Welcome To Stagflation

https://issuesinsights.com/2022/04/29/welcome-to-stagflation/

When it comes to the economy, Democrats like to say it’s unfair to judge a president by his first year in office. Very well. President Biden is now in his second year and now we have the statistical verdict of his economic stewardship rendered by the first-quarter drop in GDP. Stagflation, anyone?

It may well be that the first quarter’s annual GDP growth of -1.4% marks not just the beginning of a period of low or no growth accompanied by inflation, but also the return to the stagflation that ruined the decade of the 1970s and helped destroy the presidency of Jimmy Carter.

And no, you can’t blame Donald Trump anymore for things that go wrong. The economic disasters piling up are now on the progressive Democrats’ tab. They broke it, they bought it.

Biden immediately spun the bad GDP news as due to “technical factors,” including a slowdown in government spending and a decline in net exports, which both contributed to the GDP drop.

“What you’re seeing is enormous growth in the country, that was affected by everything from COVID, and the COVID blockages that occurred along the way,” Biden said, after the Commerce Department delivered the bad news.

“No one is predicting a recession now, they are, some are predicting a recession in 2023. I’m concerned about it,” he said.

“But I know one thing, if our Republican friends are really interested in doing something about dealing with economic growth, they should help us continue to lower the deficit,” Biden added, saying he wants “a tax code that is actually one that works.”

Biden styling himself as some sort of fiscal conservative is bizarre.

His 2023 budget plan includes massive new spending and enormous annual deficits, and hits American families with a $2.5 trillion tax hike, with promises of more to come.

A recent rundown by the Heritage Foundation sums it all up:

On top of the spending spree Biden and his allies in Congress went on last year, Biden’s budget calls for $72.7 trillion in spending over the next decade — averaging more than $1.4 trillion in higher annual spending than even this year’s extravagant budget.

Debt would skyrocket from $30.2 trillion today to more than $44.8 trillion over the next decade. Annual budget deficits would start at $1.2 trillion in fiscal year 2023 and rise to $1.8 trillion by 2032.

Just this week, Biden proposed a “student loan forgiveness” plan that would stick American taxpayers with $1.6 trillion in new debt — a massive tax hike in itself that will force middle-class taxpayers to foot the bill for wealthy parents’ kids to go to college.

All this spending, supply-chain disruption, and renewed regulation of the economy has sent inflation soaring into the stratosphere. Consumer prices surged 8.5% in March from a year earlier, the biggest jump in over 40 years, while wages have grown just 5.6% during that time. That yields a decline in inflation-adjusted wages of 2.7%, a disaster for working Americans. As yet, there’s no end in sight.

So maybe the “unexpected” first quarter’s GDP drop is merely a downpayment on an increasingly ugly economic future.

By the way, during the stagflationary 1970s, Democrats also often touted the economy’s “underlying strength” just as they’re doing now. But whatever underlying strength we do have came from sensible policies followed by Donald Trump, which are now being seriously undermined by inflation.

It’s true last year’s GDP growth of 5.7% was solid, the fastest since 1984. But that came on the heels of the 2020 disaster, when the government forced pointless COVID lockdowns, and most of the growth resulted from businesses restocking their shelves after more than a year of closures and partial openings. That’s now pretty much over.

The Biden administration and its Democratic allies in Congress have done serious structural damage to the economy while undermining Americans’ faith in the future. And the insane splurge in money printing over the last two years, pushed by Democrats and carried out by the Fed, will affect the U.S. for years to come.

How did inflation happen so fast? As we and others have noted before, literally 80% of all the money that exists in America today was created over the last year or so.

Unfortunately, the output of goods and services didn’t grow nearly that much. So inflation is now baked in the cake. It’s neither “unexpected” nor “transitory,” as our elites would have you believe.

The chart below graphically shows the inflation disaster wrought by too much government spending and a lax Fed. It’s the M1 money supply, basically all the cash, checks, and bank deposits in our economy. M1 soared from $4 trillion in 2020 to over $20 trillion last year, a 400% rise, as the federal government printed money to pay for its “stimulus”:

So much money chasing fewer goods equals inflation. It’s that simple. Gasoline, food, houses, cars, you name it. All are surging in price. Now, couple that with slower economic growth, and we’ll have stagflation, the worst of both worlds.

And the ’70s will be back — minus bell-bottoms, disco, and sideburns, we presume.

With the Fed now belatedly raising interest rates and reversing its Quantitative Easing project to curb inflation, the downside risks to our economy will only increase. One mistake and we tumble into recession, as history has repeatedly shown.

We would note that during all recent major economic inflection points, that word “unexpected” seems to pop up repeatedly in headlines as things start getting worse. And we’re seeing that now. A quick search for “GDP” and “unexpected” on Thursday yielded 26,800 results.

So expect more “unexpected” in your future.

The last two years have been a disaster. First came COVID, and the Democrats’ lie of “15 days to slow the spread.” Then, when Biden & Co. came into office in early 2021, they had a choice between encouraging a fast-growing, job-expanding economy, or a locked-down, over-regulated, stagflated mess that discourages Americans from working.

They chose the latter, and now we’re all paying for it.

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