April 22, 2021
There’s a familiar chorus being sung and broadcast by the Biden administration right now: “We need more stimulus.”
The justification? Our government needs more money because our economy is that broken.
In fact, it’s so broken that we need to enact the most staggering spending program since FDR.
“The economy and virus are spiraling downward,” said Brian Deese, head of the Biden National Economic Council, in a Fox News interview Easter Sunday. This came just two days after the nation learned an astonishing 916,000 jobs were added in the previous month – bringing the unemployment rate down to an impressive 6.0%.
But that jobs report doesn’t quite fit the current Administration’s narrative – not when they’re trying to “remake” the American economy in their warped vision. And if they get their way, it’s time for a new chorus: Goodbye capitalism, hello socialism.
With $1.9 trillion in stimulus spending already on the books, the Biden Administration keeps looking for more (and more, and more) taxpayer dollars to put toward its big, woke projects.
The introduction of the infrastructure plan indicates how far Left they want to take the country… $400 billion of the $2.3 trillion requested will go to “elderly care,” while $213 billion will go toward “affordable housing” projects.
A reasonable person would ask, “Does that count as infrastructure?”
And a reasonable answer would be, “No, not really!”
Though when it comes to socialist-style spending, there’s a bankruptcy in logic.
Instead, Brian Deese, who ran the Green Energy Division at BlackRock (the world’s largest asset manager, handling enough capital to rival the U.S. GDP), offered a convoluted explanation about the stimulus bills’ social spending… He claims the proposed infrastructure spending should theoretically update roads, bridges, and (hopefully) our electrical grid.
Are we confused yet?
Deese told Fox, “We need to update what we mean by infrastructure for the 21st century” because affordable housing is infrastructure (it’s construction, he says). Elderly care is infrastructure because it addresses the infrastructure of care.
And what you’re reading now is an infrastructure of content.
I’m not doubting that those are both worthy causes – they are. But considering we are already running a debt-to-GDP ratio of 102%, we cannot afford these ambitious undertakings.
Meanwhile, Biden’s agenda is about to get even more outsized…
In the coming months, the White House promises to introduce spending to the tune of trillions of more dollars for more social programs including childcare and health care initiatives.
Again – noble, worthy causes. But can we afford them? (Hint: we can’t.)
So, what’s the deal with all this policy?
Is Bernie Sanders in the White House? Wasn’t Biden just supposed to be the “nice guy”? The calm, casual alternative to the “Trump circus”? If so, why are we about to experience the most radical changes to our country’s economic system since FDR? Unless, of course, that was the goal all along?
The Ghost of Franklin Roosevelt
President Biden sees a small window of opportunity here, and he’s taking it.
He’s warned us that “We’re at war with COVID-19,” and stimulus is how we will fight the invisible viral army. But the battle’s winding down… It’s almost V-Day. Why all the spending now?
Unless this is a “crisis” that Biden and company do not want to squander for political gain? The pandemic provides an opportunity for a spending spree and a chance to realign this country’s economic order that echoes the 1930s-Roosevelt era.
And Biden himself is channeling FDR.
Before introducing his infrastructure plan, he reportedly summoned a group of academic historians to the White House to ask how history might perceive him if he moved quickly on these mass spending programs. Predictably, the liberal academics promised that history would love him for it.
Well, that depends on who writes the history.
One learns as a small child in American schools that FDR was our savior, right along with JFK and Abraham Lincoln. Had it not been for him and his New Deal, our country never would have emerged from the mires of the Great Depression.
But then there’s the truth…
Economists and historians know that the positive, lasting effects of FDR’s economic legacy are debatable. Eight years into his administration’s massive spending (three times our federal budget at that time), 14% unemployment still plagued the country. And the unemployment numbers during his first two terms averaged 18% (without women even officially part of the workforce).
As noted financial historian Amity Shales writes in her book The Forgotten Man, everything from government-mandated (high) wages, price-fixing on goods, and massive taxes worked against the economy. These measures held back progress and contributed to the persistent shortage of jobs in the latter part of the 1930s.
Meanwhile, despite evidence that his programs weren’t working, FDR seemed surrounded by sycophants. Shales writes,
It is difficult for men in high office to avoid the malady of self-delusion. They are always surrounded by worshipers. They are constantly and for the most part sincerely assured of their greatness.
Not unlike Biden meeting with swarms of liberal, glad-handing academics now (maybe Shales should have been invited).
No one in the administration will listen to why this course of action might be wrong – not even from one of their own.
Even the Dems are Panicking
Larry Summers, Bill Clinton’s former Treasury Secretary and Barack Obama’s former head of the National Economic Council, is decidedly not on board with Biden’s current economic policy. He’s calling it the “least responsible” in four decades, while insisting that we’re creating “enormous risks.”
In an op-ed for The Washington Post, Larry Summers warned of the dangers of inflation, writing,
While there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation. There will be consequences for the value of the dollar and financial stability.
Few people in America have Dr. Paul’s insight into the inner workings of the government, which is why you need to see his latest warning.
The liberal media promptly mocked Summers for his views, including Slate which wrote, “Larry Summers Has Some Weird Fears About the Biden Relief Plan.” Mother Jones adding, “The White House doesn’t want to hear from Larry Summers.” And Politico said that Summers “Is the skunk at the COVID relief party.”
