If Joe Biden’s policies were wildly popular, everybody would overlook the fact that the man walks into walls.
But his policies are terrible.
On Tuesday, it was reported that the index of consumer prices rose 3.2% in February from one year earlier. We try to keep the rate at 2%. But we are still clocking in at well above 3% — which is 50% higher than what we want. Core price inflation is sitting at 3.8%; again, we aim for 2%.
That means all of the interest rates are going to remain high for the foreseeable future. The Federal Reserve tries to combat inflation by increasing interest rates — the overnight rate at which the Federal Reserve lends to banks and the banks lend to one another — and that is then passed on to the consumer.
The basic idea is that when you tighten up the credit, fewer people are borrowing; less money flowing around the economy means the prices tend to decrease. That’s the reason to increase interest rates.
The Federal Reserve wanted to decrease the interest rates in advance of the election to get that money flowing again, to heat up the economy, to make sure that hiring stays at really high levels leading up to Biden’s reelection effort in November.
But inflation is not cooperating, so interest rates are likely to stay high — which is why a few years ago you could get a mortgage for 3% and now a mortgage is costing you roughly 7%.
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The stickiness in the real estate market is created not by demand for single family housing, but by the lack of actual supply. No one can sell their high-priced house right now because if they did, the interest rate for their current mortgage, which they took out five years ago at 3%, would increase to 7% for the new mortgage for the new house.
So nobody’s actually selling right now.
The Wall Street Journal reported on Monday:
President Biden signaled optimism during a campaign event last week that the Federal Reserve was going to cut interest rates soon. The economic forecasts in his budget released Monday offer a different message: curb your enthusiasm. …
Economic forecasts released Monday as part of the White House’s 2025 budget proposal assume that three-month Treasury bill rates will average 5.1% this year, the same as in 2023, before declining to 4% next year and 3.3% in 2026.
The White House sees the average 10-year Treasury note yield rising to 4.4% this year from 4.1% last year and then declining gradually to 3.7% by the end of this decade.
The White House last year projected a somewhat lower path for interest rates in part because it assumed a meaningful slowdown in growth for 2023 that didn’t materialize.
If you sell a bond and interest rates are high — 7% or 8%, or in this case 5% — that means that the U.S. government is going to have to pay that off down the road.
This means when you take on new debt, it is more expensive — and that’s a big problem because we are blowing out spending like nobody’s business.
Joe Biden has a plan. His political plan is twofold. One: Promise to spend more money than anybody has in human history. Two: Soak the rich. That’s going to be his two-pronged economic plan, which is nothing new; we’ve seen that from every Democrat since Bill Clinton. The idea was to promise the world to voters, promise to spend money that does not exist, and do so by borrowing and taxing.
But the taxes never actually materialized because tax revenue is not capable of sustaining the kind of spending we are doing now, unless you decide to really tax the middle class. What Democrats want is the Norwegian standard of living without the kind of oil wealth provided by the Norwegian oil industry and without taxing the middle class in the way that Norway does.
The dirty secret of living in Scandinavia is that they tax everybody who makes about $60,000 a year at the same rate they tax those who make $500,000 a year. But America has an incredibly progressive tax system. People at the top of the income spectrum pay nearly all the taxes in the United States. That is not true in the social democracies of European countries, which start taxing people at exorbitant rates when they hit the lower-middle class.
But that’s something Democrats don’t want to do because they understand that if they do so, it would be politically unpopular with many of the people who are going to vote for them.
So, instead, they decide to promise extraordinary levels of spending and try to force Republicans into the corner — because Republicans are going to say we can’t spend that much.
This is why Biden has now released his fiscal 2025 budget, which has no chance of passage. It’s a list of priorities for Biden. And what exactly are Biden’s priorities?
Taxing people a lot of money, cutting military spending in the face of the most chaotic world situation of the modern era, and maintaining the spending trajectory of Social Security and Medicare.
And somehow, he says this is going to lower the deficit.
How is it going to do that? He’s assuming he can radically increase taxes without affecting the economy, which of course, is not the way any of this works. Radically increasing taxes causes people to spend less money. That’s the way it tends to work. You can tax something to death. But you cannot tax something into prosperity.
He’s proposing a $7.3 trillion budget. This is patently insane on its face. First, even during the pandemic in 2021, we did not spend that much money. The United States government spent about $6.8 trillion. The same was true in 2020. That was during a full-scale pandemic when people were told to stay home and the federal government paid everyone’s bills for a year.
These levels of government spending are not justified. We’re not even in the middle of a pandemic.
Biden’s budget would raise taxes on wealthy people and large corporations. When you tax a corporation, that cost is passed on to the people who work for the corporation; they have less money to pay their employees.
But Biden says this will somehow trim the deficit and lower the cost of prescription drugs, childcare, and housing. When he says he will lower the costs of goods and services like this, what he really means is that the federal government is going to start subsidizing.
And there has yet to be a product developed by human beings subsidized by the federal government in which the cost does not go up.
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Biden is already stagnating the economy. The real threat to the American economy in the long-term is not inflation. Inflation will come back down under control. The real danger is the stagnating economy for the foreseeable future.
In an article titled “Biden Offers a Budget Fantasy,” the Wall Street Journal reports, “Mr. Biden’s deficits mean that debt as a share of the economy also keeps rising. He foresees debt held by the public rising to 102.2% in 2025, though it was only 79% as recently as 2019.”
That means more money will be spent in terms of servicing our national debt than we spent on our military budget every year in the very near future.
“Public debt in his budget keeps growing and growing — to 106% of GDP in 2030. Interest on that debt will surpass defense spending this year when it hits $890 billion, and it keeps climbing to $1.57 trillion over the next decade,” the Wall Street Journal added.
None of this makes any fiscal sense. When he says he’s going to tax the rich to get out of this, the simple fact of the matter is that there is no way to tax the rich enough to pay for the kinds of things Biden wants to pay for. He doesn’t really want to pay for them because he knows this is not going to pass.
So why does Biden propose nonsensical things that will go nowhere?
Because he’s trying to pick fights with Republicans. That’s really what this is all about.