News & Politics

A Terrifying Omen for America Under Biden Gets Even Worse

AP Photo/Evan Vucci

On Friday, the U.S. Department of Commerce again confirmed the ominous warning sign of inflation as the U.S. economy adjusts to global economic trends, the winding down of the COVID-19 pandemic, and President Joe Biden’s profligate government spending. While many economists and policymakers claim that the recent uptick in inflation is temporary, a recent Deutsche Bank report warned of a repeat of the 1970s.

The personal consumption expenditures (PCE) index rose 0.4 percent in May, slightly less than the 0.5 percent increase economists predicted, MarketWatch reported. Over the past year, consumer prices have shot up 3.9 percent, reflecting the biggest gain since 2008 when oil prices hit a record high of $150 per barrel.

This PCE number is double the Federal Reserve’s 2 percent goal, but officials have downplayed the increase. Fed leaders argue that prices will lower next year as the economy returns to normal, most people go back to work, and widespread shortages of labor and supplies fade away.

The core PCE price index, the Fed’s preferred measure of inflation, rose 0.5 percent in May, hitting 3.4 percent, above the 3.1 percent April figure.

As The Wall Street Journal reported, the Commerce Department’s 3.9 percent inflation measure represents a smaller leap than the 5 percent jump in the consumer-price index (CPI) the Labor Department reported earlier this month. CPI typically runs higher than the PCE index, yet both measures rose significantly in the past year.

“The CPI aims to capture changes in the cost of living based on what urban consumers pay out of pocket for a hypothetical basket of goods and services. The PCE index shows a broader basket of price changes, including in rural areas. It also includes prices paid by nonprofit organizations that provide services to households, by government programs such as Medicare and Medicaid and by employer-sponsored health care plans,” the Journal‘s Gwynn Guilford explained.

While the Fed has downplayed the threat of inflation, economists at Deutsche Bank sounded the alarm, warning that Biden’s economic policies seem based on an irrational belief in a Goldilocks economy.

“The most basic laws of economics, the ones that have stood the test of time over a millennium, have not been suspended. An explosive growth in debt financed largely by central banks is likely to lead to higher inflation,” David Folkerts-Landau, chief economist at Deutsche Bank, wrote with his colleagues in a paper earlier this month. “We worry that the painful lessons of an inflationary past are being ignored by central bankers, either because they really believe that this time is different, or they have bought into a new paradigm that low interest rates are here to stay, or they are protecting their institutions by not trying to hold back a political steam roller.”

The authors warned that “neglecting inflation leaves global economies sitting on a time bomb.” They noted similarities between the 1970s and today.

“Rising oil prices could compound any consumer-driven inflation. Indeed the price of oil has haunted the Fed before. A series of oil shocks contributed to the ratcheting up of inflation during the 1970s, but the Burns Fed chose to focus more on the CPI excluding oil. Then it excluded surging food prices and the idea of ‘core’ inflation took shape. Subsequently, more and more items were excluded. Eventually, however, the Fed recognised that all the supposed transitory sources of inflation had spread everywhere and double-digit inflation had leaked into the ‘core’,” Folkerts-Landau and his team wrote.

“Already, many sources of rising prices are filtering through into the US economy. Even if they are transitory on paper, they may feed into expectations just as they did in the 1970s. The risk then, is that even if they are only embedded for a few months they may be difficult to contain, especially with stimulus so high,” the authors warned.

In a terrifying echo of the stagflation of the 1970s, inflation is rising at the same time as unemployment remains fairly high (5.8 percent in May and above 6 percent in April).

This persistent unemployment should not surprise Americans who are familiar with the Democrats’ $1.9 trillion blue pork bill masquerading as a “COVID-19 relief” stimulus. Only 8.6 percent of the funding went directly to combatting the pandemic, while hundreds of billions went to blue-state bailouts. The bill also sent $1,400 checks to individuals, and extended the $400/week “enhanced” unemployment benefits.

Thanks to this “enhanced” unemployment, many workers make more money without a job than they did when they had one. Rather than reconsidering this perverse incentive not to work, Biden and his fellow Democrats further entrenched it.

Biden’s other policies would also make the economic situation worse. The president has called for Congress to spend trillions more in social programs that his tax plans cannot hope to fund. Essentially printing money decreases trust in the U.S. dollar and sparks inflation.

The Deutsche Bank report gave two other macroeconomic reasons to expect inflation. Over the last 40 years, the integration of China and other emerging markets into the global economy has injected hundreds of millions of cheap workers into the workforce, pulling down wages and prices. Yet the global working-age population will decline in years and decades ahead, pressing wages up. Secondly, the COVID-19 pandemic shocked many countries into realizing the weakness of their supply chains. As countries work to secure their supply chains, they will increase production costs.

Some inflation may represent an overdue correction to unsustainable global trends like these, but Biden’s profligate spending and his woefully inadequate tax plans willingly worsen the situation.

As PJ Media’s David Goldman wrote, “inflation is an insidious tax that robs the poor and the middle class. It favors the U.S. government, the world’s biggest debtor, because the government expects to pay back its creditors in Monopoly money. It crushes the real earnings of the vast majority of American households and destroys their savings. That’s what the Democratics are up to. And that’s what might bring them down–just as 12% inflation brought down Jimmy Carter in 1980.”

Unfortunately, inflation will bring down the U.S. economy along with the Biden Democrats. America needs tighter economic policy in order to fight inflation. That may call for another Reagan-style revolution.