When US President Joe Biden defeated Donald Trump in November, there was a rapid consensus in the media and among experts that the “Trump era”, defined by populism and growing frustration with the political class , was coming to an end.
Articles and ‘hot shots’ of how Biden’s grandfather personality and solid political reputation would help heal a divided America, began to spread like wildfire through much of the world. American media.
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Now that Biden’s presidency is nearing the middle of its first year, on paper things look pretty good for the president.
With an overall approval rating of 53.3%, Biden is roughly on par with his contemporary predecessors. He is well ahead of Donald Trump at this point in his presidency, although he remains far behind his former running mate Barack Obama.
But behind the scenes of a relatively satisfied electorate and positive media coverage of his leadership, Biden’s long-term political fortunes appear far more fragile.
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Despite $ 2.8 trillion in stimulus to the US economy since late last year, some economic indicators are showing worrying signs that have turned out to be kryptonite in the careers of US presidents in the past.
These signs, if they come true, could also have a devastating impact on the Australian economy.
High inflation and a weaker-than-expected labor market
The US inflation rate recently hit 4.2%, its highest level since 2008. One of the main drivers of current inflationary pressures is the difficulty of global supply chains, which often find themselves completely overwhelmed by the pandemic. and the demand induced by the stimulus measures.
Despite steps taken by manufacturers and logistics companies to try to meet this demand, there are currently few signs that the supply chain issues plaguing global trade will be resolved in the near term.
As concerns among the American public about inflation and the rapidly rising cost of living continue to grow, consumer confidence has already taken a major hit. A recent University of Michigan household confidence survey shocked analysts by slumping, despite expectations of continued high levels of confidence as the US economy reopens.
At the same time, consumer confidence in a major purchase like a home, car, or major durable goods has also fallen to nearly decades-long lows and American households are now seeing the worst conditions for buying a home since 1983, when interest rates were above 13 percent.
Meanwhile, there are signs that US inflation could reach 7%, as supply chain issues and the reopening of the US economy push consumer prices up.
The US job market has also started to show worrying signs, with 851,000 fewer jobs created in April and May than initially expected by analysts.
Despite some big numbers for jobs growth figures since the worst of the pandemic, the labor market recovery experienced by low-income Americans stalled in November of last year and job growth was much lower than expected.
High inflation can be terminal for a presidency
In the 1970s, Biden’s predecessor and fellow Democrat, President Jimmy Carter discovered the hard way how damaging high inflation can be for a political career.
After spending the last years of his presidency fighting inflation, the 1980 election against Ronald Reagan was a disaster for the Carter administration.
Carter won just six states, compared to Ronald Reagan’s 44, and Carter became the only 20th century Democratic president to have served only one full term.
Former President Donald Trump wasted no time trying to capitalize on concerns about rising inflation.
In a recent interview with Fox News, Trump warned of “massive inflation” and expressed concerns about the future of the US economy.
Although he has only been away for less than five months, it is clear that Trump is already planning a return to the White House.
What does this mean for Australia?
As concerns about inflation continue to mount around the world, the Australian interest rate futures market is now forecasting four rate hikes of 0.25% by June 2024.
Although bank finance markets forecast significantly higher interest rates in the coming years, the RBA remains steadfast in its position that rates are “unlikely” to increase until 2024 at the earliest.
James Gorman, CEO of investment bank Morgan Stanley, has a rather different take on rate hikes. Gorman sees the US Federal Reserve (the Fed) forced to raise interest rates in early 2022, much earlier than expected.
While there are big differences between the Fed and RBA’s criteria for deciding interest rates, if the Fed is forced to raise interest rates years before its current schedule, the RBA could don’t be too far behind.
As any Australian who paid bills in the 1970s and 1980s will tell you, high inflation can be extremely difficult.
If a high inflation scenario were to materialize, our supermarket prices and utility bills would increase much faster than they have ever been in the past 25 years.
Except unlike the 1970s and 1980s, which were also sometimes marked by extremely strong wage growth, its possible wage growth could remain relatively stagnant, seriously affecting the household budget.
Where from here?
As we move towards an uncertain future, the years ahead will be defined by whether or not inflation turns out to be “transient” or of much longer duration.
If inflation stays high, then it’s a whole new world.
President Joe Biden’s presidency could crumble amid high inflation and voters frustrated by the out-of-control cost of living. Former President Trump could even reverse this wave of anger in the White House in 2024.
High inflation could be the wildcard that will reverberate around the world for years to come, as the world struggles to recover from the pandemic and deal with the more than $ 374 trillion in debt it owes. is currently located.
For Australians, after more than a decade since the last interest rate hike and 25 years without very strong inflationary pressures, a permanent shift to an inflationary future could come as a shock to our psyche and our portfolios.
Tarric Brooker is a freelance journalist and social commentator | @AvidCommenter