Yesterday we were all disappointed to learn soaring consumer prices aren’t falling as quickly as predicted. Inflation in August remained near 40-year highs, although forecasts suggested a sharper decline. Millions of Americans are further squeezed and continue to struggle to cover basic costs like food, gas and rent.
President Biden and the Fed continue to raise interest rates. Bad move! Most Americans do not understand economics. Raising interest rates is like a tax. However, when the Fed raises the rate, banks and hedge funds get the revenue. Consumers are punished; banks and hedge funds are rewarded.
If we need to slow consumer demand, why doesn’t this money go to our national treasury rather than banks and hedge funds owners? Second, consumer demand is not the problem. Supplies have collapsed due to the pandemic and supply chain disruption.
The Fed is punishing middle class families — rather than stimulating production. People claim President Biden is a friend of the middle class! His policies are crushing our pocketbooks. There is a better way!
UPDATE 9.24.22: Hawaiian Electric rates exploding — well above the 4%-7% that the company promised consumers.
“Just wondering if other’s HECO bill went up as much as mine did? It has been steadily increasing with the gas prices but this last one we just received was $78 higher than last month’s $285! That seems like a lot and I thought I heard that the increase with the coal burning plant closing was going to be about $15 or so. I’m in shock!”
one person posted on NextDoor.com. Source: Civil Beat, 9.23.22
Other residents have noted their frustration:
“Same here. Went from $300 to $380 the previous month and this month went up to $445!!! And we don’t even have AC.”
Source: Civil Beat, 9.23.22
The chart below contrasts Hawai’i electricity rates compared to U.S. Total. For residential customers, electricity costs Hawai’i ratepayers $0.4481 per kWh, while U.S. Total is $0.1546 — nearly three times higher. Most costly for commercial: $0.4236 in Hawai’i compared to $0.1315 for U.S. Total; and more than four times more expensive for industry: $0.3815 in Hawai’i and $0.0943 U.S. Total.
Some longtime drivers of higher inflation — spiking gas prices, broken supply chains, soaring used-car prices — have dropped somewhat. Yet underlying measures of inflation continue to worsen.
On Tuesday, the government reported inflation ticked up 0.1% from July to August, and 8.3% from a year ago, although down from June’s four-decade high of 9.1%
Excluding volatile categories of food and energy, core prices jumped unexpectedly by 0.6% from July to August, after a milder 0.3% rise the previous month. Stocks plunged, with the Dow Jones collapsing more than 1,200 points.
Wow! Tough day for American families and business — particularly small businesses. On top of this financial battering we are suffering from national policies, Hawaiian Electric Company (HECO) hit ratepayers with an announced 7% increase in prices, although later suggesting the increase may only be 4%.
Costs nationally increased 8.3%; now add the Punch in the Gut 4% to 7% increase by HECO.
HECO did not need to force this increase on families and business. This decision was the choice of CEO Shelee Kimura. See Incompetent Hawaiian Electric and Hawaii Politicians Just Increased Energy Taxes by 7%
Shelee was appointed to her current role in January 2022 and previously served as senior vice president of Customer Service & Public Affairs and senior vice president of Business Development & Strategic Planning.
CEO Shelee seems to be a delightful person with a long history at HECO. However, she appears far-removed and out-of-touch with ordinary families living in the islands. Shelee and her husband are proud parents of three teenage children. Like most executives in our state, I assume her keiki go to private schools. They are so unlike the rest of us!
I’ve written numerous times to CEO Shelee. I’m a political economist. As a business intelligence professional, my research helps companies see the “bigger picture.” And what is the Big Picture for Hawai’i?
HECO raised electricity rates to close the state’s last remaining coal-fired power plant on September 1st, which provided the state with about 10% of our electricity, and replaced the lost energy from the facility with another fossil fuel source: petroleum. Dirty diesel !!! YUCK !!!
HECO’s goal is to reduce carbon-emitting fuels. However, ending burning of coal to substitute the use diesel oil doesn’t solve that challenge. In this highly-inflationary period, HECO didn’t need to turn off the switch September 1st. This was fully the decision of rich HECO executives.
