The Fall of the House of Biden?

If Vladimir Putin prevails in Ukraine, it will prove the epitaph of Joe Biden’s presidency. If so, Biden would be the western world’s leader during the demise of not one but two democracies: Afghanistan, to the Islamist Taliban; and Ukraine, to a malign autocrat. And Ukraine will prove especially problematic for Biden, as its demise would portend economic sanctions on Russia and its global allies for years to come, leading to persistently high global inflation.

While war and fallen democracies thousands of miles distant might fade from Americans’ collective consciousness by 2024, elevated inflation will not. Considering rising prices are not something U.S. presidents can directly control, when it comes time for voters to cast their ballots they won’t particularly care who or what is technically responsible for fast-rising prices. But they’ll still be acting more or less appropriately: voters don’t directly choose who sits on the Federal Reserve’s Board of Governors, but they do decide who makes those choices. Only last month, in February 2022, as talk of war and economic sanctions grew louder, the Senate approved Biden’s renomination of Jerome Powell as Fed Chairman. And as it is now abundantly clear, Powell has been shy about raising interest rates to fight inflation. Just prior to his reinstatement, the one-year U.S. inflation rate, ending January 2022, stood at 7.5% (CPI-U, seasonally unadjusted), a rate not seen in four decades (February 1982) and well above the Fed’s 2% long-term target rate. The 7.5% rate wasn’t much of a surprise however, as inflation was running hot all throughout 2021. Despite this however, Powell still has not raised the Federal Funds rate from near zero (.08%). Instead, he merely accelerated the wind-down of the Fed’s quantitative easing, which should’ve ended by mid-2021 at the latest as the economy showed clear signs of recovery. Given Powell’s recent congressional testimony supporting a .25% Federal Funds rate boost—twice zero is still zero—we should expect Powell to remain timidly behind the curve when it comes to inflation, even as supply constraints and sanctions-related economic headwinds raise the prospects of persistent price and wage increases.

The war in Ukraine will have a further pernicious effect on Biden’s presidency. Just as Putin miscalculated that invading Ukraine would be a cakewalk, Biden appears to now be miscalculating that the fall of Ukraine will not be a mortal blow to his presidency. Before the invasion, Biden was out front and crystal clear—and all too correct—about Putin’s intentions. Then, when Russia attacked, Biden was again out front rallying the world on sanctions and arms shipments. But, tellingly, the day after President Biden’s State of the Union speech, wherein he rousingly called for the world to stand firm against Russian aggression, Biden flew to Wisconsin to boost… domestic policy. While that might just be a messaging gaffe, it could however indicate that Biden isn’t fully in the trenches wargaming a political death blow for Putin. Three decades ago, the Soviet Union’s slow-bleed defeat in Afghanistan hastened its collapse. A Russian defeat now, or at the very least a fast-bleed stalemate, by the clearly outgunned Ukrainians might shake loose Putin’s grip on power. The twin pillars to achieving this are arming the Ukrainians for a full turnback of the Russian military, and punitive sanctions and other actions to hobble Russia’s economy, to include targeting its oil and gas industry. To date, Biden has only gone half-measure.

Unfortunately, Ukraine’s president, Volodymyr Zelensky, made critical mistakes prior to the invasion. Even as the Russian Army tightened its circle around Ukraine during the war’s lead-up, Zelensky sent mixed signals, both globally and to his people, about the prospects for war, vacillating almost daily between panic and calm. These mixed signals diminished his nation’s civil and military preparedness, allowing Putin’s military to cross the border into Ukraine as if it were, at first, a cakewalk. Indirectly however, Biden will find himself even more on the hook than Zelensky. If Ukraine falls, Biden will be seen, either rightly or wrongly, as having done too little to stop the march of authoritarianism, especially in light of Biden’s State of the Union address wherein he declared, “freedom will always triumph over tyranny.” In consequence, Biden will not only be forced to maintain sanctions on Russia, he’ll also to have to impose sanctions on Putin’s nation-state allies, particularly China. These actions will drive up global inflation. And with Biden’s man, the bookish Powell, leading the Federal Reserve, we should expect Biden himself to pay the price in 2024 for defeat abroad amidst economic pain at home.