Biden’s economy makes Jimmy Carter look good | VICTOR JOECKS

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The 70s are calling for the return of their economy. But President Joe Biden shows no signs of changing course.

On Monday, Federal Reserve Chairman Jerome Powell said interest rates needed to rise faster to slow runaway inflation. It comes after the Federal Reserve finally raised interest rates last week for the first time in more than three years, raising rates by a quarter of a percent. The previous rate was close to zero. The Fed plans to raise interest rates six more times this year and three times in 2023.

Interest rate hikes are the financial equivalent of taking bitter-tasting drugs. Nobody likes to do it, but the alternative can be much worse. Higher interest rates slow economic growth by increasing borrowing costs. This forces companies to reduce their investments. Consumer loans also tend to become more expensive.

Along with rising interest rates, the Fed is preparing to sell trillions of mortgage-backed securities. This should drive up mortgage interest rates. On Tuesday, the average rate for a 30-year fixed mortgage was 4.72%, up 0.26% from Friday.

These changes will affect the economy. Falling investment and demand means less revenue for businesses. This translates into fewer job opportunities. If the economy slows down too much, unemployment can rise significantly.

House prices are expected to stabilize or decline as higher interest rates limit what buyers can afford. Things can go awry if prices fall far too quickly.

Imagine that a buyer bought a house for $450,000 at the height of the market. Due to the slowing economy, his business experiences a drop in revenue and he loses his job. In a robust labor market, he could probably find another position locally. But even a move out of state wouldn’t be financially devastating. Normally, he would sell his house and pocket the equity to buy another house.

But this scenario changes drastically when housing prices start to fall. If that house is only worth $350,000, he has no good options if he’s underwater. Foreclosure is possible. If too many foreclosures or short sales occur at once, the market is flooded with distressed homes when people are least able to afford them.

Las Vegas experienced this nightmare less than two decades ago.

But so is inflation at its highest level in 40 years. It reached 7.9% in February. It’s not just gas prices. The cost of groceries, housing and vehicles has increased dramatically. These changes are hitting low-income families and seniors on fixed incomes particularly hard.

In the worst case, you get slow economic growth, high unemployment and high inflation. This is called stagflation, which the United States experienced under the Carter administration. To end high inflation, the Fed raised interest rates dramatically. In 1981, the average rate for a 30-year mortgage exceeded 18%. This slowed inflation and caused a recession.

This is why elected officials should not pursue inflationary policies. But that’s what Biden has done with outsized spending and attacking fossil fuel production, unnecessarily expanding coronavirus restrictions and foreign policy failures.

Biden doesn’t have many accomplishments. But at least he makes Jimmy Carter look good.

Contact Victor Joecks at [email protected] or 702-383-4698. To follow
@victorjoecks on Twitter.

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