The legislature demanded a shift by the end of 2022. Waiting another quarter would have been extremely helpful to local families. If conditions remained inflationary in December, HECO could have petitioned for a waiver.
Instead, HECO rushed to increase our prices!!! Thank you, CEO Shelee! She’s kind and compassionate — except when thinking of our pocketbooks and families.
Most importantly, what is the Big Picture relative to burning coal for electricity generation? Here are the facts: it will take local ratepayers in Hawai’i over 5,100+ YEARS to use the same amount of coal that China uses in ONE YEAR.
Or, comparatively, it will take local ratepayers in Hawai’i over 1,700+ YEARS to use the same amount of coal that India uses in ONE YEAR.
The talented, caring Asian American executives at HECO could have reached out to both China and India to request they cut back on coal use to help the global environment. Instead, they put the burden on the backs of 95% of the 1.4 million people who live in the Hawaiian Islands — while punching us in the gut with a 4% – 7% increase in electricity costs. Quelle horreur !!!
Navigating a Stag / Flation Economic Crisis
CEO Shelee graduated University of Hawai’i at Mānoa in 1995. She’s a youngster. Shelee was just a keiki when the USA last suffered StagFlation. Interests rates hit 20+%. This was a brutal financial period in America.
The Federal Reserve is wrong to increase interests rates. Big mistake! As I pointed out months ago, increasing interest rates across the board in a time of StagFlation is the wrong medicine for our economic illness. See Federal Reserve DANGEROUS to Increase Interest Rates
In general, there are two broad paradigms of monetary policy that the Fed deploys to maintain stability in our economy. In a period of recession, the Fed drops interests rates and increases the supply of money so companies and families can borrow and grow.
In a period of inflation, the Fed does the opposite by increasing interests rates to slow business and consumer activity.
Today, we suffer both situations simultaneously, called StagFlation. Some sectors of the economy are recessing. They can’t get needed parts, attract sufficient labor or acquire raw materials that are stalled on a slow boat from China. Higher interest rates only increase the wind in their faces.
At the same time, other sectors of the economy are inflating — quite rapidly, as we all know and suffer. The Fed increases interest rates to slow our demand for such goods and services.
Too many, this intervention might make sense. I’ll show you why it’s wrong.
Transitory Hyper-Inflation
Much of the inflation we’re experiencing is called transitory hyper-inflation, and is due to the disruptions in supply chains or production related to the SARS-CoV-2 pandemic.
FOOD
For example, a meat packing plant in South Dakota had to be closed when workers suffered an outbreak of COVID19. Meat supplies decreased and short supplies led to higher costs.
This situation was inflationary, but also transitory. Once the workers recovered from their illnesses, they were able to get back to work — almost. The company learned they could not have employees working so closely together. Rather than return all to work, they could only employ 50%.
Meat production didn’t return to previous levels. Meat prices are higher. It takes the industry time to build new or larger facilities. They need low-cost loans to make these improvements.
In addition, environmental extremism is wrecking havoc at this time. Just as the meat processing plants were coming back online, severe drought hit western cattle-producing states. Ranchers were forced to limit the number of cattle — again, adding to short supplies. This situation is also transitory (we hope).
Nevertheless, the Fed’s action to increase interest rates does not decrease the inflationary pressures. Their higher costs simply add to industry woes.
When the meat processing plant closed, they lost money. The company needed to borrow to keep moving forward. They need money to restart; they need money to build back better. The Fed increased the cost of borrowing money — adding more wind in the faces of these businesses.
The solution for businesses in these sectors is to provide interest-free or low-interest loans — not higher prices loans. Most of our food inflation follows this example of meat producers. They need MORE MONEY at lower rates of interest. Fed action harms them.
ENERGY
The second critical area is energy. Need more! California wants consumers to shift toward EVs, yet had to instruct EV owners not to recharge vehicle batteries during the recent heat crisis. Electric companies like HECO can’t afford to increase generating capacity if borrowing costs to build more plants are going up.
Oil prices are relatively high today. Average Crude Oil Spot Price is at a current level of 95.97, down from 105.08 last month and up from 68.87 one year ago. This is a change of -8.67% from last month and 39.36% from one year ago.
