Americans are getting poorer by the day, and they can thank President Biden.
Too harsh? Not at all. Stock markets are crashing, costing Americans trillions of dollars, and home prices will likely follow. All of this is happening even though our economy remains essentially strong.
Why the disconnect? Americans are worried about inflation and don’t think the Biden administration can fix it without plunging our economy into recession. With the president still hawking even more government spending, higher business taxes and increased regulations – all of which will drive prices higher – why would they?
Almost from the start, Americans knew that Biden’s policies were wrong for the country. From the second quarter of Biden’s presidency, consumer sentiment has trended sharply lower, even as jobs were plentiful and consumers flush with cash.
The University of Michigan consumer sentiment index stood at 88.3 in April 2021; today it has dropped to 59.4, one of the lowest levels since 1980, when the data were first collected. A reading, for sure, completely out of kilter with 3.6 percent unemployment.
According to a Real Clear Politics average of polls, only 38 percent of the nation approves of Biden’s management of the economy.
First, the facts: The economy shrank by an annualized rate of 1.4 percent in the first quarter, not because consumers stopped spending but mainly because we had a big jump in our trade imbalance. Imports surged nearly 18 percent on an annualized basis while exports fell. Economists at ISI Evercore estimate the blowout in the trade gap crimped real GDP growth in the quarter by 3.2 percent.
In effect, the import increase (and the drop in GDP) was yet another indication that U.S. consumers are spending like crazy; as Jamie Dimon, CEO of JP Morgan Chase, said recently, Americans are flush with cash, and he is right.
Ironically, that is part of the problem. Consumers in the U.S. received generous payouts from the federal government as both Presidents Trump and Biden stepped in to offset the short-lived but severe impact from the COVID-19-induced shutdowns.
COVID-related relief programs helped the economy bounce back fast. So fast that by the time Biden entered the Oval Office, GDP was growing at better than 6 percent and jobs gains were surging. Unhappily, the Biden administration could not leave well enough alone, and with Democrat-only votes, soon passed the $1.9 trillion American Rescue Plan (ARP).
That bill poured gasoline on the roaring recovery already underway, pumping up consumer incomes and spending, even as manufacturers and retailers struggled to meet demand.
In addition to hyping spending, the ARP allowed millions to stay home, taking advantage of $1,400 “relief” checks, increased unemployment benefits, rent moratoriums, expanded food stamps and other benefits.
As inflation heated up month to month, Biden, Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell chirped optimistically that price increases were “transitory” and nothing to worry about. Consumers, though, knew better. They knew that the cost of everything – gasoline, food and cars – was going up.
They listened to the likes of former Treasury Secretary Larry Summers, who predicted that more federal spending would lead to more inflation. And they did not believe Joe Biden, who continued to promise that his Build Back Better program, which honest analysis suggested could cost as much as $5 trillion, would bring inflation under control.
Now, the long-dormant Federal Reserve is finally energized to address rising prices, by aggressively raising interest rates. Unhappily, because the Fed dithered, it must apply a sledgehammer to the economy rather than taking a more measured approach.
Expectations of a recession are increasing; even Yellen acknowledges that engineering a “soft landing” – that is, avoiding a recession – will take “luck.” Not exactly the reassurance investors were looking for.
There are signs that inflation is peaking, but also indications that price growth will remain elevated for some time.
First off, we have entered a wage-price spiral, driven by the acute labor shortage. Wages and benefits rose 4.5 percent in the first quarter compared to the year before, the fastest increase since at least 2001. With 11.3 million jobs available, and fewer than 6 million people looking for work, upward pressure on pay is likely to continue.
At the same time, Biden and his administration, in thrall to his backers in organized labor, are encouraging unionization at companies such as Starbucks and Amazon, which will lead to higher pay, to be passed along to consumers.
The Biden White House is also pursuing increased regulations and higher taxes on industry, which, if enacted, will further elevate costs. With luck, progress on these fronts will be minimal, but the risk remains.
There are also issues beyond the control of the White House. The war in Ukraine and lockdowns in China have exacerbated supply chain problems that continue to make the availability and delivery of goods more expensive. Those problems are ongoing.
So, here we are, with stock prices plummeting. The S&P is off nearly 13 percent this year, while tech stocks have recorded even sharper losses of 21 percent. In addition, higher interest rates will likely put a lid on home prices, which will impact the net worth of the two-thirds of the nation who are homeowners.
Many liberals believe only wealthy Americans own stocks, but that is not true. Gallup shows 56 percent of Americans say they invest in stocks, and that likely doesn’t reflect millions who own shares indirectly through their pension or retirement plans.
The White House has scoffed at the importance of stock price ups and downs, with one spokesperson saying, “unlike his predecessor, President Biden does not look at the stock market as a means by which to judge the economy.”
Won’t Biden be surprised when it turns out voters may well use the stock market to judge him?
Published on The Hill