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Joe Biden and the Fed Have Completely Ruined the U.S. Economy

Joe Biden
Image of US President Joe Biden. Image Credit: Creative Commons.

Why the U.S. Economy Looks Set for a Recession in 2023: In one of his plays, Oscar Wilde wrote that to lose one parent may be regarded as a misfortune; to lose both looks like carelessness.

Something similar might be said of recent U.S. economic policy management. To have budget policy be run in an irresponsible way is unfortunate. To have the Federal Reserve amplify budget policy mismanagement by an inappropriate monetary policy stance is to be deeply regretted.

Such budget and Fed policy mismanagement have already brought us multi-decade-high inflation and bubbles in the housing, equity, and credit markets. It now threatens to invite a hard economic landing and an asset price bust as past inflationary excesses have to be corrected.

President Biden’s March 2021 $1.9 trillion American Rescue Plan was characterized correctly by former Treasury Secretary Larry Summers as the most irresponsible budget policy measure in the past forty years. On top of the $3 trillion 2020 bipartisan budget stimulus response to the Covid-induced recession, the Biden stimulus meant that the U.S. economy would receive 2020 bipartisan budget stimulus response to the Covid-induced recession, the Biden stimulus meant that the U.S. economy would be receiving a staggering 20 percent of GDP budget boost. That was bound to lead to economic overheating and inflation.

As if to ensure that the country got into inflationary trouble, the Fed chose to amplify Mr. Biden’s budget policy irresponsibility with the maintenance of the easiest of monetary policies. Not only did the Fed keep interest rates at their zero lower bound even as the economy was recovering and receiving its largest peacetime budget stimulus on record, the Fed kept buying $120 billion a month in US Treasury bonds and mortgage-backed securities even at a time when the equity and housing markets were on fire. 

With so much budget and monetary policy stimulus, it was a small wonder then that consumer price inflation rose to over 9 percent by mid-2022 or to a level that we had not seen since the early 1980s. With interest rates so low and with so much Fed bond buying, it was little wonder that equity valuations reached nosebleed levels seen only once before one hundred years and that house prices exceeded their pre-2006 peak even in inflation-adjusted terms.

Mr. Biden’s excessive 2021 budget stimulus has now set us up for a budget cliff that will weigh heavily on the economy next year. It has done so as the large boost to household savings from Covid checks has been drawn down in a world of high inflation. It has also done so as government spending returns towards more normal pre-Covid levels.

Seeming to have learned little from last year’s experience of the inflationary consequences of amplifying an irresponsible budget policy with extraordinary monetary policy ease, the Fed is now amplifying the recessionary consequences of a shift to budget policy restraint by an overly hawkish monetary policy stance. It is doing so by raising interest rates at the fastest pace in the past forty years and by proposing to continue doing so even as inflation has peaked and the economy appears to be heading toward a recession.

Seeming to have learned little from last year’s-experience of creating asset price and credit market bubbles by flooding the market with liquidity, the Fed is now choosing to withdraw liquidity at an unprecedented pace at the very time when financial markets are on the back foot. It is doing so by committing itself not to roll over $95 billion a month in its maturing Treasury bonds and mortgage-backed securities.

All of this does not bode well for our chances of avoiding a nasty economic recession and financial market stress next year. The good news is that the Biden Administration can be held to account for its gross economic policy mismanagement in the 2024 election. The bad news is that the same cannot be said for Mr. Powell and the rest of the Federal Reserve Board for their monetary policy incompetence.

Desmond Lachman is a senior fellow at the American Enterprise Institute. He was a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.

Written By

Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund’s (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and multilateral lending agencies.



  1. Steven

    December 1, 2022 at 3:47 pm

    How about in English this time…

  2. 403Forbidden

    December 1, 2022 at 6:11 pm

    US economy too big now for Biden today for the 80-yr-old fossilized dross to mess it up.

    But biden’s policies will put EU or Europe’s economy into a tailspin in 2023 and there will occur unrests, chaos, anarchy and even revolution.

    Europe is finished and will eventually be consigned to the dustheap of history. Thanks to joe Biden and great fascismo US democrat party and nancy pelosi and her geriatric generation democrat poop.

  3. Rick

    December 1, 2022 at 7:46 pm

    Toby should be surprised that this comes from a far right think tank.

  4. Commentar

    December 1, 2022 at 9:31 pm

    There is one sure way for Joe Biden to ruin the economy – by further pouring more hugely massive amounts of fresh dollars into the big Ukraine war.

    Biden’s gamble will force russia to do one of two things. First, whack the Azov fighters with nukes. Or second, destroy all satellites in orbit with tactical nukes.

