If you’ve listened to Joe Biden or any of his spokespeople talk lately, you’ve heard a lot about how great the economy is. Unsurprisingly, Biden said,best economy in the world” Of course, if you live a normal American life, your experience will probably be very different.
Inflation erodes people’s purchasing power, potentially coupled with a partial decline in personal savings, increased household debt, or the inability to purchase a home.
Huge deficit spending is causing a decline in profits.
While previous data looked on the surface to be better than before, recent data is starting to show signs of that reality.
First-quarter gross domestic product (GDP), first released on Thursday, was almost entirely below widely expected estimates. The annual growth rate of 1.6% was moderate growth at face value. But on top of the much lower-than-expected results, there are additional concerns that make the numbers even worse than they appear at first glance.
First, you might expect that if the economy slows, inflation will also rise. That’s not what’s happening. The prices portion of the GDP report showed that consumer prices rose, a generally bad result but worsened in the face of an economic slowdown.
This was reiterated Friday in the release of the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures Price Index. More than expected.
personal savings rate checked down Same thing again.
If economic growth slows and inflation rises, we will find ourselves in the dire economic scenario of stagflation. This is an outcome that many of us have long warned could very well happen.
JPMorgan Chase & Co. CEO Jamie Dimon recently expressed concern that the economy is becoming more similar to the 1970s. Stagflation was part of the economic challenges of the time and a concern of Dimon’s.
In addition to accelerating inflation, there is another important issue. Recent and current growth comes at significant costs, which will ultimately be borne by taxpayers. The government is running a huge deficit both in dollar terms and as a percentage of GDP.
In fact, the fiscal deficit as a percentage of GDP is about twice the historical average. This kind of deficit is highly unusual during a period of economic growth, as growth typically reduces the federal deficit. However, the government is trying to use these huge deficits to gloss over the growth story, saying that deficit spending is producing diminishing returns.
Moreover, given that interest rates are at levels not seen in a decade and a half, that economic window dressing is being carried out at a very high cost. This makes us as a nation pay an increasing price for the emergence of a growing economy.
Imagine what would have happened to GDP if the government hadn’t been running such huge deficits over the past few years.
That means debt approaching $35 trillion, double the average debt-to-GDP ratio, downgraded debt ratings, accelerating inflation, lower-than-average personal savings rates, record household debt, and rising defaults. And aside from the currently sluggish GDP, the economy is doing great. Thank you, Joe!
