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Stock markets are crashing, but Joe Biden doesn’t care.
The cheerful president is oblivious, even though US investors have lost $7.6 trillions since he took office and we are now officially in a bear market.
Politico reports that Biden wants to hit the ground running, eager to tout his economic record and convinced that “the nation’s outlook is brightening.”
This, as economists from Bank of America, among many others, predict a recession in 2023 and rising unemployment thanks to the Federal Reserve’s efforts to fight inflation. And as prominent companies like FedEx and GE confirm such bleak forecasts, they warn that more trouble lies ahead.
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But then this is the same clueless president who hosted an “inflation reduction party” with James Taylor raving about drug addiction (???) on the same day a bad inflation reading sent the Dow plunging 1,200 points — one of the worst declines of the year .
Asked recently about the drop in stock prices, Biden said: “The stock market doesn’t necessarily reflect the state of the economy, as you well know. And the economy is still strong.” In fact, the economy has shrunk over the past two quarters, the housing market is in freefall, and an inverted yield curve is flashing red.
Here’s news for President Biden: the stock market matters. The direction of stock prices affects consumer sentiment, which in turn helps drive spending, job growth, and also… elections. It’s no coincidence that Biden’s approval ratings soared higher this past summer as the stock markets regained some of what was lost last spring.
Biden has more than once criticized his predecessor for boasting about rising stock prices. During the 2020 campaign, he said: “Through this [pandemic] crisis, Donald Trump has been almost exclusively focused on the stock market, the Dow and the Nasdaq. Not you. Not your families.”
Biden promised that if elected, he would “be laser-focused on working families… Not the rich investor class. They don’t need me.”
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It turns out that the “wealthy investor class” has a lot in common with the middle-class families that Biden promised to help; both are hampered by sky-high inflation and anti-business policies. Democrats’ reckless spending has fueled a 12.7% increase in prices under Biden’s watch; combined with higher interest rates, the average American has lost $4,200 in real annual income, more than wiping out the gains of the Trump years.
The nation’s wealth fell by a record $6.1 trillion in the second quarter, thanks to falling stock prices. It was the second decline in a row and occurred despite still rising house prices. Now that house prices are falling, the current stock market slump is even more painful.
Declining consumer net worth is harmful; if people feel richer, they spend more. It’s that simple.
Much of the discretionary spending in the economy, spending on travel or entertainment, for example, is done by people in the higher income brackets. Households earning more than $100,000 accounted for only about 27% of the US population in 2020, but accounted for 47% of spending.
Wealthy people not only spend more than average, they also rein in their purchases when they see their net worth drop. These are the people who will decide whether the economy stagnates or takes off. These are the people most affected by a falling stock market.
The ratio of consumer net worth to spending is one of the reasons the economy recovered faster than expected after the pandemic shutdown. A nearly 20% rise in stock prices during 2020, combined with over $2 trillion in excess savings, meant that even as COVID-19 still dogged the nation, Americans were ready and able to spend.
That combination of “wealth effect” and cash in savings accounts should has warned the Federal Reserve that spending would exceed its forecasts and, given supply chain problems, send prices of scarce goods skyrocketing.
Same combination should has prompted the government, which had already doled out trillions of dollars in aid to combat the pandemic’s slowdown, to turn off the taps. Instead, the Democrats pushed through the $1.9 trillion US bailout, throwing gasoline on the inflationary fire.
Despite Biden’s divisive rhetoric, it is not just the nation’s wealthiest who are affected by the ups and downs of stock prices. Gallup reports that 58% of Americans own stocks, either personally or jointly with their spouse.
Retirees invested in shares are struggling to maintain their standard of living as inflation increases the cost of everything and their nest eggs shrink.
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Savers who have put their money into IRAs or other plans and invested in stocks are seeing their portfolios dwindle. Pension schemes are also losing ground; companies providing pension benefits will have to increase their contributions, with less money left over for salary increases or new hires.
Even public pension funds are affected by the stock market sale. These groups are heavily invested in private equity funds, which are struggling to realize gains as valuations fall. The Wall Street Journal reports: “Public pensions reported a median return of minus 7.9% for the fiscal year ended June 30, their worst loss since 2009, according to data from the Wilshire Trust Universe Comparison Service…”
Because these plans fall short of their stated goals, cities and states will have to raise taxes or cut services to meet their promised pension funds for police officers and teachers.
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So when candidate Biden promised in 2020 to “end the era of shareholder capitalism,” he actually promised to undermine the very foundation of our economy.
Donald Trump predicted that if Joe Biden was elected, “the stock market will crash.” Was he wrong, or just early?
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