FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
August 31, 2021

IN THIS ISSUE:

1. Overview – Worst Presidential Decision Ever

2. Afghanistan: Biden Administration In Full Crisis Mode

3. 2Q GDP Rose 6.6% But Well Below Earlier Expectations

4. Chairman Powell Says Fed To Begin “Taper” By Year-end

Overview – Worst Presidential Decision Ever

Today we will touch on several bases, starting with the worsening foreign policy disaster in Afghanistan. As readers of my Blog know, I have called President Biden’s decision to pull US troops and air support out of Afghanistan before getting American citizens and our Afghan allies out of the country one of the worst decisions ever made by an American president.

It is now obvious most Americans agree with me as President Biden’s approval rating on his handling of Afghanistan has utterly collapsed, as you can see in the graphic below. And it’s likely to fall even further after a suicide bomber killed himself and 13 US service members last Thursday. The question is, what will the president do next in an effort to manage the disaster in Afghanistan? The answer is, no one seems to know, including maybe the Commander in Chief himself.

Following that discussion, we’ll move on to last week’s latest report on Gross Domestic Product which showed the economy continued to expand at a blistering pace in the 2Q as more and more establishments reopen and get back to business as usual.

Finally, speaking at the Fed’s annual symposium in Jackson Hole, Wyoming last Friday, Chairman Jerome Powell announced that the central bank is likely to begin withdrawing some of its easy-money policies before the end of the year – if the economy remains strong. The announcement didn’t come as a big surprise, and stock indexes moved to new record highs.

Afghanistan: Biden Administration In Full Crisis Mode

President Biden has steadfastly defended his decision to withdraw US troops and air support from Afghanistan earlier this month, but that job just got a lot harder after terrorists detonated a suicide bomb last Thursday which killed 13 US soldiers. While the president continued to defend his decision in a speech to the American people late last Thursday, he was clearly shaken and saddened by the latest deadly development.

As I stated in my Thursday column last week, I believe President Biden’s surprise decision to get all US forces and air support out of Afghanistan before getting US citizens and our allies out of the country was one of the worst decisions ever made by an American president.

I fully stand by that criticism, and the American people agree with me. President Biden’s approval of his handling of the situation in Afghanistan has imploded in the last two weeks. I do not remember an instance when a president’s approval rating plunged this far this fast.

It has been reported by CNN and others that the president and his commanders had been fearing a suicide bombing, or some similar deadly attacks, in Afghanistan for weeks. They knew the complexity of the situation on the ground, the urgency of the evacuation mission and the unlikely partnership with the Taliban to control security around the airport had left US troops dangerously exposed – leaving Biden and his team limited options to protect them.

As last Thursday wore on, the situation grew progressively grimmer. Reports of American casualties eventually turned into confirmation of American deaths, news that reached the White House by midday. The death toll went from 4 to 10 to eventually 13, a devastating figure for a President who had yet to preside over a single US combat death.

The Marines who were killed were believed to be conducting security screenings of those entering the airport. One military official said they were so close to the crowd, "the breath of the person you are searching [for] is upon you."

Biden's national security team had little time to emotionally process the deaths, one official said, as they remained focused on the airlift mission in Kabul. The evacuation effort was entering its most dangerous phase yet, with a new objective to take out the terrorists.

By the time Biden emerged into the White House East Room to deliver his speech late Thursday, after spending most of the day behind closed doors, the strain of the moment was evident. "It’s been a tough day," he said as he began his speech. Biden wavered between weary sadness and a stark threat to "hunt down" the attack's perpetrators.

Yet the president still felt it necessary to defend his decision to end America's longest overseas conflict. He ended his speech by saying “Ladies and gentlemen, it was time to end a 20-year war,” before walking away from the podium for what he said was another meeting.

What Comes Next In Afghanistan? No One Knows

A shrinking number of Biden aides still argue he is exactly the man for such a moment: a foreign policy veteran, full of empathy and a military dad. Yet a legion of critics, including a growing number of Democratic allies, is now questioning whether his decades of foreign policy experience add up to sound policy or competent leadership at a moment of crisis.

