President Biden says Republicans want to tank the debt-ceiling talks because they know a default would bring down the economy and hurt his re-election bid. He is wrong, for three reasons:
- The economy is already barreling towards recession, regardless of the debt-limit debate;
- Biden’s re-election hopes are dim, independent of the economic outlook;
- Biden has it backwards. He knows a recession looms, thanks to his reckless spending, and hopes to pin it on the GOP. Hence, the scary talk from Treasury Secretary Yellen about the catastrophic impact of default.
Biden is being dishonest with the American people. When the Conference Board puts the odds of a recession over the next 12 months at 99%, a position the pre-dates the debt ceiling debate, you can bet a downturn is coming.
In addition to housing, jacking up interest rates has led to the failures of three large U.S. banks, which has cast a shadow over credit. Solvent banks are lending more cautiously, anxious about unrealized losses on their balance sheets and deposit outflows. That slows economic growth.
Another fallout from rapid interest rate hikes is that stock and bond markets sold off sharply last year. The S&P 500 was down nearly 20% and the bond market suffered one of the worst years ever. Financial losses impact consumer sentiment, which has tumbled, and also spending.
Ed Hyman, Wall Street’s top-ranked economist, is now predicting a “hard landing” recession in coming months, with unemployment soaring to 5.2% by this time next year. Hyman, like others, was shocked the Federal Reserve raised rates at their last meeting, even as large regional banks were tottering. Never before during a financial crisis has the Fed continued to tighten, making conditions even more difficult.
If Hyman and the majority of his peers are correct, we are on the cusp of a downturn. So far, such forecasts have been premature. A robust jobs market and excess savings piled up during the pandemic provided the economy a cushion, and Americans have continued to spend.
Biden is right to worry about a downturn, and to imagine he’ll take the blame. As Democratic strategist James Carville so famously said, “It’s the economy, stupid.” Voters connect the dots between too much government spending and inflation; they will hold the president accountable.
Treasury Secretary Janet Yellen has warned about a potential crisis if the debt ceiling is not raised. (Tom Williams)
But that’s far from his only problem. His age is a major concern to voters, and he recently made history by earning the lowest approval ratings ever recorded for a first-term president. Voters give him low marks not only on the economy, but also on immigration, crime, foreign policy and a host of other issues, like honesty. His repeated bogus claims that he is lowering inflation or reducing the deficit have undermined his credibility.
When in the most recent Real Clear Politics average, 66% of the country think we’re on the wrong track, it’s obvious Biden’s campaign is in jeopardy. Several polls show Biden losing in a head-to-head matchup to Donald Trump, who also earns remarkably low approval ratings. Given the ongoing vilification of the former president, that the contest is even close is remarkable.
The GOP bill would return the government’s discretionary spending to fiscal year 2022 levels and cap annual spending growth at 1% for a decade. Given the extraordinary spend-a-thon of recent years, which totaled more in today’s dollars than the U.S. spent fighting World War II, that seems a good starting point.
Note that deficits over the next decade without the GOP proposed cuts total $21 trillion, an estimate from the Congressional Budget Office that is doubtless conservative.
Biden appears eager for a showdown over the debt ceiling, likely hoping he can blame the looming recession on the GOP push to cut spending. He and his Democrat colleagues denounced the GOP plan as the work of “extreme MAGA Republicans,” as if the Limit, Save, Grow Act had been concocted in the bowels of the Capitol Building on January 6. In fact, nearly all GOP House members voted in favor of the bill.
Joe Biden’s stutter-step approach to negotiating the debt issue, refusing to sit down and then making concessions and now reversing his position creates uncertainty, which is not helpful for investors or the economy. But as to creating the conditions for a recession or trashing his reelection bid, Biden is doing just fine, all on his own.