Dr. John Lott, president and founder of the Missoula-based Crime Prevention Research Center, is also a noted economist.
Lott has held positions in law and economics at several institutions, including Yale Law School, Hoover Institution, UCLA, Wharton Business School, Texas A&M University, and Rice University. Lott was also the chief economist of the United States Sentencing Commission.
KGVO reached out to Dr. Lott to get his perspective on America’s economic future with rising interest rates and runaway inflation.
“I don’t think that looks very good,” Dr. Lott began. “I think it’s pretty certain that we’re going to be in a recession; in fact, we may already be in one right now. We had negative growth in the first quarter and generally the way they define a recession is two consecutive quarters of negative growth. I mean, housing starts fell in May and higher interest rates are going to cause all kinds of upheaval in the economy, housing being just one area.
Lott explained an immutable fact about economics; that interest rates must be higher than the rate of inflation for the economy to function properly.
“You’re going to have to have interest rates above the rate of inflation,” he said. “They raised it by three-quarters of a point yesterday, but they still have a long way to go to get it through roughly if it has to be. Right now the inflation rate is 8.6% up and we’ve had in the last year or the 12% we’ve had there.
Lott developed the relationship between interest rates and inflation.
“Interest rates need to rise significantly above the rate of inflation,” he said. “I’m not going to lend you money unless you give me money back, at least add value to what I gave you, plus something extra.” The reason they managed to keep interest rates so low is because the Fed has been buying bonds and mortgages, but they are starting to stop doing that.
Lott said consumers will definitely be negatively affected by what the government needs to do to get inflation under control. In other words, there will be pain.
“You must be in pain,” he said. “You’re going to have to get that inflation out of the system. We have already done that. We did in the early 1980s. The last time we had inflation near this level (President Ronald) Reagan, thankfully, was ready to bite the bullet, and he wanted someone to run the Reserve federal government who is ready to bite the bullet.
Dr Lott said the nation owed Senator Joe Manchin a debt of gratitude for blocking President Biden’s Build Back Better program because if it had passed, the nation would be even deeper in the hole and face more economic hardship.
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