Biden faces headache as U.S. economy enters “recession” 

July 29, 2022 - 16:40

The U.S. economy has officially shrunk for two consecutive quarters which technically signals the start of a recession. The news is making headlines across the states, its a major setback for President Joe Biden’s administration and has left Americans asking where their money is being spent.

The topic has triggered a massive debate as economists express opposing views as to whether a recession has began in America yet. The commonly used definition is two quarters in a row of shrinking gross domestic product (GDP). And that’s exactly what the U.S. commerce department has announced for the first half of this year. 

In the first three months of the year, it was reported that GDP declined at an annual rate of 1.6 percent. And now the commerce department has announced that GDP shrank again by an annual rate of 0.9 percent for the second three months of the year. 

But for a recession to the officially declared, the National Bureau of Economic Research (NBER), the official authority in the U.S. that decides when recessions start and finish has to announce it, which is why some are saying the U.S. has entered an “unofficial recession”.

The GDP figures will be closely observed for the NBER’s final verdict, but it will also look at a more wider range of economic factors, including the jobs market, and is expected to take some time before NBER’s team of “experts” announces its decision.

No matter which way you interpret it, the American economy and it’s future outlook doesn’t appear to be in the best of shape. The figures are bleak and will no doubt affect the Biden administration as it campaigns for a difficult midterm election in November. 

Republicans have bounced on the report saying it shows the “Democrats’ reckless economic policies are destroying our economy”.

Republicans argue the Democrats’ climate, healthcare, and tax plan, formerly known as “Build Back Better” and recast as the “Inflation Reduction Act”, would only cause further financial hardship, especially after they passed a $1.9 trillion coronavirus relief package last year.

Republican congressman Vern Gale Buchanan of Florida denounced the democratic party’s proposed bill saying on social media “the definition of insanity? Doing the same thing over and over and expecting different results,”

“Yet here we are now entering a recession and Democrats are trying to spend hundreds of billions of dollars on Green New Deal priorities and raise taxes on America’s job creators.”

Last month, nearly 70 percent of leading academic economists polled by the British daily, the Financial Times, predicted the U.S. economy will tip into a recession.

Ahead of the commerce department’s announcement, Biden declared that America is not going to enter a recession. However many reports mocked the U.S. President for trying to change the definition of the word. Other White House officials also tried to deflect talk of a recession by claiming that other parts of the economy are doing well, something which has also sparked major debate across the country. 

But the evidence on the ground is clear and in stark contrast with last year when the economy grew by 6.9 percent (an annual increase in GDP recorded in the final three months of 2021 as the economy grew back after Covid shutdowns.)

The warning shots had already come from International Monetary Fund (IMF) just a day or two after Biden boasted about not entering a recession. 

The IMF says “baseline growth in the United States is revised down by 1.4 percentage points and 1.3 percentage points in 2022 and 2023, respectively, reflecting weaker than expected growth in the first two quarters of 2022.”

The IMF added “several shocks have hit a world economy already weakened by the pandemic: higher than expected inflation especially in the United States and major European economies, triggering tighter financial conditions,” it added that there will be “further negative spillovers from the war in Ukraine.”

Again the IMF states the conflict in Ukraine will add to the economic woes of major Western economies and high inflation may take longer than expected to come down depending on how situation in Ukraine unfolds. 

It said inflation is generally expected to return to near pre-pandemic levels by the end of 2024. However, the IMF adds that “several factors could cause it to maintain momentum and raise longer-term expectations.”

The main factor cited is that “further supply-related shocks to food and energy prices from the war in Ukraine could sharply increase headline inflation”

In the meantime, pressure is mounting on the Biden administration. Surveys show consumer confidence is falling as recession fears grow further and Biden’s overall and economic approval poll numbers are at their lowest levels during his presidency to date.

In a statement, Biden had pledged to “come through this transition stronger and more secure,” but judging by his approval ratings, voters don’t appear convinced.

The latest GDP figures came a day after the Federal Reserve announced another percentage point increase in its interest rates as it also fights to tackle rising inflation.

Prices rose at an annual rate of 9.1 percent in the year to June, driven up by a spike in costs for fuel and food among other things. 

The housing market is also in disarray with GDP data showing residential investment had fallen 14 percent in the second quarter, just as higher interest rates began pulling up mortgage rates. Further increases will pose more challenges for the housing sector.

While mismanagement over the Covid pandemic continues to play havoc, experts say the fighting in Ukraine also triggered by the Biden administration has backfired by pushing up energy prices.

The highest inflation in forty years is taking its toll on families, with three-quarters of middle-income Americans stating their earnings are not enough to pay for the cost of living, according to a survey.

Americans with an annual earning of $30,000 to $100,000 are now under more financial pressure than they were at the start of the pandemic, says Primerica, which polled almost 1,400 people, in that income bracket, last month with regards to their financial views. The research group also says more Americans in this category are turning to credit cards and that more Americans are getting into debt to survive. 

If middle-class Americans are saying their income is insufficient to keep up with the rising cost of living, then what about the lower and poorer classes of society? What has the Biden White House even offered to both of these categories in order for them to live a comfortable life? Critics say zero to nothing; cash handouts that didn’t mean anything substantial.

This is while the U.S. administration continues to make announcements over the billions of dollars it is pumping into a war zone in Eastern Europe, instead of seeking a peace settlement there. 

The reality is the U.S. is in massive debt, it has spent billions of dollars sending weapons to Eastern Europe. A war that was instigated by the U.S.-led NATO military alliance to essentially destabilize Russia. 

That was has backfired spectacularly on Washington but also the cost of living crisis has worsened. The cost of food in America and other vital services, in particular gas prices at the pumps, have skyrocketed as a result of another U.S.-led foreign policy blunder. 

The crisis in Ukraine and the suffering of Ukrainians as well as Russians has backfired on the American economy, which has contracted for two consecutive quarters now. 

The ripple effects of that is being felt in Western Europe, where governments are scrambling to find sufficient gas supplies, ahead of winter, as Russian imports of the commodity has significantly dropped.

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