Has Bidenomics Set the Stage for Permanently Higher Inflation?
Peter Reagan

It’s quite possible that economic conditions are bad enough that price inflation will continue to persist, much like it did in the 1970s, and well into the 1980s.

In fact, three years into President Biden’s first term Americans are still spending a greater percentage of their income on food than at any point in the last 30 years:

That’s according to the latest data from the USDA, which shows that U.S. consumers spent more than 11% of their disposable income on eating – whether at home or at a restaurant – in 2022, the highest percentage since 1991.

But keep in mind that real costs for maintaining a consistent standard of living are probably closer to 10-12%. That’s according to Federal Reserve measurements from the 1980s, before economics became just another tool in the government’s propaganda

I don’t know about you, but the folks I speak to every day are spending a lot more on necessities like food and gas than the media care to admit.

Americans are fed up with the situation, and adopting a more “cautious” spending trend:

Fed up with prices that remain about 19%, on average, above where they were before the pandemic, consumers are fighting back. In grocery stores, they’re shifting away from name brands to store-brand items, switching to discount stores or simply buying fewer items like snacks or gourmet foods.

Lower-income consumers, in particular, are running up credit card debt and falling behind on their payments. Americans overall are spending more cautiously. Daco notes that overall sales during the holiday shopping season were up just 4% – and most of it reflected higher prices rather than consumers actually buying more things.

You might be thinking that since it has only been four years since the pandemic started, prices might return to those levels at some point in the near future.

You would be wrong.

Biden says “inflation is coming down” (so why aren’t prices falling?)

In a short speech where he mentioned or blamed Trump for our economic problems 25 times, Biden briefly addressed the biggest challenge for everyday Americans only once:

Inflation is coming down. It’s now lower in America than any other major economy in the world. (Applause.) The cost of eggs, milk, chicken, gas, and so many other essential items have come down.

Of course, as any politician would, he also failed to mention that the cost of “eggs, milk, chicken, gas” came down from 40-year record highs under his watch. He is second only to Carter when it comes to presiding over the highest price inflation since WWII.

But that’s not all. Instead of taking accountability for his Administration’s spending spree and its enormous impact on inflation, Biden instead blamed corporations for three years of high prices:

But for all we’ve done to bring prices down, there are still too many corporations in America ripping people off: price gouging, junk fees, greedflation, shrinkflation… Well, it’s going to stop. Americans, we’re tired of being played for suckers. And that’s why we’re going to keep these guys – keep on them and get the prices down.

Here’s the thing about “price gouging” – when that happens, smart people take their money elsewhere. It’s that simple! Biden’s theory seems to be that the CEOs of every Fortune 500 company are secretly colluding to squeeze profits out of us.

Folks, that’s a conspiracy theory, not an economic theory.

And we don’t need a shadowy group of powerful businessmen to explain the higher prices we’re paying for everything right now. Costs have gone up for corporations, too.

When that happens, they respond by raising prices.

Why did corporate costs go up?

Do you think it might have something to do with trillions of dollars in federal spending including the #2, #3 and #4 largest federal budget deficits in American history?

That’s Bidenomics in action!

Look, the obvious way to lower prices is simple: Reduce the supply of money. That’s all it takes!

But the Biden administration is determined to continue spending at a breakneck speed. And every single dollar of deficit spending has to go somewhere!

Which drives up prices – prices for finished goods as well as prices for raw materials. Prices aren’t going to fall.

Even when the rate of inflation decreases, prices don’t.

Lower inflation just means prices go up more slowly.

It’s too late to repair the damage of Bidenflation

If you shop at Walmart, there was a point last year where you might have noticed that food prices were falling. That didn’t last long:

Just ahead of the holiday season, Walmart had encouraging news for inflation-weary shoppers: Prices on food and other staples were falling instead of rising. The retail giant said if the trend continued, it would soon contend with deflation in some of those key household categories, which would be a welcome sight for consumers emerging from the worst price increases in decades.

But the retail giant backpedaled this week, saying higher prices on many grocery items and household staples like paper goods have stuck.

Just like the higher grocery prices that Walmart is contending with, Jim Rickards thinks the entire inflationary trend is “stuck”:

If you look at the data since June, you’ll see that inflation isn’t actually going down; it’s stuck in a range of 3.0–3.7%. Some months are higher in the range than others, but none is lower. Inflation is stuck and the January data doesn’t change that.

So if Rickards is correct, then inflation could in fact be stuck (or even heat up again) for quite some time.

He also added an interesting comment on the Fed’s love of “low unemployment leading to higher inflation” that illustrated why more damage could have been done than originally thought:

The idea that low unemployment leads to inflation (which is what links the Fed’s obsessions with unemployment and inflation) is an artifact of the discredited Phillips curve beloved by Bernanke and Yellen and adhered to by Powell on the bad advice of Fed economists.

So the Fed is almost certainly misreading the economy because of its faith in faulty models like the Phillips curve… The damage of price increases from 2021–2023 is embedded in current price levels and will not go away.

Oddly enough, Bill Phillips (who created the Phillips curve) never actually linked employment to inflation. In fact, many economists claim the relationship no longer holds, mainly because of the stagflationary employment market during the 1970s.

Federal Reserve Chairman Powell was even slowly coming to terms with this idea until 2019, saying the link between unemployment and inflation “was getting weaker, weaker, and weaker.”

But then he conveniently flip-flopped on that position, in a more recent interview with CBS News:

Scott Pelley: But inflation has been falling steadily for 11 months. You’ve avoided a recession. Why not cut the rates now?

Jerome Powell: Well we have a strong economy. Growth is going on at a solid pace. The labor market is strong: 3.7% unemployment. With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully. 

This is a strong signal that Rickards could be right about Powell’s Fed misreading, or potentially misunderstanding some of the basic fundamentals of the economy.

If that’s the case, who knows how long the current run of inflation could persist?

Inflation-resistant assets work whether inflation is transitory or permanent

Short of a miracle, inflation is likely to stick around for the longer-term. After all, it doesn’t just cool off overnight, at least not significantly.

But you don’t have to let price inflation crush your buying power. You can also start taking action right now to protect your savings. Here’s how…

Having a diversified portfolio with assets known for their protection during uncertain times is a strategic way to weather the storm, no matter how long Bidenflation sticks around. Holding assets such as physical gold and silver (along with other inflation-resistant assets) could add needed-resilience to your retirement savings.

There’s a reason physical precious metals have been safe-haven store-of-value assets throughout human history. Learn more about why physical gold should play a role in your long-term savings.

 

 

Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver.

 

 

 

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