Wednesday, Aug 10, 2022

Biden’s False Recession and Inflation Denials

President Joe Biden’s message to the American people, who are struggling with soaring inflation and the growing fear that a recession is now upon us, or very soon will be, has been to reject their fears and to assert, in the face of overwhelming evidence to the contrary, that, “Our economy is strong. We have these jobs. It’s the best look we’ve had in decades.”

Two weeks ago, in his first interview with the news media in four months, when Biden was asked by an Associated Press reporter whether Americans should believe “serious economists who warn of as recession next year,” his answer was a flat rejection, saying, “You shouldn’t believe [the] warning.”

He then went on to declare that, “First of all, [a recession is] not inevitable. Secondly, we’re in a stronger position than any nation in the world to overcome this inflation.” He then denied the suggestion that the inflation that has become a serious problem for American families was his fault, by asking that if this were so, “Why is it the case in every other major industrial country in the world that inflation is higher?”

FALSE GLOBAL INFLATION CLAIMS

But that claim was demonstrably false, and it is hard to believe that Biden was not aware that by saying so, he was lying to the American people.

When he said it, the latest federal government estimate of the current US inflation rate, for the month of May, was 8.6%. At the same time, the Organization for Economic Cooperation and Development had issued its estimates for the rate of inflation in five of the other largest global economies: Germany was at 7.9%, Great Britain’s was 7.8%, Italy’s and Canada’s were 6.8%, and France’s was 5.2%. Directly contrary to Biden’s assertion, inflation in the US, at 8.6%, was significantly higher, rather than lower, compared to each of our main global trading partners. (Japan, the seventh member of the G7 group of major economies, does not issue monthly government inflation figures, but outside economic experts estimate that at the end of June, its inflation rate was a mere 2.8%.)

Biden has also consistently lied to the American people by denying that his administration’s anti-fossil fuel policies were deliberately designed to increase the cost of gasoline at the pump. Instead, Biden has sought to blame the record high cost of gas at the pump, which last month hit a nationwide average of $5 a gallon, entirely on Russian President Vladimir Putin’s invasion of Ukraine.

Biden’s claim ignores the fact that from the time he took office in January 2021 until the invasion of Ukraine in February 2022, his war on the US fossil fuel industry had already driven up the price of gas at the pump from $2.33 to $3.49 a gallon, and had become a serious concern for many car-dependent US families.

BIDEN’S DISHONEST DOMESTIC ENERGY POLICIES

If President Biden were serious about providing price relief at the pump for American car owners, he could have instituted a crash program to start rapidly boosting domestic energy production by fully developing America’s proven fossil fuel reserves, using existing US fracking technology. But instead, Biden kept a tight regulatory lid on domestic energy production while seeking to redirect the blame for high gas prices at the US oil industry. He blames them for failing to significantly increase the rate of domestic gas and oil production, despite the fact that Biden’s own policies have made it economically impractical for those companies to invest the amount of new money required to do so.

Biden’s accusations that the big oil companies have been price-gouging American consumers is also inconsistent with the fact that fuel prices are set by the forces of supply and demand in trades on the open global energy commodity markets.

These facts are public knowledge. As a result, most Americans know that Biden is lying to them when he denies any blame for the soaring cost of gas and diesel fuel at the pump, which has been devastating their family budgets. Higher fuel costs have also become a major cause of concern for American businesses, and are now driving up prices throughout the American economy.

IGNORED INFLATION WARNINGS

The Biden administration has also refused to accept the idea that its $6 trillion spending spree since taking office, sending the national debt to over $30 trillion (134% of the US GDP), is a major factor driving US inflation to a higher rate than the rest of the developed world.

When he first took office in early 2021, Biden and his Treasury Secretary Janet Yellen insisted that the major threat to the American economy was failing to go “big enough” in passing new federal spending programs to stimulate the Covid-depressed economy. They ignored dire warnings issued at the time by former Clinton Treasury Secretary and Obama economic adviser Larry Summers that the excess spending would trigger a serious inflation problem, possibly followed by a recession.

But to this day, Biden and Yellen still claim that a recession is not inevitable, while Summers is still sounding the alarm. Just two weeks ago, he said that all “precedents point towards a recession” by the end of next year. “The optimists were wrong a year ago in saying we’d have no inflation,” Summers said, “and I think they’re wrong now… [a recession is] almost inevitable.”