    Either one option will close down Wall Street and all the banks and Walmarts in the US.

    If that happens, Biden will have to flee to the hills (mt Rushmore) and only wearing nothing but his underwear.

  5. Chase

    December 1, 2022 at 10:44 pm

    This is an incredibly stupid article written by a former Wall Street guy who would not know his way down Main Street. If inflation were primarily the result of US policy lapses, then why is inflation surging all around the world? Why is inflation higher in Europe than here? The answer, of course, is that US policy played a minimal role in inflation, which was driven by a pandemic followed by a war, both of which caused massive supply and demand disruptions. I think God every day that Biden is President, as opposed to the previous clown show.

  6. GhostTomahawk

    December 2, 2022 at 12:14 am

    If you voted for Biden you are to blame. You think our economy is in bad shape, just wait til the energy and food sectors implode on us.

    Thank you

  7. TheDon

    December 2, 2022 at 6:03 am

    Its deeper.
    Congressional members like Sanders, Warren, always blame the big corporations, contine to fine them, and tax.
    Most public schools have no disipline measures past the three day vacation, losing many talented minds distracted.
    The work force seriously needs more manufacturing trade talent missing from shop classes or trade classes.
    Congress needs a reset.
    We need to teach trades, safe schools, and help build corporations build competitve products.
    China and eu have trade schools and grades are respected.The ccp endores corporations and subsidizes them to close competitors.
    Our congress forgot free trade works and products being subsidized should be heavily taxed an equal amount. Add these to our federal income. I wonder if countries would still support subsidies if it all goes in our pocket.
    The last. Our cities have local population that corporations need, but the politics result in high crime.
    Crime due to drugs or gangs not only makes it dangerous but prevents economic building.
    Its not laziness, businesses need security and support and go somewhere else.
    Sometimes china.

  8. Dan Jensen

    December 2, 2022 at 10:38 am

    Democrats will continue to over spend which causes inflation which results in poor people struggling to survive. And then they will blame white peoples and corporate greed. Our system is now evil.

  9. Kevin Hall

    December 2, 2022 at 1:03 pm

    It’s on purpose too. To the left all our Capitalism is the problem. To the climate, to their control over us. The more wealthy a person is, the more freedom they have to control their own decisions. If you listen closely the left has said as much. So they get ride of fossil fuels, push EV(which everyone will not be able to have). Print Trillions of dollars to dilute the value of our savings. Thus we have less freedom and have to depend on… them.
    They know what their doing. I hear people say how stupid could they be??? They are not stupid.

  10. aaall

    December 2, 2022 at 2:45 pm

    Everyone seems to forget that the US was headed into a recession by late 2019. The covid relief measures over the next couple of years distracted us from that. Currently the US is doing better then the rest of the world as things readjust from covid and Putin’s war of aggression on Ukraine. Except for reappointing Powell, Biden is doing just fine.

  11. Surf

    December 2, 2022 at 3:50 pm

    The politician mantra is……….

    When spending other peoples money, why care how much you spend?……..

  12. Jon

    December 2, 2022 at 10:45 pm

    Thanks, that ‘analysis’ was the best laugh I’ve had today.

  13. jeff

    December 3, 2022 at 5:44 pm

    So you are happy that Biden is in control. PT Barnum was correct about suckers. Biden has destroyed the US economy and will continue to destroy American freedoms as he seeks more power.

  14. Luis Espinal

    December 7, 2022 at 7:53 pm

    Oh yeah, (global) inflation is Biden’s fault.

    That was sarcasm, by the way.

  15. Omega 13

    December 9, 2022 at 10:08 am

    We’ve been in a recession since the first quarter of 2022.

    Foxtrot Juliet Bravo!

  16. Robert

    December 10, 2022 at 2:49 am

    Joe Biden is an imbecile.

    Is there anyone out there that has any brain cells left?

    Please let Brazil’s people speak to us now and give us courage in our moments of bereavement before it is to late.

  17. Robert

    December 10, 2022 at 3:02 am

    Wow….that was an absolute stupid comment that came after a Christmas party and to many highballs….alcohol if you don’t happen to know what a highball is…..I wish I could take it back now that I think about it….but I have had some truth serum and that is what I think……Plz delete if possible.

  18. Ramjet

    December 10, 2022 at 5:07 pm

    Robert what was wrong with your first sentence?

  19. monkfelonious

    December 11, 2022 at 12:48 am

    One wouldn’t think that an old guy would not be so sophomoric. It’s almost like it was written by this new AI writing thingy. Besides, why does this site have these stupid political diatribes?

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