Bidenomics is Crashing and About to Bring Us All Down With It
The spending must stop
As President Biden heads into arguably the most tumultuous battle of his political career, his reelection bid for President, his administration proudly touts the achievements of "Bidenomics." The White House points to low unemployment numbers, a decline in the inflation rate, and the aversion of a recession in 2022. Contrary to Mr. Biden's wishes, we must confront the stark reality that exists for many Americans, even at the expense of deviating from the picture-perfect narrative coming from the rose garden. Less than half of the American population have an emergency fund, while a significant portion — five-eighths — live paycheck to paycheck. An equally substantial number find themselves unable to access one thousand dollars should a crisis arise.
It becomes increasingly clear that an economic catastrophe lurks on the horizon. Worse, and arguably the most disturbing sign, is an economic trend unseen since the Great Depression. If Mr. Biden and Congress do not curtail their inflation-inducing policies, we could see an economic disaster unparalleled in modern times. It would be prudent to retrace our steps in understanding how we arrived at this predicament.
In 2020, considered by many the worst year in recent times, the world found itself engulfed in flame both figuratively and quite literally. COVID-19 strained our healthcare system, our entire economy shut down, and it felt as though society teetered on the precipice of total collapse. Amid this chaos, President Donald Trump and Speaker Nancy Pelosi initiated an unprecedented surge in spending to keep the economy alive.
Mr. Trump was known for his frequent and fervent attacks against Federal Reserve Chairman Jerome Powell, never shying away from expressing his discontent with any rate adjustments. In 2019, he asserted, “China is adding great stimulus to its economy while at the same time keeping interest rates low. Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low, and instituted a very big dose of quantitative tightening. We have the potential to go up like a rocket if we did some lowering of rates, like one point, and some quantitative easing. Yes, we are doing very well at 3.2% GDP, but with our wonderfully low inflation, we could be setting major records &, at the same time, make our National Debt start to look small.”
This changed during COVID. Trillions of dollars were injected into the economy, funded by incurring additional debt and printing more money. The Federal Reserve, in a bid to placate Mr. Trump ahead of his reelection, consistently maintained ultra-low interest rates, despite ominous warnings from economists regarding future inflation. Many welcomed the inauguration of his successor in January 2021, with many believing that the vaccine rollout and reopening of states would lead to a cooldown. Yet, instead of returning to pre-pandemic spending levels, Mr. Biden and his Democratic trifecta in Congress, with the "blessing" of Mr. Powell, opted to spend even further.
Mr. Biden first embarked on a notably aggressive campaign against domestic energy production. He discontinued the Keystone XL pipeline, imposed a moratorium on oil and gas production on federal lands, depleted the strategic oil reserves in an attempt to lower gas prices ahead of the midterms, and restored the United States' membership in the unfair Paris Accord. Presently, Americans find themselves grappling with the burden of coping with some of the most exorbitant energy costs witnessed in decades. The swift implementation of Mr. Biden's green-focused policies has precipitated a surge in prices across the energy spectrum, encompassing electricity, oil, and natural gas.
Alarmingly, many American families find themselves choosing between “heat or eat”. For the average household, the financial toll has been substantial, with energy costs escalating by approximately $10,000 over the two years since Mr. Biden's inauguration. As a result of these energy actions, the War in Ukraine's impact on global exports, and the Fed's low rates and increased spending we now are bearing witness to an inflationary event that has not been seen in four decades. Prices of all essential such as eggs, milk, clothes, rent, and gasoline have increased.
After being caught "asleep at the switch", Mr. Powell's Fed initiated rate hikes in 2022, that continue into this year. However, contrary to these rate hikes, government spending has not only remained steady it has been elevated. This has stopped the growth of inflation but has failed in its broader objective of bringing prices back to pre-pandemic levels. The most disturbing and substantial shortcoming is in the housing market. Here, a lack of available supply, an artificial inflation in property values, and a refusal to "budge" have left many homeowners unwilling to sell. The biggest reason for the lack of movement is that 62% of American homeowners have a locked-in interest rate below 4%, compared to the new average of 8.6%. Consequently, buying a home seems increasingly unattainable for many young people.
The most dramatic and concerning revelation is the unprecedented drop in the money supply — composed of cash, checkable deposits, and savings accounts. Despite the increase in prices, the decline in the money supply continues to dwindle. In layman's terms, even though it seems there is more money in the economy there is less actual money. The annual M2 money supply growth rate has been negative for the past three quarters, a phenomenon not seen in over a century.
In the Great Depression, of which we are coincidentally approaching the centennial anniversary, the money supply dropped similarly. Yet, the key distinction is that in that era prices dropped with it. In our odd modern predicament, prices persistently rise despite the diminishing money supply. The Biden administration's policies have forced many American families to deplete their savings and incur debt to cover essential expenses like food, utilities, mortgage payments, student loan payments, and auto loans. The bottom 80% of income earners, the majority of Americans, now have less real household savings than they did before the pandemic. Alarmingly, the savings for top earners are expected to fall below the pre-2020 levels in 2024.
Credit cards did not exist during the Great Depression, but now they seem to be Americans' last resort to remain afloat. Americans collectively amassed over $1 trillion in credit card debt, an unprecedented high, last spring. It seems that all GDP growth during the Biden presidency has been financed by debt. Drawing inspiration from the likes of President Franklin Delano Roosevelt, Mr. Biden embarked on a mission of government expansion. However, Mr. Biden shows no desire to emulate FDR's fiscal conservatism, as his approach seems devoid of any pathway to pay for his expansionary policies. The 2023 fiscal year is going to produce a $1.54 trillion budget shortfall, a larger deficit than 2020 and 2021.
The Household Pulse survey data from July shows that 27 million Americans "sometimes" or "often" find themselves without sufficient food to eat. African Americans have been hit the hardest. The number of African Americans who have self-reported as being without sufficient food has increased by 848,000 in the last two years. More broadly, 4 million Americans reported tapping into savings or selling assets to cover their costs, while more than 85 million Americans used "credit cards or loans" to cover spending costs.
This is not normal. This is not sustainable. This is not how America should be.
This trajectory of rampant inflation, from reckless spending, has eroded the quality of life for citizens across the nation and set us on a course toward fiscal catastrophe. Mr. Biden must execute a change in course by championing American energy production, curbing spending, and allowing Mr. Powell and the Fed to manage the economy without interference. Failing to heed these alarms means that the suffering of Americans today will be nothing compared to the potential disaster awaiting us in the year to come. America finds itself in a very high-stakes environment, and the time to fix it is now.