Summers also claims that a change by the Bureau of Labor Statistics (BLS) in 1983 in the way it calculates inflation has served to minimize its real-world impact, because that number no longer fully reflects the full impact of increases in the cost of home ownership.

The last time inflation peaked in this country was more than 40 years ago, during the Jimmy Carter administration. The all-time high for inflation in the US was set in March 1980 at 14.8%. The combination at that time of high inflation with a stagnant growth rate created the phenomenon known as “stagflation,” which was a major factor in Ronald Reagan’ landslide victory over Carter that November.

The 14.8% number makes the current rate of inflation, at 8.6%, seem relatively low. But Summers argues that the comparison is deceiving, because if inflation had been measured in 1980 the same way it is measured today, it would be 11.6%. That is much closer to the current inflation figure, and would indicate that the US economy today is in much greater danger of falling again into chronic “stagflation” than is generally realized.

BIDEN’S LIES CATCHING UP WITH HIM

After a year and a half in office, Biden and the Democrats have finally stopped blaming the clear failures of their own economic policies directly on President Trump. Now, when not blaming Vladimir Putin or warning of the threat to democracy from Trump-brainwashed Republican extremists, Biden insists that the country’s problems are mostly due to the lingering “psychological trauma” of the pandemic, despite his public declaration last year, at a July 4th White House celebration, that his vaccine and mask mandates, combined with the school and business lockdowns, which probably did more harm than good, had conquered the virus, too.

That July 4 victory lap was premature. Despite Biden administration boasts of success, Covid-19, albeit in a reduced form, is still with us and impacting our quality of life. Americans are also reminded each time they fill up their cars with gas or shop for food and other essentials that their president has been lying to them about inflation as well. Over the past year, the credibility of the Joe Biden that American voters thought they knew, and whom they chose as a safe alternative to Donald Trump in the 2020 election, has steadily fallen to reach a historic low, as measured by all of the public opinion polls.

They also know that Biden was still lying to them when he told the American people, in the same AP interview, to, “Be confident, because I am confident. We are better positioned than any country in the world to own the second quarter of the 21st century. That’s not hyperbole. That’s a fact.”

No, Mr. President, it is not a fact — and the evidence is growing, day by day, that the recession which you also insist is not “inevitable” is already upon us.

GROWING SIGNS THE RECESSION IS HERE

One major factor in the slowdown of the American economy since the beginning of the year was reflected in the latest US Bureau of Economic Analysis estimate of the GDP for the first quarter of 2022. It was revised slightly downward to a negative 1.6% rate, because of a greater than expected slowdown in consumer spending, which is responsible for 70% of America’s economic activity. A second consecutive quarter of negative growth in the GDP is one of the classic definitions for the onset of a recession. That may already be a reality, since, according to the current projections by the Federal Reserve Bank of Atlanta, the GDP of the second quarter, just ended, is expected to be “flat,” or roughly zero.

Whether or not a recession has already started, the near-term economic outlook, with interest rates rising sharply and inflation outpacing wage increases, certainly looks bleak. A recent survey of economists by the Wall Street Journal puts the likelihood of the nation going into a recession within the next 12 months at 44%, and there is plenty of evidence to support those fears.

In June, the US and European economies were slowed by surging prices which weakened consumer demand. US retail sales fell in May by 0.4%, and existing US home sales in the recently hot real estate market have now declined for four consecutive months.

According to James Knightley, chief international economist for Dutch banking group ING, “Consumer confidence is already fragile while the housing market is making creaking sounds, and with more interest rate hikes to come and the squeeze on spending power from gasoline prices unlikely to be eased anytime soon, the prospects for second-half consumer spending are deteriorating.” As a result, Knightley has changed his prior economic forecasts. With regard to second-quarter economic growth, he says, “We now think we will be lucky to get something close to 1%, [and] there is a very clear threat that the prospect of recession is a late 2022 scenario rather than early 2023.”

The results of the latest Morning Consult survey indicate that lower income consumers are beginning to change their spending habits due to the inflation squeeze, as their wages continue to fall behind their cost of living due to inflation. Average monthly spending grew at a 6.5% annual rate during May, while average earnings growth slowed to 5.2%. To compensate, many lower income consumers are buying more items on their credit cards and taking more time to pay them off, incurring high interest charges on their unpaid balances each month.

