If one ever noticed-when the breaking news was reported on the recent ruling from the S.Court, the DOW dipped about sixty point. From a little over 400 gains to around 340 points. It kept going down, before it moved-up again at the end of the market close. Data cannot lie–the dipped can be interpreted as a collection of preferences.

The DOW movements are the rationale reactions toward the ruling. Any news leaning towards the other side will be reflected by a lower DOW. The market is a collection of rational players who try to anticipate “something” such that they can benefit out of it or to protect their own interests, portfolios or investments. This small signal again strengthens what we have mentioned in our previous BLOG. Americans are not ready, or ever ready to move away from the system that the Founding Fathers have established many years ago since the Independent Day; with something that is leaning toward a totalitarian system.

Experiments to change the current system to something else is costly, and may have unimaginable effects. Therefore, people do not need to change the system of government because they could see what has happened in countries under the totalitarian system. Experimentations in a lab, are good to find new drugs to cure diseases for lab experiments can be repeated with less costly. However, changing the current system into something else other than democracy will have unimaginable consequences, and above all it is a one-way ticket. Once you burned the bridge down, you cannot rebuild it. For example, if one bites a hot Thai chilly, she or he surely will experience sense of burning on his or her tongue. Unless one likes hot Thai food, ordering level 5 will surely make one sweats, or even stomach ache or diarrhea.

There are two choices when one is speaking about unemployment versus Inflation. (1). One can have to pay lower price, but unemployed due to labor market contractions; or (2). Have a job, though pay higher prices.

The Americans have spoken, days before the polls are closed. They would rather to have a job, rather than being unemployed. The logic is simple, having a job will likely enable one to pay the bills. On the other hand, zero income due to unemployed will shut the door to be able to pay the bills–it does not matter how small the amount is. This is the choice of survival. Living under higher prices situation may not be the best options but it is surely a second best, especially for families with young kids, where mom or dad has to work on several jobs to keep the bread and butter on the table. Voters have used their rationale who they think will help them to keep their jobs, and their family intact. Voters have seen who helped them to cancel their unfairly charged student loans. Voters have seen who provided them with the vaccines during the pandemic-while the other side denied that Covid-19 even existed. Congrats America! You have made up your mind, based on facts-not myths.

Judging from the Wall Street–where the DOW goes green in the past 2 trading days (10/21 and 10/24, at 9:22am) can be seen as the verdict. For whatever reason, it seems that the FED yields, or realizes the less than perfect decision that it has made in the past several weeks was not going too well. That reflects the danger of basically relied on economic mathematical simulation model without further thinking the repercussions of a policy change. The model has been developed under certain past circumstances, but fail to accommodate the dynamics that are happening in the global market, as well as in the domestic market–such as the shrinkage of the water level in the Mississippi river due to climate change. It seems simple–but think what is going to happen if the grains transportation system through the river is disrupted? Surely, it will affect the bread retail prices at the stores, or it affects the feeds used by chicken, beef or hog operators through out the nation in the input market. Hopefully in the FED’s future model, it will add the climate change equation, in addition to oil and other macro economic equations. However, the residual term magnitude will never go to zero–it does not matter how small the epsilon is.

What happens in the (stock) market can be used as a proxy of FED’s future policy on interest rate. The market has anticipated that the FED will (or has) push (pushed) the breaks, at least for now. These results can also be used to predict the midterm outcomes, days before the polls closed.

Frequent, if not 24 hours, the US media continually reporting how the inflation becomes a hot topic, and perhaps most likely to be the decision point of American voters. After watching a law grad student who was interviewed (with vague answers/ideas about inflation), by one of the networks, AAEA is motivated to shed the light on such issue. AAEA will help the voters to understand the problem in a simple graph, yet complicated enough for one that has not had economic 101 to comprehend what is presenting in this BLOG. Please look at the Figure 1 below.

Historically, the FED has set the interest rate pretty low to encourage consumers to borrow, and buy stuff, especially during the pandemic–which is justifiable. The results of such a policy were to move aggregate demand curve or line from D1 to D2, where D1 is the aggregate demand in absent of FED’s policy. Without market intervention, the general price is denoted by P1. After the FED’s intervention–that cause aggregate demand to increase as well as the general price from P1 to P2. This general increase, or known as inflation becomes the talking points of folks in the campaign trails. Unfortunately, most voters are illiterate about the causes-and-effects, such that they are badly manipulated. So, read our honest BLOG, and listen less to the ones that only have interest on your votes, and not on your well-being. So, the FED is trying to control the inflation, by increasing interest rate. However, the effects of this policy are:

1. Higher interest rate meant to lower the aggregate demand for goods and services across the industry. Fortunately, Americans are able to cope with the price increase.
2. Weaker demand for goods and services will cause the industry sector to suffer for over-production and increase operational cost due to inventory accumulation.
3. Consequently of point#2 is that demand for labor will drop, and the end-results will be increasing UNEMPLOYMENT.

How can one keep the inflation under control without causing increase UNEMPLOYMENT. This can be done as expressed in Figure – 1 above by shifting the Supply line from S1 to S2. Yes, this is in theory, and in reality how can the industry sector has the incentives to invest, and expand its output from Q1 to Q3. This requires a team work from people with different colors in the society. One color alone won’t solve the American problem. Hopefully, the law makers will understand Figure-1 above, and start to work as a team.

When people have a job; they HAVE THE PURCHASING POWER–THOUGH WEAKER. But, if people are unemployed, and no income, they cannot afford to buy stuff, but have to rely more heavily on the government’s program. The Wall Street knows exactly this is the case–in that the FED cannot use the old strategies, wisdoms and rely on the old mathematical economic and simulation models 🙂 to deal with the new world economy without destroying the whole house (Read: US economy as a whole–by increasing interest rate). As results, the DOW increased by 748.97 points on Friday–October 21, 2022. America, it is your choice to make on November 8, 2022. Either to go unemployed & rely on food stamps OR employed & able to pay stuff at a higher price.

As the Americans are heading to cast their votes, there are so many distractions, lies, or even empty promises that have been thrown out there to lure voters. All these campaigns can be grouped into two categories-either lies or truthfulness. In such a case, the only way that voters can choose correctly is based on logical analyses and data in the decision making process. This BLOG article shows voters that it does not matter what the colors of one has-either green or olive. Data do not lie. Data do not depend on what the colors are. Data are reality–the presentation of facts; and they can be verified based on logic. Voters will hear either information, or worse yet dis-information, during this special events. For example, people are taking how bad the current economy is; or how expensive the gas price is. All of these inflation and rising food price talks are happening all over the world–and are just specifically occurring in the US. Needless to say that the US economy is still the best in the world–and thanks to the talent of those who are managing the economy which is, by far is still better than those of in other countries. Factors that affect all the high price–or the inflation if one wishes to call it, are affected by both external and internal factors. Crude oil importers cannot tell the exporting countries to sell their product at a price that the consumers want to pay (in extreme case–consumers always want to get everything for FREE, right?). Luckily, the Adam Smith’s infeasible hand always governs the market. It is all about demand and supply–and what is happening in the US, is just a shift in asset allocations due to uncertainties such as wars, global warming, exploding world population or geopolitics. None of these external factors can be controlled by anyone’s color, because they are independent–the world is bigger than any specific country. Therefore, using these external phenomena on the campaign trails are just reflections of lies, illogical, wishful thinking, and deceits. No one, in this planet–regardless of his color can govern droughts and make the level of Mississippi river back to the 50’s again. I wish, that I could!. Therefore, do not let deceit govern your life.