But the media’s intimidation isn’t stopping him… Instead, Summers is doubling down, recently telling Bloomberg TV that, “These are the least responsible fiscal macroeconomic policies we’ve had for the last 40 years.” The United States, Summers warned, will face “a pretty dramatic fiscal-monetary collision.”
“What is kindling is now igniting,” he said, explaining that the COVID recovery will create demand at the same time as the government is giving out money and the Federal Reserve is “stuck to its guns” on loose monetary policy.
Summers went on to say that there was a “one-in-three chance that inflation would accelerate in the coming years,” and the U.S. could face stagflation.
He also said he saw the same chance of inflation because the Fed would hit the brakes hard and push the country toward recession. The final possibility, he said, is that the Fed and Treasury will get rapid growth without inflation which is, of course, what they want.
Nonetheless, the World Bank’s former economist cautioned, “This macroeconomic policy poses more grave risks at this moment than any other I can remember.”
As the Dollar Dives, Inflation Climbs
Larry Summers is right… And I give him credit for speaking up at a time when it’s not so easy to speak up. His friend Janet Yellen is there now in the Treasury, and with Biden as president, Summers has every reason not to rock the Blue boat.
But sometimes, when you see a storm coming, you need to grab the wheel and veer your vessel to safer waters.
There is no way that the printing of so much money will not result in pressure on the U.S. dollar. Currently, the U.S. Dollar Index (DXY) is trading near 92 – down from 100 roughly a year ago. As the government continues handing out money, spending massive sums on overly ambitious projects we cannot afford, the dollar will continue losing value relative to other currencies.
And that means it will take even more dollars to purchase assets, thereby creating an inflationary environment for asset prices. Part of the reason for the run-up in stock, oil, and real estate prices in the last year is the expectation that the government will overshoot – and, in doing so, will create too much liquidity and generate inflation.
Now, I’m not talking inflation for wages (if only) but, instead, the prices for everything else. Food prices jumped 3.5% in February, food in restaurants gained 3.7%, and energy prices gained 6%. Home prices are at record highs – so, clearly, some sectors are rising.
Considering all of this, I encourage people to invest. Having watched too many middle Americans scarred from the tech bubble bursting in 2000 and deciding to sit on the investing sidelines in 2008 – I would hate to see history repeat itself.
There was tremendous inflation in asset prices during the Obama-Biden years, but none in real wages.
Now that Biden has some rocket fuel (via at least one major stimulus package more than twice as much as Obama’s) with an expected additional influx of cash on the way, we’re again getting set up for a fragile bull market.
Bull In a China Shop
What happens if Biden is successful with an increase in the capital gains tax? His team has pitched taxing investment as income. If they move forward with this plan, it will take the wind out of the sails of this market.
What happens if corporate tax rates go up? If the Biden team is successful in raising corporate taxes to 28% (from the current 21%), the U.S. will once again be one of the most expensive places in the world to do business. These higher rates will hurt earnings (and thus, possibly equity valuations) and could damper enthusiasm from investors in U.S. markets.
My recommendation is always to stay vigilant. Be aware of the policies at play and their possible effect on your dollars and investments.
For long-term investors, I encourage people to watch for opportunities to buy as markets fall – but even as S&P 4k seems totally normal, it’s critical investors remain focused on any emerging trends in the fixed income markets.
As someone who once worked in fixed income (I started my career at Goldman Sachs in emerging debt markets where we traded sovereign debt instruments), I’m a little biased. To me, the bond market knows things long before the equity markets do. In fact, if you watched where yields were heading on CDIs in 2006 and 2007, you’d have been tipped off to the looming financial crisis.
Nowadays, I’m watching the 10-year on treasuries. So far, so good. It’s hit the 1.7% mark but hasn’t stayed there. Technically speaking, we ought to be more at 3% on the 10-year. So, I’m not too worried – yet.
In the meantime, I encourage you to get creative. I’ve long been fascinated with digital currencies thanks to the incredible blockchain technology that they employ. It’s possible that as we move increasingly into a digital world, and as people increasingly seek ways to develop ease with transactions away from the government glare, bitcoin and other cryptos will play an important role in transitions in our future.
There is a massive change underway. Ultimately, I expect the American public, who are far more centrist than our politicians give us credit for, will reject this social remaking of America.
President Ronald Reagan famously said, “Government is not the solution to our problem. Government is our problem.”
Now that’s a chorus I can get behind.
- In Satoshi Nakamoto’s original bitcoin whitepaper, the fledgling crypto intended to be a currency – but as Mark Cuban has noted, bitcoin may never make that transactional leap and could solely remain a 21st-century store of value.
- Though companies such as Tesla and PayPal claim customers can pay in bitcoin, who would want to do that right now? The digital asset’s finite and surging in value — that’d be akin to a mining San Francisco forty-niner throwing golden nuggets on the bar for a beer instead of paying with the pennies in his pocket.
- In underbanked nations like Nigeria, where citizens may not have a checking account or personal computer, cryptos find increasing acceptance as a go-to payment — as all you need is a smartphone.
- Silk Road PTSD has the American government sweating illicit activities orchestrated with cryptocurrencies — but what’s funded illegal arms and narcotics trafficking for decades? The U.S. dollar.
- Peter Thiel notes that China’s already ahead of us in the crypto game with their state-backed ChinaCoin and that we need an equivalent — America, are you ready for Fedcoin?