THE FED IS PLAYING JENGA WITH THE U.S. ECONOMY
Disclaimer: Good Day, Readers. WealthBuildingPowers blog is a financial literacy/competency blog and does not provide specific investment recommendations.
U.S. ECONOMY – WOBBLING LIKE A GAME OF JENGA
The U.S. economy is like a high-stakes game of Jenga. While the FED is the maestro of the game, they do NOT control all the blocks! The nation’s economic stability relies on a delicate balance of various factors represented by individual Jenga blocks. Each reflects the diverse and interconnected aspects of our economy.
A FEW BLOCK LABELS
When the tower collapses, so does our economy. Let’s look at how these blocks interact in the complex U.S. economy.
- INFLATION: When prices of goods and services rise uncontrollably, it erodes the purchasing power of consumers, impacting their ability to spend and invest.
- POLITICIANS WITH LITTLE ECONOMIC/FINANCIAL LITERACY: While the FED is trying to orchestrate a “soft landing,” our politicians pump Trillions of dollars into the economy and increase inflation.
- FED RATES: The Federal Reserve, {The Fed} can be seen as the architect of the Jenga tower. When the Fed raises interest rates, it tightens the availability of credit, which can have a domino effect on borrowing, spending, jobs, and investment.
- INTEREST RATES: The housing market plays a significant role in the U.S. economy, and higher interest rates can deter potential homeowners from making purchases, affecting the real estate sector.
- CREDIT: Credit card interest rates and defaults have increased. When consumers have high levels of credit card debt, it can limit their ability to spend on other goods and services.
- HOME SALES: Mortgage rates increased from 2.7% to ~8.0 percent, and we see a decrease in the demand for homes. Negatively impacting the construction sector, leading to fewer jobs and economic instability.
- CONSTRUCTION JOBS: Like many other sectors, construction jobs depend on a steady demand flow. A decrease in construction results in job losses.
- CAR SALES: As car loan interest rates increase coupled with greater increases in vehicle prices, we see a decline in car sales across the entire automotive industry, impacting manufacturers and suppliers.
- CANCELED EXPLANSION PLANS: Tesla, General Motors, heck, all the U.S. car companies recently announced their Electric Vehicle pipedreams have cracked. Car company’s and manufacturers” decisions to cancel expansion plans and new jobs impact employment, capital investment, and economic growth.
- WAR: Global geopolitical events, like the Ukraine, Russia, and Israel conflict, can lead to market uncertainty and affect trade and international relations.
- OIL PRICES: Oil prices significantly impact sectors from transportation to manufacturing. Price fluctuations can disrupt economic stability.
- FUEL PRICES: High gas prices can directly affect consumers’ budgets, as they spend more on transportation, leaving less money for other expenditures.
The Tower’s Collapse: Recession
Ring-a-ring-a-rosies; A pocket full of posies; A tissue, a tissue; We all fall down
The Federal Reserve and, unfortunately, politicians have their hands all over the U.S. economy. And like a good Jenga game, the keyword is WHEN, not if, the tower collapses.
WHEN the economy finally collapses, it represents a recession – a period of economic decline characterized by reduced consumer spending, business contraction, and rising unemployment. The U.S. experiences a recession about every five years.
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