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The headline numbers are looking good for Joe Biden lately. He recently won a major legislative victory and his approval ratings are ticking higher, meaning that the manifold failures of his presidency may be a thing of the past. With Biden seemingly less sleepy, the Dems may not be blown out in the upcoming midterms as predicted just a few weeks ago.
Yes, that’s what the White House would have you believe. Most of my colleagues in the mainstream media think so too. But the spin that oozes from the Biden renaissance narrative obscures, at least for now, some really ugly bits of the economic reality that the president’s brazen policies have created.
If you don’t believe me, listen to some of the comments made recently by Larry Fink, CEO of money manager BlackRock. No one will ever mistake Fink for a GOP talking head. He runs the world’s largest investment firm (about $8.5 trillion in assets under management). He has strong ties to the Democratic Party and is a perennial candidate for Treasury Secretary under a Democratic president.
We have previously had our disagreements with Fink over BlackRock’s embrace of environmental social stewardship investments. Fink points out that he is a moderate on the woke investment trend, advocating a transition to a green economy while BlackRock continues to invest in energy infrastructure.
That’s one of the reasons we could do far worse than Fink running the American economy. Another: He is among the best risk managers on Wall Street.
Now he’s sounding the alarm about the potential economic damage being done in DC — much of it by his own party — that will make the Fed’s job of fighting inflation while trying to engineer a so-called “soft landing” nearly impossible. Fink calls it an “irreconcilable disconnect” between what the White House is doing and Fed Chairman Jerome Powell’s anti-inflation mandate.
Inflation is a nasty tax on the working class. If left unchecked, it leads to economic hardship, which history shows creates social unrest. To tame inflation, our central bank, the Federal Reserve, engages in balancing act. It tries to raise interest rates and tighten credit to businesses in order to achieve a soft landing of the economy, where GDP falls just enough to moderate inflation, but the economy avoids a full-blown recession, or at least a severe recession.
‘Soft landing’ difficult
Not easy to do, although the Fed has pulled it off 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 wide-ranging interviews, including one with me on Fox Business, Fink explained how that coordination is sorely lacking in our current economic environment — something he hasn’t seen much of in his 40-year career at the top of the financial industry. industry. On the one hand, we have the White House and Congress spending like crazy and inflating the economy. As inflation rages, the Fed seeks to reverse the damage to reach its usual 2% inflation target.
To understand where the Fed is at, consider that the last inflationary pressure was 8.5%. That number was hit before the recent spending blowouts (student loan forgiveness, etc.).
To hear Fink explain it, the White House is baking a pretty deep recession into the equation as it forces the Fed to raise interest rates even more than it should — 75 basis points at its next meeting and perhaps several times after that — because administration does not want to stop the inflationary cycle it helped create through spending. In the short term, Fink says, inflation may ease a bit with lower energy prices like we’re seeing (that happens when people can’t afford a commodity, FYI), but not enough to meet the Fed’s 2% target because food and other staples remain stubbornly high.
“We’re seeing this in governments in Europe, in the UK and now in the US. We’re seeing very large fiscal stimulus at a time when we have very high inflation . . . and it just makes central bank jobs in Europe and the US a lot more difficult assignment,” he told me.
Fink also scoffed at White House spin that the economy is experiencing a “growth recession,” as the past two quarters of negative GDP growth (the official recession definition) coincide with strong employment. “I’ve heard that too,” he said.
Like most Wall Street professionals, he knows employment is a lagging indicator as the economy begins to slow down. All the spending, he adds, “just makes it harder for our central banks and the other central banks to move the dial [on inflation]. They need to be more aggressive. So could it lead to a recession? Yes.”
Fink emphasizes that all the fiscal spending we’ve seen in recent years is a “bipartisan” problem, and he follows the Democratic party line that other factors such as the Ukraine war are contributing to the inflation mess. Some expenses were necessary during the COVID lockdowns. Plus the Fed continued to print money until inflation proved to be “non-transitory.”
No consumption stop
Still, it’s hard even for Fink to avoid the fact that Sleepy Joe and his henchmen haven’t escaped 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 back in the 1970s.
Again, Fink is no GOP operative, and former BlackRock executives hold plenty of top positions in the Biden administration. They better listen to what he says about how they’re making Powell’s job harder than it needs to be, because when you lose Larry Fink, you know you’re in some trouble.
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