(ORDO NEWS) — The irresponsible decisions of the Federal Reserve System and Biden do not leave the country a chance to avoid a recession and heavy burdens on the financial market, writes 19fortyfive. The author believes that in 2024 the US President will most likely have to answer, which cannot be said about the leadership of the Fed.
Why is the US economy going into recession in 2023?
Oscar Wilde wrote in one of his plays that the loss of one parent can be seen as a misfortune, but the loss of both is like negligence.
Something similar can be said about the implementation of US economic policy in recent times. The irresponsible implementation of budgetary policy can be seen as a misfortune. But when the Federal Reserve exacerbates fiscal mismanagement with misplaced monetary policies, it is only bittersweet.
Such fiscal mismanagement and policy lapses by the Fed have already led us to inflation the likes of which have not been seen in decades, and created bubbles in housing, securities, and lending. Now, all this threatens us with an extremely hard landing in the economy and the collapse of quotations, since inflationary excesses must be corrected.
In March 2021, President Biden announced the $1.9 trillion American bailout plan. Former Treasury Secretary Larry Summers rightly called it the most irresponsible budgetary decision in forty years.
Added to the $3 trillion in fiscal stimulus allocated to fight the pandemic-induced recession, Biden’s stimulus measures meant the following. The American economy will receive a breathtaking budget support of 20% of GDP. This could not but lead to overheating of the economy and inflation.
As if specifically trying to provide the country with inflationary problems, the Fed decided to increase Biden’s irresponsible actions in the field of fiscal policy, taking on the easiest monetary policy.
The Federal Reserve not only kept interest rates at zero even as the economy recovered and received record peacetime fiscal stimulus. He continued to buy $120 billion a month in U.S. Treasury securities and mortgage-backed bonds even though the stock and housing markets were on fire.
With this fiscal and monetary stimulus, consumer price inflation topped nine percent by mid-2022, at levels we haven’t seen since the early 1980s. With interest rates so low and the Fed buying up bonds and other securities en masse, stocks naturally went through the roof to levels they had seen only once in a hundred years, and home prices topped pre-2006 peaks. years, even after adjusting for inflation.
Over-inflating the budget in 2021 has brought us to the edge of the abyss, and the economy will experience considerable pressure next year. Serious assistance to the savings of the population through covid checks was transformed into high inflation. And government spending is returning to normal pre-Covid levels.
The Fed seems to have learned nothing from last year’s inflationary consequences of irresponsible fiscal policy. Now the Fed is exacerbating the crisis impact of the transition to fiscal restraint with its overly aggressive lending policy. He is raising interest rates at the fastest rate in 40 years and intends to keep doing so even though inflation has peaked and the economy is slipping into recession.
The Fed seems to have learned nothing from the experience of last year, when it flooded the market with liquidity and raised the price of assets, as well as inflating bubbles in the lending market. Now the Fed has decided to withdraw liquidity at a record pace, doing so at a time when financial markets have taken a defensive stance.
In doing so, the Fed is committing to not roll over $95 million a month in Treasury bonds and mortgage-backed securities.
All this deprives us of the chances of avoiding a bad economic recession and stress on the financial market in the coming year. But there is also good news. The Biden administration in the 2024 election could be called to account for its gross miscalculations in the direction of economic policy. And the bad news is that Powell and the rest of the Fed’s board of directors will not be held accountable for managerial incompetence.
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