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Biden's Economy In "Transition" To A Recession

President Biden said the economy is in 'transition.' He's right, but the conditions are such that the economy is heading to a recession.

Photo by Alex Wong/Getty Images
Credit: Photo by Alex Wong/Getty Images

What an irony! For much of last year, Federal Reserve Chairman Jerome Powell was in denial calling inflation "transitory." Powell finally retired the word on November 30. It became an economic cliche, so much so that Raphael Bostic, president of the Atlanta Fed, banned its use from his office.

Team Biden has now borrowed the Fed playbook. On Sunday, National Economic Council Director Brian Deese described the current economy as being in "transition" from the strongest recovery in modern American history to stable and resilient growth.

On Monday, in his presser in Japan, President Biden looked at the positive side of Americans paying high gasoline prices. He said, "Here's the situation. And when it comes to the gas prices, we're going through an incredible transition that is taking place that, God willing, when it's over, we'll be stronger and the world will be stronger and less reliant on fossil fuels when this is over."

Mr. President, how does this happen? Americans are struggling to make ends meet. Thanks to inflation, they are postponing purchases of big-ticket items. They can't afford used cars at the current prices, let alone buy electric cars paying a premium. The average age of a car in the U.S. is up to 12.2 years, a new record. Are you beholden to the far left that you have to please them, even from Japan?

Biden's slowing economy in "transition" is poised to enter into a recession, and the only question is when.

We are in a situation created by bad monetary policy accompanied by bad fiscal policy. The Fed kept pumping money and created a bubble in the stock and real estate markets. On the fiscal side, Team Biden did everything to push inflation higher, be it economic stimulus or profligate spending, or energy policy. Now, the chickens have come home to roost.

To control 8.3% inflation, the economy needs tough medicine. The Fed is late in the game and has started to increase interest rates and tighten the money supply. The Fed has to boost interest rates significantly in the coming months. The side effects of this tough medicine are in the fine print.

It is impossible to tame the current inflation without a recession. While doing so, the skyrocketing mortgage rates are likely to burst the real estate bubble. The bear market is wrecking retirement portfolios. The cantankerous stock market is forcing many scared investors to liquidate their portfolios and take cash positions with money depreciating at 8.3%. In 2022 alone, the stock market, the bond market, and the exotics crypto markets have lost 12 trillion dollars, half the GDP.

Why do we say a recession is imminent? Four reasons.

First, Americans tighten their spending by three to four cents for every dollar lost in wealth. That is likely to lower consumer spending and growth.

Second, if history is any guide, recall the 1970s and early 80s when then-Fed Chairman Paul Volker had to increase interest rates to 20% to tame inflation. The increased borrowing costs could slow economic growth and tip the economy to stagflation.

Third, oil prices and supply-chain bottlenecks are beyond the Fed's control. These risks increase the chance of a recession. Further, China's economy is slowing down. Thanks to our dependence, we won't be spared.

Fourth, our economic optimism index and its components are weak, echoing the dark consumer sentiment. Nearly one-half (48%) already think the economy is in a recession.

In the latest Investor's Business Daily/TIPP poll, inflation, gasoline prices, and food prices emerged as the country's top three economic issues. Team Biden can't spin out of these three things. Americans feel the pain at the pump and the grocery store.

IBD/TIPP Poll Results: Top Economic issues facing the United States

President Biden's Handling Of Economy

Americans don't have confidence in President Biden's handling of the economy. Only 29% of Americans gave President Biden good grades. Over the past year, the share of Democrats giving him a good grade has slumped 23-points from 81% to 58%. Only 15% of Independents and 8% of Republicans give him good grades. In short, President Biden's economic policies lack credibility with Americans.

IBD/TIPP Poll results President Bidens handling of the United States economy May 2021 - May 2022
IBD/TIPP Poll Results: President Bidens Handling of the Economy broken down by political party

You can expect Team Biden to parrot the "transition" story in the coming months. Chairman Powell retired the "transitory" inflation narrative last November. Expect Biden to retire his economy in a "transition" narrative this November after the election. Of course, the midterm elections will allow voters to effect a "transition" of power in Congress.

Related tippinsights editorial: Biden's Bear Market

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