The first thing any economist should do wen reading a budget proposal is to analyse the basic macro assumptions and the results presented by the administration. When both are poor, the budget should be criticised. This is the case of the Biden Budget Plan.

Same growth, a lot more debt and less employment.

According to the administration, the impact on growth of this budget will be negligible, as their own -and optimistic- estimates see no change in the slowdown of the U.S. economic growth trend.

“The constant refinancing of debt from companies of doubtful viability also leads to the perpetuation of overcapacity because a key process for economic progress, such as creative destruction, is eliminated or limited”.

One of the arguments most used by central banks regarding the increase in inflation is that it is because of bottlenecks and that the recovery in demand has created tensions in the supply chain. However, the evidence shows us that most commodities have risen in tandem in an environment of a wide level of spare capacity and even overcapacity.

If we analyse the utilization ratio of industrial and manufacturing productive capacity, we see that countries such as Russia (61%) or India (66%) are at a clear level of structural overcapacity and a utilization of productive capacity that remains still several points lower than that of February 2020. In China it is 77%, still far from the 78% pre-pandemic level. In fact, if we analyse the main G20 countries and the largest industrial and commodity suppliers in the world, we see that none of them have levels of utilization of productive capacity higher than 85%. There is ample available capacity all over the world.

The University of Michigan consumer confidence index fell to 82.8 in May, from 88.3 in April. More importantly, the current conditions index slumped to 90.8, from 97.2 and the expectations index declined to 77.6, from 82.7.

Hard data also questions the strength of the recovery. April retail sales were flat, with clothing down 5.1%, general merchandise store sales fell 4.9%, leisure & sporting goods down 3.6% with food & drink services up just by 3%.

The Federal Reserve and European Central Bank repeat that the recent inflationary spike is “transitory”. The problem is that investors do not buy it.

Inflation is always a monetary phenomenon, and this time is not different. What central banks call transitory effects, and the impact of supply chains are not the real drivers of inflationary pressures. No one can deny certain supply shock impacts, but the correlation and extent of the increase in prices of agricultural and industrial commodities to five-year highs as well as the abrupt rise of non-replicable goods and services to decade-highs have monetary policy to blame.  Injecting trillions of liquidity makes more funds chase fewer goods and the rise in the real inflation perceived by citizens is much larger than the official CPI.