The growth of US manufacturing activity also slowed in June, with new orders contracting for the first time in two years. The latest activity index from the Institute for Supply Management (ISM) dropped to 53.0 last month compared to a reading of 56.1 in May, but because it was still above 50, it showed manufacturing activity in the US still expanding. However, the same survey indicated that factory employment in June was shrinking for a second straight month, although an “overwhelming majority” of companies said they were still seeking to hire more workers with needed skills.

CONSUMERS CUT BACK ON BUYING

One of the reasons for the slowdown in new factory orders is that major retailers, such as Walmart and Target, reported that they are carrying an excess of inventory consisting in part of items whose delivery from the factory had been delayed and arrived too late for their prime selling season. Target reported in June that it will have to sell some of those items at a deep discount, impacting its profits, to make room for new merchandise that is arriving.

Some of the excess items had been ordered far in advance, or in larger quantities, due to concerns that they might get delayed by supply chain bottlenecks or shipping problems due to the pandemic. Others have been left on store shelves because they have gone out of fashion, or consumer tastes have changed since the time they were first ordered. The glut in certain types of merchandise is so bad that some of the goods are being shipped directly to liquidators without ever being put out on retail store shelves.

According to the Wall Street Journal, the deeply discounted items include recently hard-to-find items such as washers, dryers, and kitchen appliances; out-of-season merchandise such as outdoor lawn and garden furniture; and some winter apparel and decorations which had originally been ordered for the 2021 end-of-year holiday sales, but did not arrive until after the sales were over.

Another factor in the slowdown in sales is that consumers have been forced to be more careful in how they spend their money. Last year’s government stimulus checks have stopped coming. Those extra funds they put in their savings accounts have become depleted. Now, they are being forced to choose between discretionary purchases they thought they could afford and the extra money they now need to spend on putting gas in their car or buying food for their families.

Supply chain problems, as well as production disruptions due to sporadic Covid outbreaks worldwide, still persist. Auto production is still being hobbled by a lingering shortage of computer chips. While leisure travel seems to have recovered with the loosening of Covid restrictions, airline schedules worldwide are being seriously disrupted by a continuing shortage of available workers, including pilots and ground personnel. Daily life has clearly not yet totally returned to normal, and the sharply higher prices for virtually everything are a major part of the current problem.

WHY BLAMING PUTIN WON’T WORK

While there is clearly some substance to Biden’s claim that Russia’s invasion of Ukraine was responsible for the most recent spike in the cost of energy, it is hard to accept Biden’s insistence that Putin is also somehow responsible for the rest of the current US inflation problem. The numbers, in this case, speak for themselves.

In January 2021, when Biden took office, the annual inflation rate was 1.4%. In April 2021, the month after Biden signed the $1.9 trillion American Rescue Plan for Covid relief, ignoring warnings about inflation from Summers and most Republicans, inflation reached 4.2%. By January 2022, two months after he signed the $1.2 trillion bipartisan infrastructure act, and a month before Russia invaded Ukraine, inflation reached 7.5%. In other words, more than 80% of the inflation increase since Biden took office took place before Putin invaded Ukraine.

Yellen now admits the Biden spending spree might have “marginally” contributed to inflation. But Biden and his administration remain in denial that their excess spending on Covid relief contributed to the current inflation problem. To this day, they are still trying to find ways to resuscitate elements of Biden’s $3.5 trillion Build Back Better plan to “lower costs” and “ease inflationary pressures.”

TURBULENCE IN THE MARKETS

The emergency moves by the Fed to halt the inflationary spiral has also triggered another classic sign of an imminent recession: the so-called inverted yield curve. That is a situation in which the interest rates paid by short term financial securities (such as certificates of deposits) are higher than the returns on similar longer-term investments.

Another worrying indication of the current financial turbulence is the sharp drop in the value of Bitcoin, which has lost more than two-thirds of its value since reaching a record high in November 2021, as well as signs of a general collapse in the highly speculative cryptocurrency market.

The stock and security markets have already priced-in a sharp fall in expected corporate profits, based upon pessimistic recent earnings projections. The tech-heavy Nasdaq Composite index and the broader S&P 500 stock index are now in bear market territory — both have fallen by more than 20% since the start of 2022 — and even the blue-chip Dow Jones average is down by more than 15% over the same period.

