Bank of America CEO Brian T. Moynihan thinks that U.S. consumers will save the mighty U.S. economy from dipping twice in negative Gross Domestic Product, something that happened in Q1 dropping 1.4%. Moynihan cites as proof that account balances at BofA have gone up and credit card debt has dropped both good signs but clearly unreliable indicators of future economic growth. Citing BofA’s plans to increase minimum hourly wages from $22 an out to $25 in 2025, Moynihan makes a weak case for U.S. economic growth. With a war raging in Ukraine and the U.S. spending $40 billion on funding the war and the Ukrainian government, the profligate spending can’t last without damage to the economy. Moynihan mentions nothing about the Federal Reserve Board continuing to hike the Federal Funds Rate, driving credit card debt and consumers loans through the roof.
Moynihan mentions nothing about the slowdown in the real estate market that’s been hammered by rising interest rates, something that shows no signs of abating anytime soon. If the real estate market slows down, it’s going to make it more difficult for homeowners to rely on home equity lines of credit, something that could be cancelled by lenders when loan-to-debt ratios get too high. President Joe Biden, 79, shows no signs of pressuring Ukraine’s 44-year President Volodymyr Zelensky in taking the war to the peace table in Istanbul. Biden and Zelensky still think they can vanquish the Russian Federation and degrade the Russian army. So far, their calculations have been completely wrong, as Russia has gained more strategic territory in Ukraine. Moynihan doesn’t take geopolitical factors as putting a dark cloud over the U.S. and world economy in 2023.
With oil over $110 a barrel and pump prices at record levels, the same consumer Moynihan talks about has been hammered. Price of landing goods to retail outlets have been spiking because of skyrocketing fuel prices. Inflated energy prices have driven inflation in the U.S. and around the world to the worst levels in 40 years. Some economists think current inflation numbers will mitigate soon but there’s little reason for optimism. As long as Biden attempt to boycott 30% of the world’s oil and natural gas supply from Russia, alternative fossil fuel source can’t make of the difference. Saudi’s Oil Minister Crown Prince Abdulaziz said Saudi is already at peak capacity, unable to make up for lost Russian supplies. So prospects of lower fuel prices aren’t in the cards anytime soon, continuing to fuel inflation for the foreseeable future. Consumers will eventually run out of money.
Recession isn’t some mysterious phenomenon, it’s a direct result of Fed policies that have started squeezing the money supply to slow down inflation. But the effect of rising interest rates make it more difficult for consumers to borrow on credit without increasing debt payments, further squeezing discretionary spending for goods or services. Federal Reserve Board Chairman Jerome Powell has not signaled that he plans to slow down future rate hikes. If Biden wants to prevent recession before the November Midterm elections, he needs to end the Ukraine War, pressuring Zelensky to start peace talks. Unending war, especially funneling lethal weapons to Ukraine, hasn’t worked in advancing Kiev’s objectives of driving the Russian Federation out of Ukraine. Since the war began Feb. 24, Ukraine has lost nearly its entire Black Sea coast, proof how badly the war has gone for the U.S. and Ukraine.
International Monetary Fund [IMF] economist Kristalina Gerogieva said the “horizon has darkened” referring to the prospects of economic contraction. When you look at Wall Street and other exchanges around the globe, they’ve been selling off for weeks, anticipating recession in 2023. IMF slashed global growth expectations, largely due to the unknowns of the Ukraine War. No one in Europe feels to certain of anything while the war rages on without any end in sight. Continued supply chain problems especially in the auto industry and big ticket appliances have resulted in inflated prices, also discouraging consumers from spending. “T think there is a slowing,” said Intel CEO Pat Gelsinger, believing the Fed’s tight monetary policy would eventually take a toll on the economy. Expecting consumers to bail out the economy is unrealistic since they’re all affected by inflation and rising interest rates.
Ending the Ukraine War would be the most important single event that could potentially stave off economic contraction. As long as Biden boycotts Russian oil, the world—including the U.S.—will face shortages and skyrocketing prices. World’s largest retailers like IKEA and WalMart, depend on consistent transportation costs to bring goods to market. If pump prices remain high, it’s going to accelerate inflation on practically every level. It’s unrealistic to think Biden can prosecute a proxy war against the Russia Federation in Ukraine without consequences on the global economy. Should a wider conflict break out in Europe, all bets are off when it comes to recession. Gelsinger points out the Covid port closing in Shanghai and the Ukraine war all weigh heavily in the direction of recession. Consumers only have a finite amount of credit to burn on the economy, something that could shrink quickly.
