For 25 years, I traded U.S. Treasury debt for financial institutions on Wall Street. For the last 20 years, since 9/11, America has borrowed a staggering amount of money. First to finance the War on Terror, then to bail out the housing sector, and most recently to fund enormous COVID pandemic expenses. Like a lot of bond market pros, I always wondered when America would hit the break point, when the borrowing binge would finally become painful.
Well, that time is now. Since the election of Joe Biden, we’re seeing a spike in inflation like we have not seen in decades. Our country borrowed too much for years, but global capital always believed in the U.S. growth story and gladly lent money on super-generous terms, without any inflationary fallout.
But now, with Presiden Biden and the Squad as managers of USA Inc., that value proposition is dissipating, and fast. Don’t take my word for it; just look at the mad rush into inflation assets. Gasoline has more than doubled at the wholesale level with futures on gas rising from $1.07/gallon to $2.30/gallon since Biden’s election, hitting the highest prices at the pump since 2014 at $3.23/gallon for the average consumer, and over $4/gallon in some American locales.
But it’s hardly just a gasoline story. Commodities across the board soar higher as investors flock to physical assets to try to stay ahead of the emerging Biden inflation spike. For example, coal prices have surged 83% this year, pork prices are up 51% year-to-date, while coffee prices have almost doubled, up a staggering 91% since Election Day. Don’t believe the administration's excuses that these increases are the natural fallout of an economic recovery. Just this week, we learned of the telling miss on overall GDP growth. The second quarter saw only 6.5% overall expansion, well beneath Wall Street expectations of 8.4%.
In normal times, acceleration above 6% would be stellar. But these are far from normal times and, given the harshness of the lockdown-related declines, a growth rate that is not at least approaching double digits represents a big disappointment. So, we face the most toxic combination of all under Joe Biden and a Congress controlled by Democrats: Prices soar because of his reckless spending and borrowing, while the recovery languishes. To put a number on the jobs situation, consider that in America today, 145 million Americans are now employed, the exact same number as when Donald Trump was elected in 2016. That number then rose to 153 million. It plunged to 130 million during the worst of the 2020 lockdowns and then started an aggressive climb back … until Joe Biden got elected.
Now, with generous inducements for Americans to not work, and with the possibility of re-imposed lockdowns that could, once again, crush small business, the workforce stagnates. Millions of previously employed Americans, the strivers who flourished during the Trump boom, now remain on the sidelines, whether by choice or by circumstance.
The situation is dire and it’s hard to overstate the risks of inflation for an already unstable and polarized American society.
Instead of settling for the worst outcome, there is an alternative — if Senate Republicans can find some backbone. The debt ceiling deadline approaches this weekend, on Aug. 1. The U.S. Treasury can use bookkeeping and accounting gimmicks to continue to service our debt for a while, perhaps into October. Nonetheless, a red line in drawn here, and there is an opening for the GOP to finally take a stand for working-class people who are being harmed by inflation. There has not been a real debt ceiling showdown in 10 years, and the last one resulted in a historic first-ever downgrade of America’s credit rating by rating agency Standard & Poor’s. So there are risks to forcing this issue, but there are much greater risks to allowing Democrats to plunge America further into an inflationary spiral of misery.
If the 50 Republicans stay united and refuse to raise the debt ceiling, they can compel the White House and Hill Democrats to get real about both stopping the insane level of borrowing and simultaneously promising a nervous America that there will be no more lockdowns, period.
If we apply a fiscal tourniquet to the borrow-and-spend madness, and if we empower Main Street to fully, permanently reopen, we can eventually grow our way out of the massive debt debacle that we have established. But the clock is ticking. The window is closing. Will the GOP show the wisdom and the huevos to use the debt ceiling as a lever to stop the madness?