may become self-perpetuating through price and wage-setting behavior. American workers will demand higher wages to compensate for inflation, and firms will raise prices, creating a vicious cycle. It eats away at consumer purchasing power and has historically required crushing interest rates to bring it under control.

Anyone whose pay is not rising by at least 7% will, in effect, feel like their pay has been cut. Inflation is now America’s public enemy number one.

It should be clear as gin that the pay hikes the country is seeing for workers traditionally at the lower end of the pay spectrum are long overdue after decades of stagnation. But higher wages are only meaningful if working Americans can afford more as a result. Next year’s price surges threaten to cancel out bigger paychecks as working people will be paying more for less.

Pearl Harbor Day is a day that should live in infamy

Posted on by j.giglio

Early in 1941, the government of resource-poor Japan realized that it needed to seize control of the petroleum and other raw material sources in the Dutch East Indies, French Indochina and the Malay Peninsula. Doing that would require neutralizing the threat posed by the U.S. Navy’s Pacific Fleet based at Pearl Harbor in Hawaii.

The government assigned this task to the Imperial Navy, whose combined fleet was headed by Admiral Isoroku Yamamoto. The Imperial Navy had two strategic alternatives for neutralizing the U.S. Pacific Fleet. One was to cripple the fleet itself through a direct attack on its warships, or cripple Pearl Harbor’s ability to function as the fleet’s forward base in the Pacific.

Crippling the U.S. fleet would require disabling the eight battleships that made up the fleet’s traditional battle line. It was quite a tall order.

The most effective way to cripple Pearl Harbor’s ability to function as a naval base would be to destroy its fuel storage and ship repair facilities. Without them, the Pacific Fleet would have to return to the U.S., where it could no longer deter Japanese military expansion in the region during the year or so it would take to rebuild Pearl Harbor.

It soon became apparent that the basics of either strategy could be carried out through a surprise air raid launched from the Imperial Navy’s six first-line aircraft carriers. Admiral Yamamoto had a reputation as an expert poker player, gained during his years of study at Harvard and as an Imperial Navy naval attaché in Washington. He decided to attack the U.S. warships that were moored each weekend in Pearl Harbor. But in this case the expert poker player picked the wrong target.

The Imperial Navy’s model for everything it did was the British Royal Navy. Standard histories of the Royal Navy emphasized its victories in spectacular naval battles.

Lost in the shuffle was any serious consideration of trying to cripple Pearl Harbor’s ability to function as a forward naval base. So it was that, in one of history’s finest displays of tactical management, six of the world’s best aircraft carriers furtively approached the Hawaiian Islands from the north just before dawn that fateful Sunday, Dec. 7, 1941, launched their planes into the rising sun, caught the U.S. Pacific Fleet with its pants down and wrought havoc in spectacular fashion. On paper at least, this rivaled the British Royal Navy’s triumph at Trafalgar.

But so what?

The American battleships at Pearl Harbor were slow-moving antiques from the World War I era. As we know, the U.S. Navy already had two brand new battleships in its Atlantic Fleet that could run rings around them. And eight new ones the navy was building were even better.

More importantly, the Pacific Fleet’s three aircraft carriers weren’t at Pearl Harbor. American shipyards were already building 10 modern carriers whose planes would later devastate Imperial Navy forces in the air/sea battles of the Philippine Sea and Leyte Gulf.

Most importantly, as the sun set on Dec. 7 and the U.S. Navy gathered the bodies of its 2,117 sailors and Marines killed that day, all-important fuel storage and ship repair facilities remained untouched by Japanese bombs, allowing Pearl Harbor to continue as a forward base for American naval power in the Pacific.

So in reality, Dec. 7 marked the sunset of Japan’s extravagant ambitions to dominate Asia. Admiral Yamamoto and the Imperial Navy’s other tradition-bound leaders chose the wrong targets at Pearl Harbor.

The dictates of tradition are usually the worst guides to follow when it comes doing anything really important. After all, if they survived long enough to be venerated, they’re probably obsolete.