The economy is teetering precariously on the brink of recession now. We'll just go ahead and mention that this is a deliberate policy goal. Hopefully I'll have time to say more about that later. For now, it's worth noting that the policy choice is not only being made at the Fed where they're leaning hard on the monetary lever. But it has also already been enacted on the fiscal side as well by a feckless President Biden and the Democratic controlled congress.
In other words, the United States is currently undergoing a great deal of austerity. Indeed, President Biden has repeatedly bragged that the government will reduce deficits by about $1.5 trillion this fiscal year.
By itself, this austerity will have negative effects on the economy, including job loss and wage reductions, which is not at all good. But it should also substantially ease the pressure on Powell to hike so quickly. With fiscal policy pressing hard on the economic brakes, there is less reason for him to be doing the same thing, especially because the Fed can’t affect half the reasons inflation is happening except by making them worse. There is also no reason for President Biden to listen to advisers who reportedly want to counter the effects of canceling some student loan debt by restarting remaining student loan payments. Since we’ve had no payments on these loans for over two years, from a current policy baseline this would translate into even more austerity, in the form of a substantial tax hike on approximately 30 million people.
There’s also a looming health insurance price spike coming this fall, as subsidies for Affordable Care Act exchanges expire. When asked whether he was concerned about this severe inflationary action, Senator and Emperor for Life Joe Manchin (D-WV) responded, “you gotta start paying down debt” to fight inflation, and “there’s only so many dollars to go around” to … prevent inflation in health insurance rates. The Fed shouldn’t be aiding and abetting steel-trap logic like this by pushing very hard with its economic lever in the same direction to bring investment, hiring, consumer spending, and economic activity to a halt.
And, of course, after the Republicans take back control of Congress this fall (and assuming the Supreme Court continues its radical agenda of dismantling the state entirely) the prospects for doing anything besides accelerating the pace of this double punishment are slim to none.
It seems like forever ago but we did say at the start of the Biden Administration that these were the stakes.
This is all so so much cart before the horse. If Biden and the current Congress fail to pass the PRO Act and the For The People voting rights reform, then the resurgent right is going to burn everything down in a few years. https://t.co/ZOWbBa6I3e
— skooks (@skooks) March 27, 2021
How is all that going?
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