Smith Op-Ed: Rising interest rates foreshadow Biden's recessionBy Rep. Jason Smith The Hill
Since President Biden took office, Washington Democrats have embarked on a massive spending spree totaling $9 trillion, which is more than the federal government spent in its first 195 years combined. That explosion of reckless spending is sabotaging America’s economy — with inflation up 13.8 percent under Biden, interest rates rising dramatically, and the nation teetering on recession.
At the beginning of the Biden presidency, the Congressional Budget Office (CBO) predicted the economy was on its way to recovery without any more government stimulus and that interest rates would not rise until 2024. Then came the tidal wave of Washington Democrats’ spending — most notably the $2 trillion so-called “American Rescue Plan.” Subsequently, in the first quarter of this year, the economy shrank by 1.6 percent. Last month, the Federal Reserve was forced to raise interest rates by 75 basis points — the third such rate increase since March — to combat the president’s inflation crisis. In total, the federal funds rate has risen by 1.5 percent, the fastest cumulative rate hike in 40 years. This puts the Federal Reserve on pace to raise rates faster this year than the previous 15 years combined.
Eight of the last nine times the Fed raised rates to respond to inflation concerns, a recession soon followed. The hoped-for “soft landing” now seems improbable. Following close behind this recession is an impending debt crisis that will put a massive strain on federal resources and force a confrontation with decades’ worth of poor Washington fiscal policy.
At its core, inflation is too much money chasing too few goods. At the time the American Rescue Plan was passed, there was still over $1 trillion in unspent funds from prior COVID-19 packages. Injecting another $2 trillion into an economy that, according to the CBO, was on pace to fully recover by the middle of last year was undoubtedly going to spur inflation. The results were not only predictable; they were literally predicted by Republicans and Democrats. President Biden has simply refused to listen. In March of this year, the San Francisco Bank of the Federal Reserve found that the American Rescue Plan’s $2 trillion price tag is what has made American inflation more ferocious than other countries.
The so-called “Rescue Plan” also restricted the labor supply and inflamed the supply chain crisis by spending $400 billion to gut work requirements for welfare programs, essentially paying people not to work. The law also included over $500 billion for state and local bailouts that went to pay for absurd pet projects such as beach parking lots, historic railcar renovations, luxury hotels, a moonshine walking trail, stimulus checks to prisoners, and the list goes on. On top of that, estimates now show that up to $400 billion in COVID unemployment insurance payments have been lost to fraud. This is spending that Americans paid for but will never benefit from.
Consequently, President Biden has left the Federal Reserve with no choice but to raise interest rates — and it comes with a serious cost.
For families, every extra dollar they have to spend because of higher prices is one less dollar they have to save for retirement or a down payment. The stock market, responding to the alarm bells of a looming recession, is beginning to crater and threatening to wipe out Americans’ life savings, pensions, and forcing millions of seniors to delay or even forfeit their retirement.
Rising rates are making home buying unaffordable, locking millions of families out of the cornerstone of the American Dream. Families are facing the double-whammy of stratospheric home values and an interest rate on a 30-year mortgage that has doubled since Biden became president.
The small businesses that employ American workers are not fairing any better under rising interest rates. Higher rates only further raise the cost of doing business. Entrepreneurs and small businesses are finding it more expensive to finance the new equipment or larger facilities that grow the economy, create jobs, and boost paychecks. Three of the last four months saw payrolls shrink for business with less than 50 employees.
Perhaps the scariest impact of rising interest rates would be triggering a sovereign debt crisis. The House Budget Committee released a report that details the impact rising rates would have on the federal budget. If interest rates rose to 5.7 percent — the average of the last 50 years — our debt climbs from $30 trillion to $215 trillion by 2051. Interest payments alone would reach $11 trillion per year. The last time inflation was this high, interest rates went above 10 percent. Under that nightmare scenario, interest payments on the debt would be 57 percent of federal revenue, equivalent to all spending on Social Security, Medicare and Medicaid.
The inflation crisis is squeezing Americans’ paychecks. Working families will pay an extra $5,200 this year alone because of today’s 40-year high spike in prices. With interest rates on the rise, American families are realizing that President Biden has been using their 401(k)s and Social Security as collateral in his political spending gamble. If this is the price of one-party Democrat rule in Washington, then Americans deserve a refund.
Read the full op-ed here.