Crack-Up Boom In 2024?
Are we looking at a crack-up boom scenario? The markings are there: high debt to GDP ratio, large fiscal deficits and a mountain of Treasury debt that is growing faster than GDP and Government inflows (i.e. tax receipts) and generally expansive monetary policy.
How will the “boom” happen? For starters, the Fed will have no choice but to lower rates in order to give the U.S. Treasury a chance to service its debt.
In addition, the Fed may restart QE to further artificially stimulate the debt-dependent U.S. economy.
Add fiscal stimulus to the equation and you have a toxic, inflationary brew that will inflate asset prices by way of devaluing the Dollar.
It is easy to visualize fiscal stimulus occurring around the July 4th holiday in 2024. The Biden Administration will push to mail $1-2 Trillion directly to Americans in an effort to artificially boost the U.S. economy (CARES Act 3.0) ahead of the November election. This effort will be positioned as an “America Strong” type of bill, when in fact the only thing it will achieve will be to kick start a new round of inflation while spooling up the national debt. The only way for the U.S. to solve it's fiscal problems is to attack the root cause of its fiscal deficits: the overspending.
Technically, in order to have a crack-up boom, inflation expectations must become unhinged. I fear that should another round of fiscal stimulus occur whereby Americans are mailed checks again (“helicopter money”), inflation expectations will become unhinged.
Fiscal spending is up year-over-year as of December. Is Washington trying to pull a Dollar crisis forward? For example, Social Security is bankrupt. Rather than have an intelligent, sober, adult conversation with Americans about this fact, I can imagine Washington opting to create an unnecessary Dollar crisis for the purpose of using it as an excuse to restructure or eliminate the Social Security system. The current rate of spending is unsustainable. Washington will cut Social Security and other “entitlements” before it radically reduces military spending or spending to subsidize the Pharma or Health Insurance industries.