The talk of the town today is President Joe Biden. opinion piece on wall street Newspaper: “My plan to fight inflation.”
There are many ways to read this, but one thought I have is that this little essay basically indicates that you are trying to prepare people for some very bad economic news to come.
He won’t mess with the Fed as he raises interest rates and pulls cash out of the economy, but he knows full well that the economy is headed for recession.
That part of the recession is what all the gibberish talk about transition is about. He is trying to make the case that inflation will miraculously drop below 10% without job losses or a higher unemployment rate. That thought is a great triumph of hope over experience and he knows it.
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Other than this futile attempt to get ahead of the recession curve, there was nothing new about Biden’s so-called “fighting inflation plan.” There is no freezing of domestic spending. He still wants to spend on housing, child care, elder care and, no doubt, the usual “Build Back Better” agenda.
It is still betting on a fossil fuel-free economy with more subsidies for various Green New Deal projects. Remember last week in Japan, I was talking about
“transition” to a fossil fuel-free economy? The Bidens are not unhappy with record gasoline prices at the pump, or even today’s $120 world oil price. How is that sale of oil from the Strategic Petroleum Reserve working for us?
Let me repeat my view that a fossil fuel free economy would lead to a permanent recession with millions of lost jobs combining high unemployment and high inflation at the same time. In other words, a disaster.
Mr. Biden wants to spend more on infrastructure, even though his own EPA, with its hugely restrictive environmental impact reviews, not only stops fossil fuels and pipelines, but also roads, bridges, highways, and tunnels. The president still wants national prescription drug price controls and is still attacking profitable businesses.
If he really wanted an antidote to inflation, he would turn on the taps for oil and gas production, but that’s not what he wants.
He talks about reducing the federal deficit, but that’s a unique event since the end of emergency spending, assisted by a huge windfall, partly from inflation and partly from Trump’s successful tax cuts.
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According to the CBO, deficits will increase by $16 trillion over the next ten years. Public debt will reach 110% of GDP and federal spending will exceed 23% of GDP, well above the 50-year average.
There is no mention of the supply-side incentives that would come from deregulation, not just of energy, but of business in general. Meanwhile, there are the usual Biden-petty (opposite of Iowa-nice) untruths.
He says that the economy had stagnated when he took office, but in fact, in the fourth quarter of 2020 it increased 4.5% and in the first quarter of 2021 it increased 6.3%.
That’s why the March 2021 “stimmy” was unnecessary and highly inflationary; the economy was already growing very rapidly.
Biden wrote about families increasing their savings, but in fact, the April savings rate was 4.4%, significantly lower than the 12.6% savings rate a year ago.
He talked about improving consumer confidence, but unfortunately the latest confidence measures from the Conference Board and the University of Michigan show substantial declines.
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Meanwhile, after taxes and after inflation, real disposable income has fallen more than 6% over the past 12 months.
Biden, of course, took another jab at Trump, saying “my predecessor demoted the Fed,” but in fact no one could understand why Jay Powell raised the Fed’s target rate four times in 2018 with a rate of inflation below the Fed’s target of 1.9%.
Immediately after the Trump tax cuts were enacted, the economy was actually growing at a 4% rate, again with virtually no inflation, and President Trump had every reason to be angry with the Fed chairman. which he named
Biden could not resist his attack on successful people, calling once again for a confiscatory estate tax and punitive international taxes on American companies. So here we go again, higher taxes will reduce inflation.
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Really? In reality, higher tax rates will reduce the incentives for economic growth and lead to increases in supply-side inflation. So Mr. Biden did not reset inflation today. It is Vladimir Putin’s fault.
We are going fossil fuel free instead of increasing oil and gas production. We’re going to continue with federal spending and borrowing and debt creation and none of this is going to hurt the economy or working people one bit, but we’re going to let Jay Powell adjust as much as he wants because there will be no economic fallout . I’m not buying it. I’m glad the cavalry is coming.
This article is adapted from Larry Kudlow’s opening commentary in the May 31, 2022, issue of “Kudlow.”