EDITOR NOTE: In the article below, we have not only two dueling Treasury Secretaries in Yellen and Summers, but also two conflicting pictures of economic recovery. Yellen, like Fed chief Powell, holds that the slack in employment can absorb higher inflation via stimulus as employers are not facing a shortage of workers (therefore not pushing wage inflation to higher levels). Summers describes the stimulus as an approach that far exceeds normal recessionary levels--one that can push inflation to levels beyond the Fed’s control. Yellen and the Fed assume they can control the fragile monetary outcomes resulting from the stimulus, while Summers warns that both should exercise more caution. The winners of all this money printing and spending are those whose wealth is tied primarily to asset inflation--stocks and real estate. Those who live in the “real” economy--namely, Americans working for a paycheck--continue to suffer. This has an expiration date. There has always been a monetary reckoning when economic denaturing takes on monstrous proportions. In the end, the financial economy and real economy are going to come to a head, and the only thing that may be left standing is the foundation upon which both are built. That foundation is sound money. Gold and silver.
Current and former Treasury Secretaries Janet Yellen and Lawrence Summers have been engaging in Internet flame war. It’s odd and cringe-worthy, like watching a rap battle break out between Romneys.
Summers started it. Waving salamandrine arms in alarm, the ex-Harvard president went on a media tour to insist that the Joe Biden/Yellen pandemic relief proposal would end in inflationary disaster. He wrote in the Washington Posta few weeks back:
There is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation…
Yellen went on her own morning talk show tour in response, insisting that there’s no risk that we’re anywhere near what Summers described as the best-case scenario, an “overheated economy in which employers are desperate to find workers and push up wages and benefits.” In fact, she said: “We’re in a deep hole with respect to the job market,” adding that minus a robust recovery plan, full employment would not return until 2025:
Until now, the Covid-19 relief programs most resembled the bailout policies of George Bush and Barack Obama in 2008-2009, which stressed recapitalization of the financial sector. The CARES Act initially appeared as more of the same: a Fed-fueled Wall Street romp pitched as a trickle-down rescue, that didn’t do much trickling down.
The result of such policies is sometimes euphemistically described as a “K-Shaped Recovery” (see TK Finance Dictionary, above). In this “recovery,” the happy upward prong of the letter K represents banks, real estate, the telecom sector, as well as anyone who owns any kind of financial asset, from a home to a stock portfolio. The down-pointing prong usually represents wages or the “real” economy, which humorously has often had to be described in press treatments in clinical terms, as a separate, alien thing.
In fact, the “K” is just camouflaging jargon for a faux recovery, in which massive upward gains for a few, that in the aggregate offset greater losses for everyone else, are pitched as a net positive for society overall. Joe Biden mocked this concept as a candidate. Is he serious about abandoning it as president?
Originally posted on TK News