The headline numbers are looking good for Joe Biden lately. He’s recently won a big legislative victory, and his approvals are ticking higher, which means maybe the manifold failures of his presidency are a thing of the past. With Biden appearing less sleepy, the Dems might not get blown out in the upcoming midterms as was predicted just a few weeks ago.
Yes, that is what the White House wants you to believe. Most of my colleagues in the mainstream media believe it as well. But the spin oozing about the Biden-renaissance narrative obscures, at least for now, some really nasty bits of economic reality that the president’s feckless policies have created.
If you don’t believe me, listen to some of the comments recently made by Larry Fink, the CEO of money manager BlackRock. No one will ever confuse Fink with a GOP talking head. He runs the world’s largest investment firm (some $8.5 trillion in assets under management). He has strong ties to the Democratic Party and is a perennial contender for Treasury secretary under a Democratic president.
We’ve had our differences with Fink in the past over BlackRock’s embrace of Environmental Social Governance investing. Fink points out he’s a moderate on the woke-investing fad, advocating a transition to a green economy while BlackRock continues to invest in energy infrastructure.
That’s one reason we could do far worse than Fink steering the US economy. Another: He’s among the best risk managers on Wall Street.
Now he’s sounding the alarm on the potential economic harm being done in DC — much of it by his own party — that will make the Fed’s job of fighting inflation while attempting to engineer a so-called “soft landing” nearly impossible. Fink calls it an “irreconcilable disconnect” between what the White House is doing and Fed Chair Jerome Powell’s inflation-fighting mandate.
Inflation is a nasty tax on the working class. If left unchecked, it leads to economic hardships that history shows creates social unrest. To tame inflation, our central bank, the Federal Reserve, engages in a balancing act. It tries to raise rates and tighten credit on businesses to achieve a soft landing of the economy, in which GDP declines just enough to subdue inflation but the economy avoids a full-on recession, or at least a severe one.
‘Soft landing’ difficult
Not easy to do, though the Fed has pulled it off in the past by coordinating its monetary policy (control of the money supply) with the fiscal policy (spending) of the White House and Congress.
In a series of wide-ranging interviews, including one with me on Fox Business, Fink explained how that coordination is sorely missing in our current economic environment — something he hasn’t seen much in his 40-year career at the top of the financial industry. On one hand we have the White House and Congress spending like crazy and inflating the economy. As inflation rages, the Fed is seeking to reverse the damage to meet its customary 2% inflation target.
To understand the spot the Fed is in, consider that the last inflation print was 8.5%. That number was hit before the latest spending blowouts (student-loan forgiveness, etc.).
To hear Fink explain it, the White House is baking into the equation a pretty deep recession since it is forcing the Fed to raise rates even more than it should have to — 75 basis points at its next meeting and maybe several more times after that — because the administration doesn’t want to stop the inflationary cycle it helped create through spending. In the short-term, Fink says, inflation might abate a bit with lower energy prices that we’re seeing (that happens when people can’t afford a commodity, FYI), but not enough to meet the Fed’s 2% goal because food and other staples remain stubbornly high.
“We’re seeing this in governments in Europe, in the UK and now in the United States. We’re seeing very large fiscal stimulus at a time we have very high inflation . . . and it just makes the jobs of the central banks in Europe and the United States a much harder task,” he told me.
Fink also scoffed at the White House spin that the economy is experiencing a “growth recession” since the past two quarters of negative GDP growth (the official recession definition) coincides with strong employment. “I heard that, too,” he snapped.
Like most Wall Street pros, he knows employment is a lagging indicator as the gears of the economy start to grind slower. All the spending, he adds, “just makes it harder for our central banks and the other central banks to move the dial [on inflation]. They have to be more aggressive. Then could it lead to a recession? Yes.”
Fink stresses that all the fiscal spending we’ve seen in recent years is a “bipartisan” problem, and he follows the Dem party line that other factors such as the Ukraine war are contributing to the inflation mess. Some spending was necessary during the COVID lockdowns. Plus the Fed continued to print money until inflation proved “non-transitory.”
No spending let-up
Still, it’s hard even for Fink to avoid the fact that Sleepy Joe and his minions haven’t let up despite a post-pandemic recovery. And the Fed, according to Fink, has no choice but to slam the breaks or inflation will rage like it did back in the 1970s.
Again, Fink is no GOP operative, and ex-BlackRock executives hold plenty of top positions in the Biden administration. They should heed what he’s saying about how they’re making Powell’s job more difficult than it needs to be, because when you lose Larry Fink, you know you’re in for some trouble.