The U.S. Economy Just Took A Turn For The Worst

( The economic data released this week confirms that our economy is in trouble.

Following last year’s tremendous economic development, it appears that the economy is now stalling and dropping. The economy shrank by 1.5 percent in the first quarter of this year, and Goldman Sachs now forecasts just a 12% increase in the second quarter. Inflation is still at a four-decade high, mortgage rates are rising, and the stock market is falling.

According to both the Biden Administration and the Federal Reserve, today’s inflation and a slowing economy have nothing to do with economic policy. Instead, they think it’s all connected to the Covid-19 epidemic and Russia’s invasion of Ukraine.

To be clear, the epidemic and Russia’s invasion of Ukraine are both factors in today’s high inflation. However, it is improbable that such variables would have contributed to the current economic condition.

Instead, the underlying cause of today’s unacceptably high inflation rate is last year’s exceptionally “loose” monetary and fiscal policies.

In March 2021, former Treasury Secretary Larry Summers predicted that President Biden’s American Rescue Plan would surely result in economic heating.

Jerome Powell’s Federal Reserve may be held solely responsible for today’s inflation situation, which has seemingly hit the snooze button. The Fed permitted the broad money supply to inflate by 40% over the last two years, just when the economy rebounded robustly and got its greatest peacetime budget stimulus on record. When the stock market and the housing market were on fire, the Fed continued to inject liquidity into the markets by purchasing $120 billion in Treasury bonds and mortgage-backed securities each month.

The Fed is now compelled to slam on the monetary policy brakes to put the genie back in the bottle. It’s hiking interest rates in 50-basis-point increments and pledging to shrink its balance sheet by $95 billion every month. This now poses a severe risk of causing the economy to enter a recession and the bursting of the equities and housing market bubbles.
Because of the dismal situation of the economy, President Biden is likely to be penalized by the people in November’s midterm elections. Meanwhile, following his confirmation for a second term, Jerome Powell, who bears most of the blame for our present economic woes, will remain at the head of the Federal Reserve for another four years.