The Downfall Begins in Earnest

The economy has been in a state of flux ever since the recent debt showdown. Before the deal was made it was obvious that Keynesians would use the lack of a deal to describe any downturn that might have occurred had no deal been made. But there was no indication as to what Keynesians would blame for a downturn if a deal is been made.

A deal was made at the last minute. There were some attempts to blame the lateness of the deal, but those attempts fell rather flat. Then S&P downgraded the credit rating of the United States from AAA to AA+. As Lew Rockwell pointed out, this would not cause a crash unless people knew matters were much worse.

Are matters worse? A trip to the grocery store can answer that. Prices on food are going up. The official inflation rate is measured by a basket of goods that underrates the impact of food and energy. Those are the areas that are more important on the budget of the middle to lower classes. As Gonzalo Lira pointed out only some prices rise in an hyper-inflation. Food, energy, medicine all rise in price, while the price of everything else collapses.

The creditors of the United States did not view the increase in the debt limit, without any actual accompanying reforms, as a financially sound thing to do. The view was instead that the Unites States continued to live beyond its means.

Food prices are rising. This is obvious to anyone who actually have to consider the price of food. Utility prices are trending upwards as well. The cost of health care is in an even greater state of uncertainty due to the phenomenon called “regime uncertainty.”

Although the decline has been going on for a long time, and the point of no return was passed a long time ago, the decline has started to accelerate to the point where the average person is beginning to notice. And they notice just as it has started to accelerate in earnest.