Headlines are looking good for Joe Biden lately. He recently won a major legislative victory and his approvals are rising, which may mean that his multiple failures in the presidency are a thing of the past. With Biden looking less drowsy, the Dems may not be blown into the upcoming midterms as predicted just weeks ago.
Yes, that’s what the White House wants you to believe. Most of my colleagues in the mainstream media believe so too. But the seeping twist to the Biden-renaissance narrative obscures, at least for now, some truly nasty elements of the economic reality that the president’s irresponsible policies have created.
If you don’t believe me, listen to some of the comments recently made by Larry Fink, the CEO of fund manager BlackRock. No one will ever mistake Fink for a GOP talking head. He runs the largest investment firm in the world (some $8.5 trillion in assets under management). He has strong ties to the Democratic Party and is a standing candidate for Treasury Secretary under a Democratic president.
We’ve had our differences with Fink in the past over BlackRock’s embrace of investing in environmental social governance. Fink stresses that he is moderate on the woke investment fad, advocating a transition to a green economy while BlackRock continues to invest in energy infrastructure.
This is one of the reasons why we could do much worse than Fink in leading the US economy. Another: he is one of the best risk managers on Wall Street.
Now he’s sounding the alarm about the potential economic damage to DC — much of it from his own party — that will make the Fed’s job of fighting inflation nearly impossible while trying to engineer a so-called “soft landing”. Fink calls it an “irreconcilable disconnect” between what the White House is doing and Fed Chairman Jerome Powell’s inflation-fighting mandate.
Inflation is an ugly tax on the working class. If left unchecked, it leads to economic hardship which, according to history, creates social unrest. To control inflation, our central bank, the Federal Reserve, engages in a balancing act. He is trying to raise rates and tighten business credit to achieve a soft landing for the economy, in which GDP declines just enough to bring inflation under control, but the economy avoids a full recession, or minus a severe recession.
‘Soft landing’ difficult
Not easy to do, although the Fed has achieved this in the past by coordinating its monetary policy (control of the money supply) with the fiscal policy (spending) of the White House and Congress.
In a series of high-profile interviews, including one with me on Fox Business, Fink discussed how much of that coordination is sorely lacking in our current economic environment — something he hasn’t seen much in his 40 years of career at the top of finance. industry. On the one hand, we have the White House and Congress spending like mad and pumping up the economy. As inflation rages on, the Fed is looking to repair the damage to hit its usual 2% inflation target.
To understand where the Fed stands, consider that the last inflation print was 8.5%. This number was reached before the last explosions of expenditure (cancellation of student loans, etc.).
To hear Fink explain it, the White House is adding a pretty deep recession to the equation as it forces the Fed to raise rates even more than it should – 75 basis points at its next meeting and may -be many more times afterwards – because the administration does not want to stop the inflationary cycle that it has helped to create by spending. In the short term, Fink says, inflation might come down a bit with the lower energy prices we’re seeing (this happens when people can’t afford a commodity, for your information), but not enough to meet the Fed’s 2% target because food and other commodities remain stubbornly high.
“We see this in governments in Europe, in the UK and now in the US. We are seeing very significant fiscal stimulus at a time of very high inflation. . . and that makes the job of central banks in Europe and the United States much more difficult,” he told me.
Fink also scoffed at the White House’s spin that the economy is in a “growth recession” since the last two quarters of negative GDP growth (the official definition of a recession) coincides with strong employment. “I heard that too,” he said.
Like most Wall Street pros, he knows employment is a lagging indicator as the gears of the economy begin to slow. All the spending, he adds, “makes it harder for our central banks and other central banks to move the dial [on inflation]. They need to be more aggressive. Could this then lead to a recession? Yes.”
Fink points out that all the budget spending we’ve seen in recent years is a “bipartisan” problem, and he’s toeing the Democratic Party line that other factors like the war in Ukraine are contributing to the inflation mess. Some expenses were necessary during the COVID closures. Moreover, the Fed continued to print money until inflation proved to be “non-transitory”.
No slack in spending
Yet even for Fink, it’s hard to avoid the fact that Sleepy Joe and his minions haven’t given up despite a post-pandemic recovery. And the Fed, according to Fink, has no choice but to slam the breaks or inflation will rage like it did in the 1970s.
Again, Fink is not a GOP operative, and former BlackRock executives hold many high-level positions in the Biden administration. They should heed what he says about how they make Powell’s job harder than necessary because when you lose Larry Fink you know you’re in for trouble.
New York Post