The Buzz on Business for July 10th, 2024

So, you didn’t have to, we watched Federal Reserve Chairman Jerome Powell’s testimony before the United States Senate yesterday. Well, we watched as much as we could until nausea overtook us.

Perhaps, we just have faulty expectations but US Senators holding forth on economic policy, specifically on inflation, take on the look and feel of a Saturday Night Live skit. It’s a series of self-important narcissists forcefully arguing about something they know nothing about.

One example that we recall, in spite of ourselves, involved one Senator stating as axiomatic truth that the other party destroyed the economy. He said the word destroyed about a dozen times and then fabulously claimed, at the end of his thankfully limited time, that the US economy was the greatest on earth and the greatest in the world.

In all cases the august political leaders misunderstood the causes of and the adverse consequences of inflation.

Inflation is wholly a monetary phenomenon. It is not caused by government spending or greedy corporations. It is caused by an increase in the supply of money and as anyone who slept through Econ 101 knows, when you increase the supply of a commodity, the price of that commodity falls. If you increase the supply of money, the value of all the money falls. It’s not politics. It’s mathematics.

And despite what some set of politicians want us all to believe, the problem with inflation is not the rising prices. It’s not rising prices because labor is one of the commodities whose price increases. Over the last fifty years or so, wages have risen about a full percentage point faster than inflation and we’ve seen in recent months that that trend continues.

The essential problem with inflation is the set of incentives it creates for consumers, business, savers and investors and, especially, governments. Inflation encourages debt and discourages thrift. It encourages—indeed forces—people to take on risk for which they are ill-suited.

Fixing inflation is easy. Balance the federal budget, install an enforceable regime to pay off the balance sheet and actuarial debt and radically cut the growth of the money supply.

Of course, that would require hard choices and maybe a tiny bit of courage on the part of politicians, an impossible ask. What they’re good at and all they want to do is rant and rave for the TV cameras.

Stock Market Report

Stocks again finished mixed. The S&P and NASDAQ again finished at new all-time highs. Volume again fell and declining stocks again handily beat out advancers.

• The Dow Jones Industrials were down, but not by much. They were off fifty-three points, just a tad more than one-tenth of one percent and closed at 39,292.
• The S&P 500 was up, but not by much. It closed at a new all-time high of 5,577. That’s a gain of just four points, less than one-tenth of a percent.
• Likewise, the NASDAQ Composite, it was up twenty-six points, a bit over one-tenth, and closed at 18,429, a new all-time high.
• And the Russell 2000 was down. It closed at 2,029, down nine points or one-half of one percent.

Bond Market Report

Like stocks, bonds were little changed on Tuesday.

• The yield on the 2-year treasury closed about where it opened. It now stands at 4.631%
• The 20-year was up two ticks and closed at 4.593%

Oil, Gold, and Bitcoin

• Oil was down another $0.57, and a barrel now changes hands at $81.79.
• Gold was up a minuscule $3.70, and a troy ounce will now set you back $2,370.40.
• And Bitcoin made back some of its recent losses. It was up $1,395.24 and at 4:00 PM ET stood at $57,923.05.

Jerome Powell Faces the Senate

Nothing of consequence on the economic calendar on Tuesday. Except Jerome Powell’s testimony, that is! Chairman Powel hewed pretty close to the Federal Reserve’s Party Line. The economy is good, not overheating like it was in the 4^th quarter of last year. Inflation has come down and he is pleased with the progress, but more evidence is needed before rates can start coming down.

Yadda, yadda, yadda. My sense is that he holds US Senators in about the same regard as we do.

Not much on the economic calendar today either—except day two of Powell’s testimony. This time before the House. We’ll try to watch. And report how we did tomorrow, here on the Buzz!