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The Biden Administration keeps insisting inflation is “transient,” but there are now real signs inflation is here and possibly for the long haul.
Thursday’s consumer price index increase of 5.4 percent year-on-year — its highest level in 13 years — is the latest and most visible piece of evidence that this scourge is making a comeback.
And it’s not like we weren’t warned you this was coming. If you grew up in the 1970s (as I did) you might recall long gas lines, consumers goods too expensive to afford. and something called Hamburger Helper — which people used to stretch ground beef because meat was so expensive. Inflation is a regressive tax that hits hardest at working class and poor Americans.
Inflation can be caused because the Federal Reserve keeps interest rates too low for too long, or due to massive government expenditures on stuff like infrastructure and cradle-to-grave welfare payments.
Today we have both — on steroids. The Fed has kept interest rates at zero for more than a year because of COVID shutdowns, and the Biden Administration can’t spend money fast enough.
Reality check: The COVID shutdowns are nearly over, and many were regionally based to begin with (Florida and Texas have been open for months). That’s why when you talk to most mainstream economists, they will tell you Biden and Powell are throwing money at a problem that doesn’t exist.
They are spending so much money on unemployment benefits that it’s keeping people out of the work force, despite companies desperate to hire.
Biden is playing with fire, both economically and politically. Again. I remember the 1970s and the reason Jimmy Carter was a one-term president. Then-Fed chairman Paul Volcker induced a recession to cure massive inflation during the Carter presidency, all but guaranteeing Ronald Reagan’s victory and his free-market revolution.
So why are our policy makers looking to repeat the sins of the past? Because Biden is listening to the progressive members of his party, like Alexandria Ocasio-Cortez, who don’t believe inflation exists, and that the government should be spending massively on every social program there is.
But the laws of economics haven’t changed completely. Small business owners were already warning that if they had to raise wages to compete with government handouts, those costs would have to be passed on to consumers. Now they are. And any wages increases are going to be canceled out by the increased cost of goods. It’s a spiral that’s very difficult to pull out of.
Bidenomics isn’t working. It’s built on a lot of wishful thinking, and a lot of cash. Post-COVID, the economy will grow on its own, so you have to ask whether all this spending is worth the inflationary risk?
Maybe if you like Hamburger Helper.
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