No one likes bad economic news, especially consumers, small businesses, and politicians looking to get reelected. But the reality is bad economic policies invariably produce bad economic results, and Biden’s policies are miserable.
If a dimming economic forecast for 2024 may be premature, big facts suggest otherwise. Biden’s economic mismanagement is likely to erase his remaining support. The only good news is a silver lining for 2025. Look at the big facts.
First, Biden’s fiscal policies – the inordinate money Democrats spent post-COVID on climate change and an ironically named “Inflation Reduction Act” – have driven inflation, interest, and national debt up, real wages, savings, and confidence down.
Biden’s 2024 budget is 55 percent higher than Trump’s 2019 budget, after record spending. The federal debt stands at $32.7 trillion, and Biden aims for $50.7 trillion by 2033. That is unsustainable. Consumers, small businesses, and markets know it.
Biden’s 2021 through 2024 spending spree, combined with cuts in US energy production, pushed inflation from 1.4 percent when Biden took office to 7 percent in 2021, 6.5 percent in 2022, and 3.2 percent today. Biden takes credit for bringing his own record inflation down – from five times Trump’s to twice Trump’s. That is not progress, it robs seniors and hardworking Americans of life-and-death resources.
Glance at interest rates, which have been raised more than 500 basis points in a year to address Biden’s wild spending, debt, energy cuts, and inflation. Interest on cars, houses, credit cards, and that federal debt, which fell in 2019 with Trump, started at 3.7 percent in January 2020, with mortgage interest at 2.68 percent.
But then came Biden, who not only pushed inflation to seven percent but – by doing so – pushed interest people to pay on credit to double what it was under Trump.
On oil and gas, Biden took America backward, from energy independence under Trump and being a net exporter to deep cuts in production, a crazy call for ending all US oil and gas production by 2035. This, when 81 percent of our power grid runs on oil and gas, and wind and solar will never get beyond 15 percent.
Net-net, Biden is killing the energy sector, consumers, seniors on fixed incomes, small businesses, and any chance for robust growth in 2024, but…there is more.
Often unspoken is the “lagged effect” of changes in interest rates by the Federal Reserve. While we face high inflation, interest, debt, dependence, low labor productivity, consumer confidence, and faith in Biden, we also face a downturn next year. Here is why.
The Financial Times recently explained. “The quantitative effects of monetary policy – both in magnitude and timing- are notoriously uncertain. That said, a central rule of thumb is that each percentage point increase in official interest rates reduces aggregate demand by one percentage point,” lagging a year or two.
Biden’s pro-inflation, anti-energy policies triggered a five-point jump (actually 525 basis points) in interest, which is likely to translate into a solid downtick in growth.
That shoe has not fallen yet, but could soon. The Financial Times explained why. In all likelihood, “The negative influence of monetary policy by 4 to 5 percent of GDP (Gross Domestic Product) is being offset …by this year’s fiscal expansion and the running-down of much of the remaining excess savings cushion,” from COVID-era federal checks.
“Next year may well be another matter… The spending of excess savings will largely be over and fiscal policy moves into restrictions of around one percent of GDP. Meanwhile the delayed effects of the last two years of monetary tightening stand to be” up to “negative 3 percent of GDP.”
In other words, on top of high inflation, interest, debt, and uncertainty, the lagged effect on demand and growth of high interest and the end of masking could lead to a noticeable drop in demand and growth a downturn in the economy.
So, what is the silver lining? There are three.
First, dropping demand and growth will, perhaps by 2025, reduce inflation further, currently still twice Trump’s level.
Second, concerns about the future may lead the Fed to start cutting rates, which with a lagged effect, may bring growth back in 2025, as people again borrow.
Finally, the mismanagement of fiscal, energy, and monetary policy by free-spending Democrats may produce a sobering-up moment, a return to fiscal conservatism, cuts, and balance under new leadership – at both ends of Pennsylvania Avenue. So, a dimming economic forecast may, after all, usher in a brighter future. Let us hope.
Robert Charles is a former Assistant Secretary of State under Colin Powell, former Reagan and Bush 41 White House staffer, attorney, and naval intelligence officer (USNR). He wrote “Narcotics and Terrorism” (2003), “Eagles and Evergreens” (2018), and is National Spokesman for AMAC.