The same message is being sent by the falling stock market, the inverted interest yield curve, the collapse of Bitcoin prices, and the sharp falloff in consumer spending as family budgets are being squeezed by soaring prices at the pump and the supermarket — the economy is in trouble because inflation is out of control.

FED CHAIRMAN POWELL FINALLY DOING HIS DUTY

The problem is so clear that even Fed Chairman Jerome Powell can no longer deny its reality. To his credit, Powell has finally begun to take the necessary but painful action of raising interest rates to bring inflation under control. After announcing the largest single interest rate increase since 1994, by three-quarters of a percentage point, Powell is signaling further rate increases in July and the months to come in a belated effort to put a cap on inflation.

At a congressional hearing last month, Powell admitted that more rate hikes could “tip this economy into recession.” But he also said, “We can’t fail on this. We really have to get inflation down,” and declared that the Fed would continue raising interest rates, even if that does cause a recession, until it sees clear evidence that inflation has been brought back under control.

Most economists agree that the Fed, at this point, must bring down the inflation by raising interest rates, before an inflationary psychology becomes more deeply embedded in American consumers and business leaders, making it more difficult to root out. Inflation is an insidious and particularly burdensome tax upon the middle class and the poor, but bringing it under control by raising interest rates will also inevitably be painful. Eight out of the nine times since 1961 that the Fed increased interest rates to fight inflation, the US went into a recession, which suggests that if we are not already in a recession now, we soon will be.

ARE BIDEN AND POWELL ON THE SAME PAGE?

But is the Biden administration now on the same page as its Fed chairman? Apparently not.

While acknowledging that inflation in general, and soaring fuel prices in particular, has become the most serious problem facing the country in the eyes of most voters, the Biden administration still lacks the will to put the economic best interests of country above its progressive liberal anti-fossil fuel climate change agenda.

Bringing down the high cost of fuel is the single most important step that President Biden can take to keep the US economy from falling into recession. It’s a step that was taken in 2008 by his predecessor, President George W. Bush, who opened the Outer Continental Shelf off the Atlantic coast to oil drilling, thereby signaling his support for more domestic oil production. The result was an immediate drop of $9 a barrel in the price of crude oil, and the start of a major push in domestic drilling which ultimately resulted in American energy independence.

BIDEN’S REAL PRIORITIES

Biden could easily restore that independence, and prevent this country from going into a recession. But that is not his administration’s top priority. Far from it. Instead, he continues to falsely claim that “everything is on the table” to bring down energy prices, while cynically pursuing new regulatory policies designed to further hamper increased domestic fossil fuel production, which is the most practical way to simultaneously bring down prices and end the current global energy crisis.

Oil companies cannot do this on their own. As a practical matter, no business would make a major investment in new capacity unless it expected that investment to generate strong after-tax profits on a long-term basis. Why would any American energy company invest billions of dollars to expand its long-term oil and natural production capacity when Biden has already made it clear that he intends to shut down all such operations in the United States within the next decade?

TOKEN EFFORTS TO BRING DOWN GAS PRICES

The Biden administration’s efforts to bring down the price of gas and diesel fuel have either been total failures, counterproductive, or are token measures offering little real relief.

His tactic of drawing down our strategic national fuel reserves to dangerously low levels has so far failed to achieve any savings in the price of gas and diesel fuel at the pump, while making this country even more vulnerable to any further cutoff in global crude oil supplies.

The United States was embarrassed by Biden’s public pleas to the dictators running Russia, Iran, and Saudi Arabia to pump more oil, instead of asking for help from a domestic energy industry which would have been eager to comply. Instead, Vladimir Putin and the ayatollahs in Tehran turned Biden down, while Crown Prince Mohammed Bin Salman, the de facto leader of Saudi Arabia, whom Biden has publicly accused of murder, refused to accept the phone call from the White House.

Biden proposals to suspend the federal gas taxes would eliminate the tax revenue which they generate and is barely sufficient to maintain and repair the country’s road system. In addition, the 18 cents per gallon tax saved by motorists would be relatively small compared to the current $5 per gallon price at the pump.

BIDEN STILL WAGING WAR ON FOSSIL FUELS

While campaigning for president, Biden said in answer to a question, “I guarantee you we’re going to end fossil fuels.” His first acts as president included the cancellation of the Keystone XL pipeline and pausing the leasing of federal lands for oil and gas exploration. He then created new hurdles for energy companies seeking to obtain permits to build and operate pipelines and electrical transmission lines, and encouraged environmentalist legislators in California to ban all gasoline-powered vehicles.

