“Drill Baby, Drill” Ain’t Going To Save The GOP From A War-Driven Affordability Pounding, Part 1
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There is more history percolating up in the current Iranian madness than just another failed Forever War. It’s going to be the end of the Trumpified GOP too, and that means that a motley menagerie of Dem statists, spenders, regulators, lifers, wokests and outright freaks are likely to be swept back into power in the elections just ahead. Sadly, that will likely mark the end of capitalist prosperity and constitutional liberty in America as we have known it, too.
The truth is, only the old time GOP committed to free markets, fiscal rectitude, sound money, small, decentralized government and non-intervention abroad had any chance at all of reversing the 20th century tide of insolvent, inflationary, debt-encumbered Big Government. But that GOP of yesteryear was already deader than a doornail after three terms of the Bush’s spending, bailouts and money-printing—even before the Trumpified GOP delivered the coup de grace. That is, by going full retard on spending, borrowing, money-printing, protectionism, nativism and random government regulation and subsidization on the specious grounds of “national security”.
On another occasion we will get into a fuller amplification of all the manifold statist sins of the now thoroughly Trumpified GOP. But in the meanwhile, it might be well to recognize that Donald Trump unaccountably rode into office a second time against all reason because, and only because,AFFORDABILITY!
But now his epic idiocy in starting the largest war since Vietnam in the Persian Gulf is virtually guaranteed to come back to bit him hard upon his ample ass. In fact, setting aside all his bloviating in the SOTU about smashing inflation and igniting a new golden era of prosperity, the picture below is what really matters.
To wit, the Fed generated the 40-year high US inflation when it flooded the bond pits with fiat credit during the pandemic lockdown panic in the spring of 2020. We measure the effect via the BLS index of domestic services less energy because it removes any fog in the picture owing to global commodity and manufacturing cycles that may impact timing of inflation numbers, albeit not the ultimate destination of the price level.
Needless to say, it doesn’t get any more dispositive than this graph. Prior to the pandemic driven money explosion beginning in March 2020, the Y/Y increase rate for all domestic service prices other than energy services had been plunking along at +3.0% per annum, reflecting the trend level of inflationary bias in the US economy owing to the Fed’s egregious and persistent credit expansion.
But after three quarters of weakening inflation during the period from Q2 2020 to Q1 2021—when the Donald ordered people to board up in their homes and made it illegal to spend money at service establishments such as restaurants, bars, movies, malls, sports arenas, theme parks etc— the blue line tracking the domestic services index took-off like a bat out of hell after Q1 2021.
And, yes, don’t fail to recall that Uncle Milton Friedman told us there were brief and not totally fixed time lags between bad money and rising prices. Still, the picture below is nearly picture perfect.
Between Q4 2019 and Q4 2021, the Fed’s balance sheet (dotted red line) exploded from $4 trillion to $9 trillion, thereby representing a rate and magnitude of increase never seen or even imagined by pedigreed inflationists before then.
So three or four quarters later the blue line for domestic services followed the money flood like clockwork. Accordingly, the Y/Y rate of advance escalated from the 2%-3% trend line to 7.2% by Q1 2023.
Thereafter, of course, the Fed pivoted to restraint, shrinking its balance sheet via QT (quantitative tightening or letting its bond portfolio roll-off as holdings get redeemed at maturity) from just under $9 trillion in Q1 2022 to $6.58 trillion by Q4 2025.
Again, with a modest lag, the Fed’s pivot to restraint has caused the inflationary momentum of the domestic economy to abate, with our key measure of domestic inflation most directly impacted by the central bank—domestic services less energy services—dropping from +7.19% on a Y/Y basis at the 2023 peak to less than half that level, but a still robust +3.14% in Q4 2025.
Fed Balance Sheet Versus Y/Y Change In Domestic Services CPI, Q1 2017 to Q4 2025
Now here’s the thing. Donald Trump didn’t have a damn thing to do with the downhill march of the blue line in the graph above. The rate of increase in domestic services prices was already down to 4.1% Y/Y by Q1 2025 owing to the Fed’s pivot to restraint, and, if anything might have marched to lower than the aforementioned 3.14% by Q4 2025 had the Donald not been riding the Fed so hard to deepen its rate cuts.
