Kudlow: The story of Joe Biden's Washington will likely end badly

Inflation popped up to nearly 8% for the 12 months ending in February. Joe Biden has said it's all Vladimir Putin's fault and there's nothing he can do about it. Wrong and wrong! Inflation and energy prices have been rising for more than a year. 

In fact, the last monthly price report in December 2020 was 2%, hitting the Fed's target during the Trump administration. At this point, I'm not sure we'll see 2% inflation again in my lifetime. 

As far as blaming Putin, I'm more than happy to blame the Russian dictator for as many things as possible, but I can't blame him for massive federal deficit spending and Federal Reserve money creation. 

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Those two factors, along with Biden's regulatory octopus that is strangling the oil and gas industry, are responsible for the four-decade high inflation rate we are now experiencing. 

As far as blaming the Ukraine war and related economic sanctions, that's going to be the March CPI story. It had virtually no effect in February. 

Meanwhile, if you took all energy out of the CPI, the remaining items would still be up 6.6%. Or, if you just excluded gasoline, the index would still be up 6.4% over the past year.  

In other words, the increase in prices is widespread, covering virtually all aspects of American life and now people are really being hurt, not only from gasoline at the pump and groceries when they're on the shelves, but pretty much everywhere—housing, rent, apparel, cars, recreation, commodities, services. You name the item, and I'll tell you its price is rising. 

That can only happen from fundamentally flawed government policies and yes, we last saw this in the stagflationary 1970's—a dark hole that I'm afraid we are falling into again. Curing this problem is not going to be easy. 

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One step toward a cure would be a president and administration that owns its policy failures. That does not seem likely. 

Another step in the cure would be to stop federal spending. Just pause it. Stop building new debt and stop the Federal Reserve from pumping new cash into the economy in order to finance the deficits. We did save America and kill the bill, but the Congress is back. 

With overwhelming support in the House, the omnibus discretionary spending bill of $1.5 trillion, or roughly 7% above the 2021 level, passed overwhelmingly. Defense and non-defense. None of it is financed and earmarks, which had been banned for many years, are back with a vengeance. So much for a federal spending pause. 

The third step would be to stop the Fed's rabid money creation, which is still running in double digits. This has not happened yet. Instead of being bold, they're going to be wusses. Raising the target by a quarter of a point with an 8% inflation provides no restraint whatsoever and it may be that Pat Toomey will carry the day and stop the confirmation of the left-wing climate radical, Sarah Bloom Raskin, even forcing the White House to pull the nomination. 

The prevailing view at the central bank will still be backbone-free. By the way, they're liable to repeat a big mistake from the 1970's. When oil prices shot up then, the Fed accommodated the price hikes with easy money, thereby turning an individual price increase into a generalized economy-wide inflation. In other words, monetizing the commodity price shock. 

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Finally, the administration must deal with the supply side of the economy by rolling back the $200 billion plus regulatory assault on business and the economy, especially the regulatory octopus that is strangling the oil and gas industry.  

This is a woke green octopus, like the one on the screen, whose stretched out tentacles extend to the Interior Department, Energy Department, EPA, FERC, Treasury, the Fed, and the SEC—Oh and I forgot— the electric car Transportation Department and then suffocate the supply of oil, natural gas, coal, LNG, and pipelines. 

Here the issue is how the Bidens have stopped exploration and drilling in the private sector, on private lands, by using crazy metrics like the social cost of carbon and invoking regulatory rules for endangered species, clean water, NEPA permitting and others. 

In fact, the Biden FERC aims to prevent any new pipelines and here's something Madame Psaki doesn't understand when she says, "it's just a delivery mechanism, and not an oil field, so it does not provide more supply into the system." It’s kind of like milking a cow and leaving it on the barn floor, meaning no disrespect to Madame Psaki. 

The trouble is: the frackers won't frack if the pipeliners are prevented from pipelining. Distribution is important. 

Mr. Biden should take Rick Perry's suggestion and send a special envoy to Midland, Texas for a peace treaty with the oil and gas industry, instead of sending his diplomats to Iran and Venezuela.  

Or he can send another envoy to Alberta, Canada, which is on friendly terms with the U.S. and would love to pipeline 800,000 barrels per day through Nebraska into the Gulf—a project that even today could be completed by the first quarter of 2023. 

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Of course, none of this is going to happen. A Reagan-Volker solution to strengthen the dollar and deregulate and cut taxes is not on the horizon in Joe Biden's woke Washington. 

That's too bad, because what's likely to happen is the story will end badly in another rough recession, which once again will fall most heavily on the shoulder of the great American working folks. One ray of hope: the cavalry is coming. 

This article is adapted from Larry Kudlow's opening commentary on the March 10, 2022, edition of "Kudlow."