In May, Kevin McCarthy determined that the debt ceiling was a bigger problem than the debt. He therefore gave Joe Biden a blank check to issue unlimited debt for the remainder of his presidency, and the president’s secretary of the treasury has utilized the free credit line with alacrity. Nearly $1.5 trillion in additional debt has been issued since June, as Treasuries have flooded the market, inflating the cost of servicing our debt with interest to record levels, now surpassing the cost of the military. It is therefore quite evident as we head into the annual appropriations deadline that anyone who decries inflation but refuses to combat the policies fueling it is a charlatan.
Just how bad is inflation? Despite the Fed raising interest rates quicker than ever, and despite the Biden administration draining the Strategic Petroleum Reserve to 1983 levels (when the country was a third smaller), core inflation is still rising at 4.3% year over year. This is on top of the already crushing baseline change in the cost of living since COVID. Keep in mind that the Fed’s target for annual inflation is 2%. If you annualize the CPI for August, it would reflect a rate of 7.8% … on top of the existing near-record prices for many critical goods and services.
Although the media will try to frame yesterday’s CPI report as an sign of lower inflation than in 2022, the only measure that matters is today’s prices relative to January 2021 or before the COVID spend-a-thon. Using Biden’s inauguration as a benchmark, the consumer price index for all goods is now 17.4% higher today. That is why families now have to spend an extra $709 a month ($8,500 a year) to live.
Going back farther, here is the rate of increase for some critical living expenses since the COVID lockdowns when our government decided it would spend and print away our future:
These are astounding price increases for critical goods and services over the course of three and a half years. Whenever there is an unprecedented shock to the supply chain, one would expect prices to return roughly to previous levels as soon as the issue is resolved. Indeed, this is what happened with the price of eggs after the shocking increase in 2022 during the aftermath of the Ukraine war. However, the price of almost every other item has either stubbornly plateaued at the 2022 highs or has continued to increase.
Here are some critical products and services whose prices have skyrocketed since Biden took office:
- Flour +34%,
- Car Insurance +34%
- Poultry +25%,
- Baby Formula +25%
- Dairy +24%,
- Rent +17%
Based on commodity futures, it’s clear that the August CPI numbers have not yet priced in the full extent of the recent inflation, particularly in energy. This is only going to get worse.
Every Republican would agree with each word I’ve written so far. However, 90% of Senate Republicans and half the House Republicans will continuously push for endless Pentagon spending, more funding for Ukraine, more pork for the biomedical security state, and no meaningful cuts to anything else in the federal budget. In fact, nearly every one of them supported the very COVID legislation that placed us in this perilous and degenerative debt crisis. Yet despite living through the hyper-inflationary fallout from those disastrous spending policies, only 32% of House Republicans voted against handing Biden a blank credit card for the remainder of his presidency. Aside from the Freedom Caucus, Republicans aren’t interested in returning to pre-COVID spending levels, which weren’t exactly low.
The reason we have such stubborn and unprecedented inflation despite the interest rate hikes is because we’ve never had to print this much money to service debt. Now we are incurring the liabilities of higher interest rates without the benefits, possibly for the first time in history if this trend holds. Housing affordability is at an all-time low. The debt-to-income ratio for all homebuyers in the U.S. just hit 40% for the first time. At the same time, total household debt has reached $17.1 trillion and credit card debt has topped $1 trillion, both records.
Cars are just as unaffordable as houses, with the amalgamation of price inflation and interest rates turning low-frills new and used cars into luxuries. Consumers are plum out of cash. After getting an infusion of printed money in 2020, household savings is down 90% and will be completely depleted by the end of this quarter, according to the San Francisco Fed. So all of the benefits of the money printing have been expended, and now we have to pay the piper until the end of times.
We now face endless $2 trillion annual deficits that we must pay for at four times the interest rate of just two years ago. In the past five years, the gross federal debt has increased by 53%, from $21.4 trillion to nearly $33 trillion. More disturbing, a lot of old debt is maturing too. According to Apollo’s chief economist, $7.6 trillion in existing debt is set to mature within a year at much higher rates than those at which the debt was originally serviced. There is simply no amount of rate hiking that could head off the inflationary effects of such a debt tsunami, unless it leads to a massive recession, which is indeed predicted by next year.
Thus, any Republican who emotes about a temporary government shutdown in order to solve this problem is exemplifying shortsightedness. We are out of time, out of money, and facing the ultimate long-term and systemic government shutdown. There is no painless way through the COVID debt and inflation bomb.