The government’s response to the Coronavirus Pandemic has finally popped the financial bubble that the Federal Reserve has been blowing up since it’s last one popped in 2007. In April alone, manufacturing employment collapsed by 1.33 million jobs. With millions still losing their jobs each week, May’s employment figures will likely be bleak too. However, thanks to the Federal Reserve, there is still plenty of credit being pumped into the markets to keep many manufacturers afloat. And while everyone is excited about a recovery as governments reopen the economy, very few realize that the government’s response to the Pandemic made a horrific economy worse.
Reopening the economy may finally open the flood gates to runaway price inflation. The M2 Money Supply has increased an astonishing $2.6 trillion (17%) since February. And the production of goods and services has collapsed with some estimates of Q2 GDP dropping by 30%. Given that unemployment insurance is currently paying people up to $50,000 annualized not to work, many laid of factory workers may not come back to work at all; the average annual income is just over $47,000 (not including overtime). Fewer employees mean there are fewer goods being produced. And fewer goods combined with a bigger money supply equals higher prices. The only remaining question is when will stagflation make its long awaited comeback.