‘Bidenomics’ mauls U.S. economy

OPINION:

Last week, the Commerce Department reported white-hot 4.9% third-quarter growth in gross domestic product. This should have been great news for U.S. stock markets — more growth generally means higher profits and rising stock prices. Instead, both the S&P 500 and Nasdaq broke below key support levels and entered bear market territory.

What in the name of Taylor Swift is going on?

Part of the problem is indeed excessive reliance on a Taylor Swift economy. We’ve reached a peculiar “Bidenomics” inflection point where a pop star’s concerts and related bling sales can have more stimulative effects than a bevy of factory workers.

Here, when you deconstruct the 4.9% GDP growth number, you will see consumer spending accounted for a full 2.7%. At the vanguard of this consumer spending growth catalyst has been Ms. Swift, whose concert performances are boosting tourism from Philadelphia and Chicago to Cincinnati, Colorado and Las Vegas.

Don’t believe me? Then believe the Federal Reserve’s Philly branch where some closet Swifty no doubt talked his or her boss into doing a study of the Swift economy.

Now here’s our reality check: This type of consumer-driven Swifty hypergrowth likely can’t last, because fueling consumer spending has been an orgy of government assistance to individuals and corporations alike to help them through the ravages of the pandemic.

The inability of consumers to initially spend during the pandemic, coupled with massive government handouts, allowed consumers to dramatically boost their savings rates and accumulate a nice little nest egg. Now, in a classic case of unleashed pent-up demand, American consumers have been splurging on travel, restaurants, and all manner of luxuries, including Taylor Swift concerts, which command an average ticket price of $1,300.

As the adage goes, however, this too shall pass. Savings rates are now plummeting as nest eggs are being scrambled into Swifty bling omelets — the savings rate swooned from 5.2% in the second quarter to 3.8% in the third quarter alone.

Meanwhile, credit card debt is at its highest since 2005. With the average interest rate on that debt now a whopping 23%, more and more consumer dollars will be spent financing that debt than using credit cards to buy tickets to Taylor Swift shows.

It’s not just a tap-out of consumers that Wall Street is worried about when it comes to avoiding a GDP slowdown or outright recession. There is a whole litany of Biden-induced economic concerns, including:

• Profligate government spending is hurtling us toward a fiscal cliff as our deficit spending now exceeds more than $2 trillion a year.

• The green policies of Bidenomics, President Biden’s mismanagement of Russia’s war in Ukraine, and the Hamas-Israeli war have sent petroleum prices soaring.

• Persistent inflation in other sectors of the economy — food and housing lead the way — means there is no near-term future in which the Fed cuts interest rates.

• Massive losses in the bond market are destabilizing banks and other financial institutions that hold their reserves in bonds.

• Sky-high vacancy rates in the commercial real estate sector threaten a financial meltdown.

• The geopolitical risks associated with a Chinese attack on Taiwan are rising as fast as China’s economic prospects are falling.

You don’t have to be an investor to worry about any of this. If Wall Street crashes — and expect a lot of volatility over the next several months — Main Street will be picking up the pieces.

One piece is the health of the various pension vehicles serving an American population getting older faster than investment returns are making them richer. At risk from a possible market meltdown is everything from the solvency of public pension funds to the strength of 401(k) portfolios.

Warning: Whatever you may have been told by a financial planner about the ability of these sources of funds to comfortably support you in your golden years, you’d better quickly revise that estimate if the market does indeed severely correct.

In addition, more than 165 million Americans — well over half of us — also live from paycheck to paycheck. Even if you don’t lose your job — which will soon become a greater risk as the economy cools — your paycheck will likely be smaller in real, inflation-adjusted terms, thanks to Bidenomics.

The one politician who can do anything about any of this, at least before the 2024 election, is the new House speaker, Mike Johnson. Mr. Johnson’s political power flows from his ability to block any increase in the debt ceiling, absent significant changes in how the Washington swamp is being run.

Mr. Johnson must unite House Republicans around the red line demand that there must be no raising of the debt ceiling until at least two conditions are met: (1) Congress and the White House must agree on meaningful debt reductions that will cut the current $2 trillion annual deficit in half, and (2) the southern border must be sealed for national security reasons and to protect American workers from a flood of cheap labor.

If the government is shut down, so be it. It is the far lesser of the two evils we are now facing as Taylor Swift dances while Mr. Biden’s economy dances around stagflationary flames.

• Peter Navarro served in the Trump White House as manufacturing czar and chief China strategist. This column originally appeared at http://peternavarro.substack.com.