Biden has been making good progress on his promise to “end fossil fuels.” In 2020 and 2021, the United States was a net oil exporter. But daily US oil production has fallen from 12.3 million barrels in 2019 to about 11.9 million today, and the US is now a net oil importer.

Just two weeks ago, the Biden administration argued in federal court in favor of a ban on all new oil and gas leasing.

Biden Energy Secretary Jennifer Granholm became notorious for laughing at a reporter last year who asked her about the administration’s plans to bring down the soaring price of gasoline. She recently summoned a group of oil refinery executive to Washington, DC, and urged them to increase their output, even while her own Energy Information Administration had just reported that the nation’s refineries were already running at 95% of capacity, their practical maximum.

There has not been a new oil refinery built in the US since the 1970s. In fact, the Biden administration had been encouraging the industry to shut down its older refineries or convert them to the production of more environmentally friendly biofuels. This has resulted in a significant nationwide shortage of refinery capacity.

In addition, last year, Biden’s Environmental Protection Agency (EPA) revoked the green light that Trump’s EPA had given to the owners of the Limetree Bay refinery in the Virgin Islands to restart operations after it had been closed for nearly a decade, and to expand its refining capacity without having to apply for a new environmental permit.

A BIDEN BID TO SHUT DOWN DRILLING IN THE PERMIAN BASIN

The latest Biden administration initiative to obstruct domestic fossil fuel production was an EPA  announcement that it wants to enforce a new standard on ozone emissions on the Permian Basin of western Texas and eastern New Mexico. If fully implemented, the new standard would shut down drilling in the most prolific fossil-fuel producing region in the United States. In 2020, 45,000 oil and natural gas wells in the Permian accounted for about 30% of US crude oil production and 14% of US natural gas production.

The Biden administration claims that the oil and gas industry has failed to respond to the current national economic emergency due to the spike in energy prices. But in fact, the Biden EPA’s proposed new ozone emission standard would interfere with current plans by Exxon-Mobil and Chevron to increase their output in the Permian Basin by 25% this year. It would be the most practical way to solve the immediate problem by actually increase domestic energy supplies.

But that would be unacceptable to the climate change activists who determine policy for the Biden administration. Many of them make no secret of the fact that they welcome current sky-high prices for gas and diesel fuel as a way to force reluctant consumers to give up their current gas-powered cars in favor of electrically-powered vehicles, which most of them don’t want and can’t afford.

Texas Governor Greg Abbott has no doubts about Biden’s true goals in instituting a new ozone standard in the Permian Basin. “The EPA’s process could interfere in the production of oil in Texas, which could lead to skyrocketing prices at the pump by reducing production, increase the cost of that production, or do both,” Abbott wrote to Biden last week. “Your administration’s announced action is completely discretionary. Thus, you have the power to stop it.”

But Biden has no intention of stopping it. He is also pleased with the high gas prices, despite his recent public commiserations with the tens of millions of American families now suffering from sticker shock every time they fill up their car at the pump.

BIDEN’S LITTLE SECRET: HE DOESN’T REALLY CARE

President Biden recently widened his attack on the domestic fossil fuel industry by accusing individual gas station operators of price-gouging their consumers. In fact, most gas stations in the US are independently-owned small businesses operating in a highly competitive marketplace. According to industry sources, after deducting their rent, labor, and other operating expenses, the average profit for the gas station owner is about 1.5% of the price at the pump.

But Biden doesn’t care about those small mom-and-pop business owners struggling to survive. Nor does he care about the welfare of the overwhelming majority of American middle-class and working-class families who are happy with their current gas-powered cars and lifestyle, and don’t want to spend $60,000, even if they could, to replace it with a new electric vehicle.

Biden also doesn’t care that more American families that don’t own cars will also suffer from sky high electricity prices this summer due to a premature transition of the national electric grid to unreliable and expensive green energy sources. Nor does he care about the millions of workers who will lose their job due to a recession, fueled mostly by high energy prices, that he could still easily prevent.

Biden still has a liberal policy agenda to pursue, and the interests of those voters no longer count. He got what he wanted from them when they voted for him for president in 2020. Now he and his liberal handlers have apparently decided that they don’t really need to pay attention to those voters’ needs or desires anymore.

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