When the pandemic hit, oil companies suffered the worst. Nations around the world shut down. Companies had no place to sell the oil they had pumped; and no place to store the oil they had on hand. Prices went negative! Oil companies were forced to PAY consumers to take the oil. OUCH!!!
Many companies went out of business. They had to lay off thousands of workers.
Now, conditions have reversed. We need companies to restart drilling and pumping. However, companies are uncertain. Will we face another lockdown or slowdown? Why would they invest if government and consumers slow down again?
By increasing the cost of borrowing money, the Fed discourages oil companies from restarting and expanding operations. High interest rates keep oil prices high.
Oil companies also face severe headwinds as labor is in short supply. The workers they laid off have found work elsewhere — or retired. Lack of labor forces oil companies to increase compensation and may need to borrow additional funds to get restarted. Fed increases in interest rates make this process more expensive and difficult.
Finally, oil companies recently lost billions of dollars. As prices are higher, they are recovering recent losses. If they produce more, the price of oil drops and they earn less profit. What is their incentive to drill and pump more — knowing they will make less? Farmers understand what I am saying!
Food and energy are the two most volatile sectors in our economy. I’ve explained how the Fed harmed both industries and further crushed American families.
CONSUMER GOODS
Another critical component in our economy is consumer goods, like clothing, shoes, smartphones, cars, TVs and household products. Many of these goods are purchased using credit cards. When the Fed increases interest rates, consumers pay more for these items.
However, prices for these goods were already increasing due to the pandemic and broken supply chains. The Fed added more fuel to the fire. If pandemic forces caused Nike to increase shoe prices by $25, consumers will demand less. The market will moderate consumer activity.
The Fed didn’t need to get involved. Higher prices will lower demand until supply lines catch back up. By keeping interest rates low, Nike can afford to hire more workers, increase production and add to supplies. Higher interest rates have the opposite effect. There will be fewer shoes on the market. This creates additional inflationary pressures.
HOUSING
I refer to the previous examples as supply-induced inflation. As we need increased supply to meet existing consumer demand, the Fed should easy access to capital — not increase interest rates.
Now, consider an example of demand-induced inflation. Due to low interest rates and trillions of dollars the Fed injected into the economy during the pandemic, the housing market is blisteringly hot. The Fed needs to cool buyers down.
As the Fed increases interest rates, cost of home mortgages increases. This housing market is perfect for the Fed’s anti-inflation response. After the 2008-09 market crash, President Obama said he needed to use a scalpel, rather than a broad brush to rebuild the economy. He was correct.
The Fed needs to follow the same reasoning at this time. Higher interest rates on home mortgages are an effective policy. Rather than across the board prime rate interest increases (broad brush approach), the Fed should use a scalpel. For example, add a Fed interest tax to home mortgages in excess of some amount — maybe $500,000 or so.
The Fed doesn’t need to increase costs for lower middle class families. They can target increases to those who have more to spend. This policy will slow buyer demand for homes, and such a policy would be helpful to the broader economy.
CONCLUSIONS
CEO Shelee is a kind, compassionate Asian American female. Talented in many ways. Why then did she punch us all in the gut? Please turn on the coal-fired plant until suitable renewable sources are available. Do us a favor: lower our costs in this high inflation period.
Let’s work collectively to persuade China and Indian to join us when we finally close our last coal-fired plant. Hawai’i will not solve the environmental crisis alone; we must collaborate with others around the world.
If Hawai’i shuts the doors on oil and coal, while the world continues to increase use, ocean levels will still rise; temperatures will still increase. Local residents simply pay and suffer more!
Young CEO Shelee should use her growing influence to reach out to the Fed. These old dudes back in Washington, D.C. need to hear from our best & brightest Asian American minds in the islands.
Asian Americans have proven their abilities. Their pursuit of excellence is inspiring. Their dedication to professional career and family is exemplary. Their commitment to mindfulness to others, compassion and kindness is needed more than ever in our chaotic and violent time.
Hawai’i officials and executives claim they want to be national and global leaders. The time is now to stand up and lead!
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