Rising interest rates foreshadow Biden’s recession
Since President Biden took office, Democrats in Washington have embarked on a massive spending spree totaling $9 trillion, more than the federal government spent in its first 195 years combined. This outburst of reckless spending is sabotaging the US economy – with inflation rising 13.8% under Biden, interest rates rising dramatically and the nation in the throes of recession.
At the start of the Biden presidency, the The Congressional Budget Office (CBO) predicted the economy was on the road to recovery without more government stimulus and that interest rates wouldn’t rise until 2024. Then came the Washington Democrats’ spending swell — notably the so-called $2 trillion “US bailout” . Next, in the first quarter of this year, the economy shrank by 1.6%. Last month the The Federal Reserve was forced to raise interest rates by 75 basis points — the third rate increase since March — to combat the president’s inflation crisis. In total, the federal funds rate increased by 1.5%, fastest cumulative rate hike in 40 years. That puts the Federal Reserve on pace to raise rates faster this year than the previous 15 years combined.
Eight of the last nine times the Fed raised rates to address inflation fears, a recession quickly followed. The hoped-for “soft landing” now seems unlikely. After this recession, a looming debt crisis will strain federal resources and force a confrontation with decades of poor fiscal policy in Washington.
Basically, inflation is too much money for too few goods. At the time the US bailout was passed, there were still more than $1 trillion in unspent funds from previous COVID-19 packages. Pumping an extra $2 trillion into an economy that the CBO said was on the verge of a full recovery midway through last year was undoubtedly going to spur inflation. The results were not only predictable; they were literally predicted by Republicans and Democrats. President Biden simply refused to listen. In March of this year, the Federal Reserve Bank of San Francisco found that the $2 trillion price tag of the US bailout is what made US inflation fiercer than other countries.
The so-called ‘bailout’ also restricted the supply of labor and worsened the supply chain crisis by spending $400 billion to reduce the work requirements of welfare programs. , essentially paying people not to work. The law also included more than $500 billion for state and local bailouts that went to pay for absurd pet-friendly projects like beach parking lots, historic wagon renovations, luxury hotels, a Moonshine walking trail. , stimulus checks for prisoners, and the list goes on. On top of that, estimates now show that up to $400 billion in COVID unemployment insurance payments were lost to fraud. These are expenses that Americans have paid for but will never benefit from.
Consequently, President Biden has left the Federal Reserve with no choice but to raise interest rates – and that comes at a significant cost.
For families, every extra dollar they have to spend because of rising prices is one dollar less they need to save for retirement or a down payment. The stock market, responding to alarm bells of an impending recession, begins to crater and threatens to wipe out Americans’ savings, pensions and retirements and forces millions of seniors to delay or even forgo their retirement .
Rising rates are making buying a home unaffordable, excluding millions of families from the cornerstone of the American Dream. Families face the double whammy of stratospheric home values and an interest rate on a 30-year mortgage that has doubled since Biden became president.
Small businesses that employ American workers are not faring any better in the face of rising interest rates. Higher rates only further increase the cost of doing business. Entrepreneurs and small businesses find it more expensive to fund new equipment or larger facilities that grow the economy, create jobs and raise wages. Three of the past four months have seen the wage bill decreases for companies with less than 50 employees.
Perhaps the most frightening impact of a rise in interest rates would be to trigger a sovereign debt crisis. The House Budget Committee issued a report which details the impact that the rate hike would have on the federal budget. If interest rates rose to 5.7% – the average of the past 50 years – our debt would rise from $30 trillion to $215 trillion by 2051. Interest payments alone would reach 11 trillion dollars a year. The last time inflation was this high, interest rates topped 10%. In this nightmare scenario, interest payments on the debt would represent 57% of federal revenue, the equivalent of all Social Security, Medicare and Medicaid spending.
The inflation crisis is compressing Americans’ paychecks. Working families will pay $5,200 more this year alone because of today’s 40-year high prices. With interest rates rising, American families are realizing that President Biden has used their 401(k)s and Social Security as collateral in his political spending gamble. If that is the price of one-party Democratic rule in Washington, then Americans deserve a refund.
Jason Smith represents Missouri’s 8th District and is a ranking member of the House Budget Committee.