One-on-One with CEO and founder of Sound Income Strategies, David Scranton

OAN NEWSROOM
UPDATED 2:22 PM PT – Wednesday, May 11, 2022

The latest consumer price index shows inflation increased 8.3 percent from last year. That’s slightly down from March when inflation hit 8.5 percent, but still at a 40 year record high. Also, gas prices hit another all time high this week. CEO and founder of Sound Income Strategies, David Scranton joined OAN’s Alicia Summers to discuss.

 

Alicia Summers: CEO and founder of Sound Income Strategies, David Scranton joins me now to discuss what this all means to you and your family. David, good to see you.

David Scranton: Good to see you, too. Thank you.

Alicia Summers: The new inflation numbers seem to be a slight step in the right direction. Do you see the gap between income and inflation slowly closing, slowly, moving forward?

David Scranton: Well, on an incremental basis, yes, but not to catch up for the inflation damage that’s already occurred. You know, we’ve had the best negotiating power for the average employee over the last year, year and a half because of the shutdown and the unemployment being driven down so low. But if we had closer to a slower economy or even recession, which is very likely, then it’s going to be back where the employee is not going to have much negotiating power as the unemployment rate goes up. So, they’re never going to catch up for what they lost in these last price hikes.

Alicia Summers: Paychecks are still not on par with the cost of living. Inflation still at a record 40 year high. Normally inflation, what, is around two to 3%. It was 1.5% when Biden took office. So, it’s 6.8% higher. Now, the president has released millions of barrels of oil from the National Reserve, meant for an emergency like a war. He said he has dropped energy prices, but today the national average for a price of gas, a gallon of gas hit another all-time record high $4.40 (it’s closer to $6 in California). So, do people still believe this is Putin’s price hike? The polls certainly show that Americans are not buying it.

David Scranton: Well, to blame inflation on Putin is absolutely crazy. To acknowledge that part of the part of the hike in fuel prices is due to the war and some boycotting Russian product, that makes some sense. And we’ll see…, I’m glad that he did that today. I’m not sure how much of a dent it’s going to put in things, with summer coming when people are on the road more. It’s also going to take, if it does work, it’s going to take some time for the price drop to trickle through because at the pump, they currently have their own inventories they paid more for. So, there’s always a lag effect before we really know whether or not it works.

Alicia Summers: The president, he tried to get ahead of the new inflation numbers yesterday with his economic speech, blaming everyone and everything but his administration. He blamed COVID 19, not the long lockdowns. He blamed Putin’s war, not mentioning inflation hit a 40 year high before Putin invaded Ukraine. He also emphasized the so-called “Ultra MAGA Plan,” a.k.a. Senator Rick Scott’s plan, would make American families poorer. So, what’s really to blame here and how do we fix this inflation problem?

David Scranton: Well, one thing that’s not published and, you know, part of the blame, of course, goes to all the free money that’s just been sloshing around in the economy. But even before that, even before we intentionally shut down the economy because the pandemic, we had a bit of an issue brewing capital expenditures to most corporations in America, five years before that, since maybe 2015, had been at a record low, which means that if you’re not spending money on CapEx, then eventually as demand for goods and services naturally grows, you’re only going be able to manufacture so many things. So, we were going to have a little bit of an inflation step up anyway had we never had the pandemic. The pandemic and the intentional shutdown and all the cheap money just made it that much worse.

So, it’s really a confluence of factors. It’s the fact that we’re heading that direction anyway with the CapEx problem. It’s the fact we got this temporary pent-up demand for goods and services, which I think should be settling down soon. And then you’ve got the ability, the fact that you close down an economy like this, but you can’t open it up that quickly. It takes some time. And the chip shortage for automobiles, great example, right? The chip shortage – chips got retooled for other uses. And then when car manufacturers finally came back and said “Hey, we’re sorry, we’re just kidding, you know, we want the chips now. People are actually buying cars.” The chip makers were thinking, “Well, that’s great. You wait in line now because we’ve retooled these for other purposes.” So, they’re really a lot of things that came together to create the perfect storm.

Alicia Summers: And it sounds like you’ve kind of alluded to you predicting inflation a while ago. Treasury Secretary Janet Yellen said no one could have predicted this inflation because it’s Putin’s fault. But economists on both sides of the aisle were warning of rising inflation a year ago. Now, American families are paying an extra… more than $5,000 more on essentials each month like gas and groceries. So, when is enough, enough? Is it political? What can we do?

David Scranton: Well, the political part is they’ve got to fix the supply chain issues, and that can’t be done by the Federal Reserve. So, the Federal Reserve… inflation is because too much demand and not enough supply right. So, the Federal Reserve, by kicking up interest rates, you know, attempts to tamp down the demand side. But if you tamp down demand too much, then you get involved with the R-word, which, of course, is recession. We don’t have a tool to help the supply side. That’s got to be done on a governmental level. And right now, it seems like the government can’t agree on anything. And, you know, the one thing that I would have to say is in this last go around with Biden trying to get your more money to be doled out, we can all sit around and thank God for Joe Manchin.

Alicia Summers: Yeah, we were alluding to that earlier. That maybe, you know, social spending, too much social spending, deficit financing, meaning the government spends more than it receives in revenue and printing money could be to blame as well. Not just, you know, the long lockdowns, which no doubt played a part. And it’s not just Putin and it’s not the virus itself. So, what’s really to blame for this cost-of-living crisis? How can we fix it?

David Scranton: Yeah. And that’s why I said, you know, the only thing you can really do that… what’s to blame is really these four different items. The most acute is all the cheap money sloshing around from the printing of money, right? You know, how do you fix it? Well, the Federal Reserve’s got to be cautious in how much they raise rates, because remember, if you raise rates too much, you cause a recession, like I said, and it’s kind of like chemotherapy, right? Chemotherapy is basically a poison for cancer patients, and you want to administer just enough to kill the cancer, but administer enough to fall short of actually killing the patient. And that’s the needle the Federal Reserve is trying to fix. Now, the White House in Congress has to get involved on the supply chain side, basically by having a more business friendly environment. This whole thing with fuel. If they just said “Fine, go ahead and drill.” You know, “We’re wrong. We need to we need to have more. We need the energy independent here in the United States.” That would help out a lot. But, you know, they’re sticking to their ideals even though we’re at a point where, you know, it’s killing the average consumer.

Alicia Summers: Yeah. You’re talking about the interest rates rising. The Fed has been rising that, slowly but surely. So, are fears of a recession still growing. What do you think?

David Scranton: They very much are. And of course, technically, a recession is defined as two negative growth periods, two negative quarters. But we already had one in the first quarter. Much to the surprise of a lot of economists, we were -1.4. So, we could actually be in a recession right now if we have a negative growth in the second quarter. Of course, that won’t get reported till the beginning of August. I don’t think that’s the case. I think we’ll have some growth in the second quarter. I think where we really have to be careful is for 2023. 2023, right now, we’re seeing enough preliminary signs of slowdown. I think I’d put the probability of recession next year at actually over 50%.

Alicia Summers: Not good. So, it’s not getting better any time soon, it sounds like. Of course, we’re hoping for the best. David Strand, thanks for your time today.

David Scranton: Thank you.

 

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