“The 7% annual GDP growth rate will be the best rate since Y 1984, thank you President Trump” — Paul Ebeling
The recent US economic data on jobs, retail sales, and industrial production indicate that not only is more stimulus not needed but any more stimulus will be counterproductive and will cause more severe problems in the future. But, that is not enough to stop Congress from passing another multi-trillion-dollar package.
When the steep but very short-lived recession in March and April of last year ended, the massive nearly $4-T aid/relief/stimulus packages were enough to quickly lead the nation to a robust recovery.
Beginning last May, the sharp V-Shaped recovery meant that almost 50% of the jobs lost during that recession had been recovered by last Fall due to President Trump’s keen, insightful policies.
Then virus cases flared up again as the number of new cases daily came in, we are told, at 300,000+ cases, causing many states maintained their shutdowns. These states included New Jersey, New York, Pennsylvania, Illinois, Michigan, California, Washington, and Oregon. States that account for more than 30% of the country’s GDP.
And even with those shutdowns, the economy grew at a healthy 4% annual rate in in Q-4 of Y 2020, as we reported in this column last month.
As the Trump vaccines started to be administered, the number of new cases dove to around 50,000/day by early March. Then most of the closed states began to reopen. That increased economic activity. And now looks like Q-1 Y 2021 GDP growth will be at least 5%. We expect at least that for all of Y 2021. And assuming herd immunity and continuing vaccincation growth should hit 7% overall. All of this in the wake of President Trump’s policies, which we expect Mr. Biden will take credit for.
All of this growth will happen with no additional aid/relief/stimulus being passed. The 7% annual GDP growth rate will be the best rate since Y 1984. Sure, we need more growth, but there is no need for more stimulus now.
Recently released NFPs for February indicate 448,000 private sector jobs were created, government employment fell by 69,000 meaning the net monthly job gain was 379,000.
As the number of new virus cases continues to fall and more of the economy reopens, the robust growth will lead to a further increase in new jobs. The unemployment rate will fall from 6.2% to about 5.5% by year’s end.
The current unemployment number is 6.2%. But, it is higher when the number of discouraged on the dole workers is added. But the rapid economic growth and the resulting increases in employment indicate that the US economy is headed due North.
Any more stimulus will add to this yr’s US budget deficit and will raise the public debt. If the current $1.9-T aid/relief/stimulus package does pass, the public debt will reach nearly $30-T, which is almost 50% greater than 1 yr’s GDP.
Our contributing economist Bruce WD Barren say’s, “When the public debt exceeds one year’s GDP, problems result.“
The Big Q: What are the problems?
The Big A: Mr. Barren notes the following:
1st, the annual interest payments on that debt, even at today’s historically low interest rates, will be about $400-B, almost 10% of non-stimulus government spending. Even more concerning is the capital shortage that a huge public debt could create.
Since the government has no way to ever repay this debt, the annual interest expense will rise significantly as interest rates rise in the future. And there is $30-T pulled out of capital markets, meaning there may not be enough capital available to business as they try to expand to meet the rapidly increasing demand resulting from the robust growth.
And if business cannot raise capital to expand, the only thing left to do is raise prices to meet the higher demand. This results in higher inflation with slower future growth. That is a condition known as stagflation: a stagnant economy with rapidly rising prices.
The US has not experienced stagflation in 40 yrs.
Inflation will worsen from Mr. Biden’s war on fossil fuels. If you have purchased a gallon of gasoline lately you probably noticed that you paid $00.75 more gal since the beginning of February. As higher energy prices ripple through the economy, both energy and food inflation will rise.
Inflation will worsen further if the Fed decides to reduce the negative impact from the deficit spending on capital markets. In that case, they will simply print more money, which will be very inflationary, but benefit the price of gold, silver and Bitcoin.
Politically, is very popular to give Americans free money again.
If the current aid/relief/stimulus package is passed, some families will git as much as $14,000 in aid/relief causing more harm than good.
Right now the savvy action would be to reopen the economy without any additional aid/relief/stimulus.
Having the federal government spend more money that it does not have will overheat the economy, which will lead to higher inflation, higher interest rates, a huge increase in the public debt, eventually slower long-term economic growth and Bearish cycle in stocks.
With all of that in view, Shayne, Bruce and I see no benefits for the vast majority of The People.
Have a healthy weekend, Keep the Faith!