Fears of Biden Stagflation Cause 30-year U.S. Treasury Bond Yield to Double
By Chriss W. Street
President Biden’s willingness to abandon bipartisanship and try to cram through Congress his $1.9 trillion stimulus plan on a party line vote has caused the yield on the U.S. Treasury 30-Year Bond to spike up to 1.98 percent on February 5, more than double from its low in March of last year.
The Federal Reserve has been flooding the banks with liquidity since last February in an aggressive effort to reduce the cost of borrowing and fight high unemployment during the COVID-19 pandemic. But President Biden in his first 17 days in office has issued 29 executive orders,as well as 19 residential proclamations and memorandums, which carry the similar legal weight as orders but are less formal. In comparison, that is more than double the combined 20 early actions by Presidents Bush, Obama, and Trump.
Joe Biden campaigned on a platform of less drama in government and a willingness to seek bipartisanship in public policy. But Biden’s divisive early moves to bypass Congress and spectacularly expand the federal authority over the economy, healthcare, immigration, race, gender, and privacy represent a failure to live up to his promise to unify the country. Even the highly progressive New York Times editorial board has urged Biden to slow down his steamroller.
The first three years of the Trump administration saw long term interest plunge from about 3 percent to 1.1 percent, while the American economy reached historic milestones for growth of jobs, incomes, and stock prices. When President Trump took office in January 2017, the Federal Reserve predicted unemployment would remain around 4.7 percent. But President Trump’s pro-growth and lower taxes agenda drove unemployment down to 3.5 percent and economic income disparity for the middle class consistently narrowed for the first time since the Clinton took office in 1992.
The Federal Reserve has been flooding the banks with cash to rescue businesses and spur consumer demand for interest rate sensitive purchases of vehicles and housing. But with the Fed losing control of financial markets due to the Biden administration’s massive deficit spending program, disposable incomes for individuals with variable interest rate loans and high credit card debt will shrivel.
Higher interest rates normally drive commodity prices down, but energy and food prices are up by over 30 percent since election day. But commodity prices are rising at the fastest in 20 years, consistent with the inflation rate more than doubling to about 4 percent annually.
The last time that the U.S. economy experienced the combination high unemployment, spiking interest rates and surging commodity prices that economists call stagflation was in the late 1970s, when Democrat Jimmy Carter was president. Just like Biden, Carter promised to spend huge amounts of money to reform the nation’s welfare, health care, tax system, plus replace oil with synthetic fuel.
With the economy plunging, mortgage interest rates topping 20 percent and “synfuels a bust”, Democrat Carter was crushed in the 1980 elections by Republican Ronald Reagan. The GOP also picked up 34 House seats and twelve Senate seats to take control of a chamber of Congress for the first time since the 1954 elections.
Chriss W. Street
