We are a couple of weeks ahead of the new administration taking office. The Biden administration leaves behind an economic legacy that does not bode well for the pockets of Americans in the short-term. Here’s how the outgoing administration added fuel to the fire of inflation in the past four years…
By Peter Reagan
2024 was incredibly tumultuous for most Americans. The last four years have been chaotic, for that matter.
An eventful election season brought to light many of the economic woes that have been plaguing us since the start of the pandemic – ballooning prices, high interest rates, crippling inflation, and an unpredictable job market, just to name a few.
Sure – we’re a couple of years past the COVID pandemic lockdowns, and businesses have had a bit more breathing room to help the economy get back on its feet.
Still, though the country has started to make a slight recovery, we’re only at the beginning of the runaway towards getting back to normal.
Financially, the struggle persists – even if the Biden administration and the mainstream media keep telling us otherwise. There’s no denying that we feel like our pocketbook is a bit too empty when we check out at the grocery store.
Even a third grader with basic math schools could tell you that – if everything was really great, we wouldn’t be feeling the tight squeeze to our personal budgets.
It’s worth asking…
Why are Americans still struggling with everyday bills?
In reality, the effects of back-breaking inflation have continued to rage on even after the government allowed businesses to reopen and despite a reduction in the rate of inflation over the past two years.
Image via U.S. Bureau of Labor Statistics
If inflation is down, then why does everything seem so expensive?
Because there is still inflation – though it is now at a lower rate. Therefore, prices continue to climb.
The Biden administration also boasts the highest average inflation rate in over forty years, and that’s not something that can be easily overcome in a matter of months or years.
The result: Everything seems to be getting more expensive.
We can look back at the lockdowns and the supply chain interruptions and find the potential culprits for the spikes in prices in the first two years of the crises.
But are the supply chain issues that drove up prices during COVID keeping prices higher after the country reopened?
Great question.
Sure, supply chain issues were part of the problem. After all, it’s simple supply and demand. Demand remained constant during COVID, but the supply of many things decreased, and that combination drove up prices immediately.
There is a lot more to the story, though…
What is really to blame for inflation’s persistent chokehold?
What has allowed inflation to linger well after the COVID years is something more insidious, government spending.
It’s no great mystery that increased government spending has a detrimental effect on inflation and the overall economy, especially when combined with supply chain disruptions. The more capital is injected into the economy for the sake of spending, rather than for job creation and to drive up supply – the more prices tend to increase.
This is precisely what occurred with the passage of the March 2020 CARES plan and the American Rescue Plan of 2021, both of which provided stimulus checks for Americans, and which were followed by a noticeable rise in inflation.
Daniel de Visé, personal finance writer at USA Today points out as much when he comments on the consensus among economists about this connection.
So, what we’ve been dealing with over the last year or two is the longer-term fallout of huge government spending.
Desmond Lachman, senior fellow at the American Enterprise Institute, sheds further light on the connection in de Visé’s report:
Taken together, the … stimulus bills amounted to something like 20% of GDP, the nation’s total economic output … That is the largest fiscal stimulus we’ve had in peacetime. That, I think, is a big part of the story.
The connection is devastatingly evident, unless you are firmly in the Keynesian economics camp, which most government bureaucrats and politicians are.
Government spending is not only a contributor to inflation because of the way it drives up prices, though. The worst part is that the increased money supply resulting from poor fiscal policies eventually leads to a devaluation of money itself, which will likely exacerbate inflation.
Yes, supply chain issues actually lead to increased prices, but those price changes often go away over time once supply chain issues are solved.
The devaluation of the monetary supply, though, doesn’t go away easily. It never gets fully corrected. It just looks like permanent price increases on our end of things.
In spite of the way that inflation has been hurting the average American, the Biden administration did something extraordinary all throughout this past year.
And by extraordinary, I mean extraordinarily bad.
Unfettered government spending continued in 2024
The Biden administration spent at nearly crisis levels in 2024, even as they continued telling us not only that there no longer is a crisis, but that the economy is doing better than ever.
Former Wall Street Money Manager Ed Dowd has a lot to say about the topic to Greg Hunter at USA Watchdog. He explains:
We had 10% deficit to GDP during the Great Financial Crisis (2008 – 2009) when we actually had a crisis. We had 8% deficit to GDP during this election year. You have to ask yourself, what was the crisis?
That is a valid question to ask. Why in the world would the Biden administration continue to spend that kind of money, knowing (at least they should have known) that it would drive up inflation further?
The answer, according to Dowd, was the 2024 election. In an effort to get Biden elected, and later on to prop up Kamala Harris as the Democratic nominee, the Biden administration had to go on a binge spending spree.
How did the administration do this: they hired a lot of government personnel to bolster the failing economy, and they rolled out a lot of benefits for migrants, including health coverage for those without status and for DACA recipients.
As noble as these efforts may seem, the rationale behind (whipping up more support from their electorate) was not. And the results for the economy – likely devastating.
As we enter 2025 with the prospect of more spending thanks to last month’s approval of a new round of stimulus checks, we are left with the kind of going away present that we would rather not receive from Biden and Harris.
And some people are asking…
Can the new administration fix inflation?
I would love to say that there is a light at the end of the tunnel, but the answer to this question is a resounding…maybe.
Over the longer-term, I do think that the Trump administration’s policies will help the U.S. economy.
Bringing manufacturing back to the U.S. along with those manufacturing jobs can certainly make a big positive difference.
The inflation fallout from the past year’s near crisis-level federal spending, though, is still going to give us a kick in the pants over the next year, probably over the next few years, and, then, the higher prices will stay with us.
As I’ve said before, though, the new administration’s economic policies aren’t going to be an immediate fix. It can, very literally, take years for Trump’s tariffs to begin revitalizing the economy. And we’ll be dealing with the consequences of Bidenomics for a long time, even if these new efforts have their intended positive boost to our economy.
The good news is that you still have time to diversify into inflation-resistant stores of purchasing power so that higher prices and continued inflation resulting from policies of either the old or new administration don’t cripple your personal economy.
Investing in gold and silver or other precious metals is among the best ways to hedge against inflation. Find out more about when you request your free precious metals info kit.
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