Larry Kudlow: Biden knows the economy is heading for a recession

The talk of the town today is President Joe Biden’s talk Editorial on Wall Street magazine: “My anti-inflation plan”.

There are a lot of ways to read this, but I think this little article is basically suggesting that it’s trying to prepare people for some very bad economic news ahead.

He won’t interfere with the Fed because it is raising interest rates and taking money out of the economy, but he knows very well that the economy is heading into a recession.

This slack part is what all the transition-related clichés are all about. He is trying to prove that inflation will miraculously drop from 10% without job losses or a higher unemployment rate. This thought is a great victory for hope over experience and he knows it.

Inflation is halting the US savings rate, a warning sign for some

Biden speaks at the United Nations

President Joe Biden addresses the 76th session of the United Nations General Assembly on September 21, 2021 at United Nations Headquarters in New York City. (Photo by Timothy A. Clary Ball/Getty Images/Getty Images)

Other than this futile attempt to move up the recessionary curve, there was nothing new in Biden’s so-called “anti-inflation plan.” There is no freeze on domestic spending. He still wants to spend on housing, childcare, aged care, and no doubt the usual “build back better” agenda.

It still depends on the fossil-free economy with more subsidies for various Green New Deal projects. Remember last week in Japan, he was talking about
“Transition” to a fossil-free economy? The Bidens are not upset with Standard gas prices at the pump, or even the world oil price today is $120. How is this Strategic Petroleum Reserve oil being sold to us?

Let me reiterate my point that a fossil-free economy would generate a permanent recession with millions of job losses that would combine high unemployment and high inflation at the same time. In other words, a disaster.

Biden wants to spend more on infrastructure, even though his Environmental Protection Agency through very restrictive environmental impact reviews is shutting down not only fossil fuels and pipelines, but highways, bridges, roads and tunnels as well. The president still wants national price controls for prescription drugs and continues to attack profitable businesses.

If he really wanted a cure for inflation, he would open the taps to produce oil and gas, but that’s not what he wants.

He talks about cutting the federal deficit, but this is a one-off from the end of emergency spending, buoyed by huge revenue gains, partly from inflation and partly from Trump’s successful tax cuts.

Gasoline hits a record high over the weekend

According to the Central Bank of Oman organization, deficits will rise by $16 trillion over the next ten years. Public debt will reach 110% of GDP, and federal spending will exceed 23% of GDP – well above the 50-year average.

There is no mention of the supply-side incentives that might come from deregulation – not just energy, but business in general. Meanwhile, there are the usual Biden lies (the opposite of Nice Iowa).

He says the economy stumbled when he took office, but in fact, it rose by 4.5% in the fourth quarter of 2020 and increased by 6.3% in the first quarter of 2021.

This is why the “stimulus” in March 2021 was so unnecessary and inflated. The economy was already growing very fast.

Biden wrote about households increasing their savings, but in fact, the April savings rate was 4.4% — far below the 12.6% savings rate last year.

Talk about improving consumer confidence, but unfortunately the latest confidence measures by the Conference Board and the University of Michigan are showing significant declines.

Consumer confidence takes inflation

Meanwhile, after taxes and after inflation, real disposable income has fallen by more than 6% over the past 12 months.

Of course, Biden received another setback in Trump, saying “my predecessor insulted the Fed,” but in reality, no one can tell why Jay Powell increased the Fed’s target rate four times in 2018 with an inflation rate below the Fed’s 1.9% target.

Immediately after Trump’s tax cuts were enacted, the economy was already growing at 4%, again with virtually no inflation, and President Trump had every reason to hire the Fed chair he appointed.

Biden could not resist his attack on successful people, and once again called for a forfeiture wealth tax and punitive international taxes on American corporations. So here we go again, higher taxes will reduce inflation.


President Biden speaks at North Carolina Agricultural and Technical University, in Greensboro, North Carolina, Thursday, April 14, 2022. (AP Photo/Carolyn Kaster)

President Biden speaks at North Carolina Agricultural and Technical State University, in Greensboro, North Carolina, Thursday, April 14, 2022. (AP Photo/Carolyn Kaster/AP Newsroom)

really? In fact, higher tax rates will reduce the incentives for economic growth and lead to higher inflation on the supply side. So, there was no inflation reset from Mr. Biden today. It’s Vladimir Putin’s fault.

We will get rid of fossils rather than increase oil and gas production. We’ll continue with federal spending and borrowing and debt creation and none of this will hurt the economy or workers a little bit, but we’ll let Jay Powell tighten as much as he wants, because there will be no economic consequences. I don’t buy it. Glad the cavalry came.

This article is excerpted from Larry Kudlow’s opening comment on the May 31, 2022, Kudlow edition.