Call it America’s Wile E. Coyote moment.
Although the end of the $6 trillion COVID stimuli and the erosion in real earnings due to inflation may have already put the US economy into a recession, consumers continue to use plastic to compensate for the lost real earnings. The result: We keep treading water even though the bottom is sagging beneath us.
The U.S. continues to experience modest growth. Real GDP increased at a rate of 1.1% per year in the first quarter. This was largely due higher consumption despite real hourly wages falling.
Biden sparked supply-side inflation when he injected $3 trillion into a recovering economy after the COVID shut down. One can debate the wisdom of the Trump Administration’s earlier $3 trillion stimulus, but that was a shot of adrenalin for a patient with heart failure. Biden doubled the dose and unleashed an inflation driven by demand for goods that the U.S. economy couldn’t produce fast enough.
It was not easy money that was the problem, but spending (unlike in the 1970s when easy credit fueled an asset bubble, the credit growth rate was low going into the inflationary boom of 2021 as I documented for RealClearPolitics’ 2022 study). The Fed claimed at first that there was not inflation ,…