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US faces recession amid inflation and war

The U.S. economy is deteriorating due to fiscal and monetary cliffs. These cliffs are now being compounded by the war in Eastern Europe and near record-high inflation.

Russia produces 12 percent of the world’s oil supply and exports 18 percent of the world’s wheat consumption. Ukraine accounts for 25 percent of global wheat production. Sanctions and war will serve to slow the economy further and send prices for these vital commodities even higher.

The recession will be the first U.S. economic contraction to take place while the Federal Reserve had its target interest rate at or near zero percent. The following historical data indicates the level of the Fed Funds Rate just prior to the outset of all 10 U.S. recessions since WWII: 1957 3.5 percent, 1960 4.0 percent, 1969 10.5 percent, 1973 13.0 percent, 1979 16.01 percent, 1981 20.61 percent, 1989 10.71 percent, 2000 6.86 percent, 2007 5.31 percent, and 2019 2.45 percent.

Inflation is destroying real wages, and rising borrowing costs are destroying consumers’ ability to consume. If inflation were to continue to increase even close to that rate, it would push those in the middle class into the lower class; and those in the lower class into poverty. Of course, this would end up destroying markets and the economy anyway.


Zero Hedge

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