With Biden's approval ratings plunging, fears are rising among Democrats that mistakes made in Afghanistan could derail the party's ambitious domestic agenda and deny any success in the mid-term elections. Duh! While Democrats were attempting damage control, Republicans attacked what they viewed as clear and devastating missteps.

A team of longtime Biden hands now faces scrutiny for not sufficiently preparing for what the President warned as “inevitable chaos” in the war's final days. Biden is currently focused only on completing the evacuation mission in Kabul. No one seems to know what comes after that.

The White House says Biden isn't planning to ask any of his military leaders to resign in the wake of Thursday's deadly attack. Press Secretary Jen Psaki said the President maintained confidence in Secretary of State Antony Blinken, who has faced particularly harsh criticism for his department's role in coordinating the evacuation of Americans and Afghans who worked for coalition forces over the past two decades.

Psaki acknowledged there had been little time inside the White House to contemplate anything beyond the current evacuation mission, especially as Biden was warned during a Friday morning briefing that further attacks are likely as the military winds down its operations.

"There's not a lot of time for self-reflection right now," Psaki said when asked about the current state-of-affairs in Afghanistan, in which the US is forced to coordinate with the Taliban in the final days of the war. "The focus is on the task at hand."

At the end of the day, President Biden’s upside-down approval rating on Afghanistan, as shown above, tells us all we need to know. Mr. Biden’s decision to remove our troops, hand the country over to the Taliban and put our people and allies in grave danger, again, ranks as one of the worst decisions ever made by an American president. And Americans know it!

Unfortunately, I don’t think we’ve seen the worst of it yet. I fear we could see hundreds, even thousands, of our Afghan allies murdered by the Taliban in the weeks ahead. Plus, while the administration brags about the more than 100,000 evacuations, multiple media outlets report that less than 10% of those are US citizens.

Expect more terrorist attacks to come. This tragedy could get a lot worse before it gets better.

2Q GDP Rose 6.6% But Well Below Earlier Expectations

The US economy grew a bit faster in the spring than previously estimated, continuing the underlying growth trend in an economy which has recovered quite rapidly from the pandemic. Gross Domestic Product, the official scorecard for the US economy, rose at a revised 6.6% annualized pace in the 2Q, the government reported last Thursday. The previous estimate was at 6.5%. Inflation climbed at a 6.5% annual clip in the 2Q.

The slight increase in GDP reflected somewhat stronger consumer spending and US exports than initially reported. The revised GDP report also included the first look at corporate profits in the second quarter. Adjusted pretax profits jumped at a 9.2% annual rate and suggest businesses have plenty of capital to continue to invest and hire.

Indeed, the economy appears to be expanding at a robust pace in the third quarter even as the delta variant of the coronavirus flared up and government stimulus had mostly evaporated. Economist polled by the Wall Street Journal estimate 3Q GDP will increase by 7% (annual rate).

While GDP numbers of 6-7% are the highest in years, they are well below what many forecasters had predicted. Coming into this year, there were plenty of economists who were forecasting GDP growth of 10% or more as we recovered from the COVID recession and lockdowns. So, while this recovery is strong, it’s not as powerful and many predicted.

Chairman Powell Says Fed May Begin “Taper” By Year-end

Last week, the Fed released the minutes from its last policy meeting on July 27-28 which show discussions among the FOMC members about reducing the level of bond purchases – the so-called “taper” – by year-end… IF the economy continues to recover.

Fed Chairman Jerome Powell reiterated the Fed’s plan to start tapering by year-end, if all goes well, in his speech last week at the annual Fed symposium in Jackson Hole, Wyoming. The Fed currently purchases $120 billion in Treasury bonds and mortgage-backed securities each month to keep short-term interest rates near zero to boost the economy.

Yet with inflation rising well above the Fed’s desired level, it came as no surprise the Fed would start to discuss reducing the money spigot.

All the best,

Gary D. Halbert

SPECIAL ARTICLES

Biden Approval Rating Falls Below 50% For First Time

US Economy Grew 6.6% in 2Q, Below Initial Expectations

Gary's Between the Lines blog: Worst Presidential Decision In History?

 

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