A trio of killer Bs — Biden, bin Salman and Barr, President, Prince and pro-regulation banker — is attacking the American economy. It is calling the increasing prospect of a soft landing into question, reducing the nation’s competitiveness with a tsunami of regulations, and threatening US security. In the process, the Bs have erased back-to-back increases in consumer confidence in June and July.
MBS has cut back crude oil production in Saudi Arabia, as has OPEC fellow-traveler Vladimir Putin in Russia. Their stated goal is “to better balance the oil market”, meaning raise prices. Which they have done. Crude oil prices are flirting with $100 per barrel oil, driving gasoline prices up 20 per cent so far this year. More important in the long run is the signal to America that its economy is heavily dependent on the good will of potential adversaries, MBS “a pariah”, Putin “a murderous dictator,” according to President Biden.
Biden’s view of these oilagarchs has not deterred him from becoming their accomplice. He is doing his best to put America’s oil industry out of business, and has reduced America’s Strategic Petroleum Reserve to the point where it cannot be drawn down further to offset supply cutbacks by OPEC and Russia.
The President inherited an SPR flush with 638 million barrels, and drew it down to just about half that level, 347 million barrels. A planned purchase of 6 million barrels to begin refilling the SPR has been cancelled as the administration waits for prices to come down from around $100 to $67-$72. It might have a long wait.
Which brings us to the third B, Michael Barr, appointed by Biden as the Federal Reserve’s vice chair for supervision. Barr has drafted regulations to tighten and expand regulation of banks, requiring them to increase their capital base. This would reduce their ability to lend and keep the economy rolling along to the soft landing that Federal Reserve Board chairman says is increasingly possible. It comes at a time when bank credit is tightening in response to the straitened finances of the commercial property sector, and the collapse of a few small, badly run banks.
Then There Is Powell
The three Bs were not the only active participants in the American economy last week. Powell announced that the central bank, which has raised its benchmark interest rate eleven times, from negative territory to 5¼-5½ per cent in a bit more than a year, would, as expected, leave it unchanged while it beholds the effects of the work it has already done.
The low-hanging inflationary fruit has been picked, the labor market is “better balanced”, the economy remains robust and the runway to a soft landing has widened says the chairman. But policy must remain “sufficiently restrictive” until “we are confident that inflation is moving down sustainably toward our objective.” Note: inflation need not be at 2 per cent, but merely moving down sustainably towards it. Unfortunately, “You know sufficiently restrictive only when you see it.” When it heaves into sight will depend on incoming data. Meanwhile, there will be more increases in interest rates, perhaps one more this year. “The time will come at some point – I’m not saying when — that it’s appropriate to cut”, says Powell. Best guess is early 2025.
The Bs Can Sting
It is apparent that the three Bs have the ability to sting Powell as he battles to bring down inflation.
If Mohammed bin Salman and colleagues maintain the price of crude oil at around $100 barrel, it will seep into the prices of goods requiring road transport services in this this large country, and products that use petroleum as a raw material. If Barr sticks to his plan to make loans more expensive, housing costs will rise, and borrowers across the country will pass on higher loan costs.
If a re-elected Biden goes forward with his plans to force steel and cement plants, factories and oil refineries to reduce their greenhouse gas emissions, prices of infrastructure materials such as steel and cement will rise, adding to inflationary pressures from continued deficit spending. Unions fear that new regulations will add to the job losses auto workers face from Biden’s subsidization of electric vehicles, which can be manufactured with between 30 and 40 fewer labor hours than gasoline-powered vehicles. That will keep them pressing for higher wages for the hours they do work, offsetting some of the Fed’s efforts to prevent a wage-price spiral.
Then There Is Trump
Tighter regulations would, of course, please the greens who back Biden. They would, however, create a problem for those who disagree with the Democrats’ leftward lurch towards a managed economy. At the moment, it appears that the alternative to returning Biden to the White House would be to return Trump to his former residence. That might result in a more sensible policy towards climate change, not because Trump’s “hoax” characterization is correct, but because a sane policy might result from the tug-of-war between him and the green bureaucracy.
But a Trump victory would also install an administration likely to expend energy on wreaking vengeance on those who did not support his lie about the 2020 election. It is reasonable to suppose that Trump would staff his administration with the sort of people whose major qualification is “yes, sir”, reward Putin with a large slice of Ukraine, a piece of Ukraine to buy a temporary peace in the troubled region, bring out the worst in his opponents, and hunt for allies to offend, some of whom Biden has wooed with considerable success.
All of which is why a majority of Americans wishes they had a choice of “none of the above”. We don’t.