In a surprising development, the recently passed Biden-McCarthy “Fiscal Responsibility Act of 2023” draws increasing scrutiny for its potential impact on inflation, rivaling the controversial Inflation Reduction Act (Green New Deal).
The Treasury’s issuance of over $1 trillion in new debt within five weeks has astonished experts and raised serious questions about the consequences of such unprecedented spending. The sheer magnitude of this debt increase is staggering. To put it into perspective, it took over two centuries, from the inception of the United States until 1980, to accumulate a debt similar to what was added in just over a month. This exponential surge in spending has significant implications that cannot be understated. Unlike previous years when the debt was managed at low-interest rates of 1%-2%, this new debt carries an interest rate of over 5%, compounding the economic challenges.
Contrary to assertions that inflation will diminish in the long run, the mounting debt presents a clear and present danger. It is not merely an abstract number on the government’s balance sheet; it represents a roadblock preventing middle-income Americans from realizing the American dream in the foreseeable future, based on The Blaze news. Unfortunately, the debt ceiling deal, intended to “avoid default,” has paradoxically expedited the arrival of an inflationary surge. The Federal Reserve will likely resort to continued money printing to service the debt, resulting in an inflationary spiral that will exacerbate the already burdensome cost of living and create additional economic hardships.
The implications extend beyond public debt, as personal household debt has reached unprecedented levels. Personal credit card debt has surged to nearly $1 trillion, marking a 15% increase since the pre-COVID era and a shocking threefold rise from pre-2008 Great Recession levels. Alarmingly, average credit card interest rates have skyrocketed to an astonishing 22%, intensifying the personal debt crisis.
Moreover, the convergence of federal money pumping and artificially heightened interest rates substantially threatens the economy. These manipulative measures have triggered a housing crisis characterized by artificially inflated prices and a scarcity of available homes. With mortgage rates soaring to 7.38%, monthly payments for a $400,000 home are equivalent to those of a $700,000 home at the start of President Biden’s term. This volatile situation increases the likelihood of an impending recession as the Federal Reserve’s distorted monetary policies lead to resource misallocation and economic weakening.
Adding to the mounting concerns, the yield curve of U.S. Treasuries is experiencing the most prolonged and steepest inversion ever recorded, historically serving as a reliable predictor of an impending recession. An inverted yield curve arises when short-term interest rates surpass long-term rates, and its occurrence has foreshadowed economic downturns within a window of six to 24 months.
Considering all these factors, the path forward appears riddled with challenges. The surging public debt, inflationary pressures, heightened interest rates, mounting personal debt burdens, and an impending recession create a problematic cycle threatening the economy’s stability.
As the Congressional Budget Office (CBO) aptly warns, the high and escalating debt will have profound economic and financial ramifications, including slower economic growth, increased interest payments to foreign debt holders, heightened fiscal crisis risks, and vulnerability to rising interest rates.
It is evident that the Biden-McCarthy “Fiscal Responsibility Act” has sparked legitimate concerns regarding its potential impact on inflation and the overall economy. As our nation navigates these uncharted waters, striking the delicate balance between fiscal prudence and economic stability is paramount.