Government Spending Is Enemy #1
Government spending is Enemy #1. Both political parties are guilty.
Fiscal Policy
Fiscal Policy under fmr. President Trump and fmr. Treasury Secretary Steve Mnuchin was weak and irresponsible as is the case under President Biden and Treasury Secretary Yellen. I could make the case that fiscal policy under Biden and Yellen are worse as they had an obligation to get the United States back on a path to fiscal responsibility after the Trump Administration ran up record fiscal deficits that were larger than all preceding Presidents combined. Instead, Biden and Yellen have taken fiscal deficits to a new, higher level including the shameful $2 Trillion deficit the U.S. will run the year ending September 30th 2024. Janet Yellen will not even discuss fiscal deficits, which is a joke.
I could make the case that fiscal policy under Trump and Biden has been “Un-American”, which is to say that these massive, Trillion Dollar-plus annual deficits require that new Treasury debt be issued to cover the deficit. The Federal Reserve (i.e. we the people), will purchase a portion of this debt, which is to say the Fed will be required to print money to buy Treasury’s debt, which is to say the Fed will devalue the Dollar in order to buy Treasury’s debt, which is to say that prices for goods and services are headed only one direction, higher.
Fiscal policy since 2020 has been highly inflationary.
Inflation is a tax on all Americans.
Further, inflation is a tax that we do not vote on, which is very Un-American.
Are we to believe that 2% annual inflation (i.e. CPI) is a good thing? Why are we to believe that propaganda? No amount of inflation is a good thing. An economy can grow without inflation. Inflation simply means prices are moving higher without an increase in productivity. That is not the sign of a healthy economy.
Monetary Policy
Monetary policy is supposed to be a check on fiscal policy but is the opposite - it enables irresponsible fiscal policy. The Fed is not supposed to rubber stamp fiscal policy by subsidizing various spending programs - even in difficult times. During the Covid response period (The Fed’s stimulus was way overdone, I could write a book as to why), Fed Chair Powell was fist-bumping Treasury Secretary Mnuchin at Congressional hearings! Treasury and the Fed should not be in the same hearing! The Fed is supposed to be a check on out-of-control fiscal spending.
What would I have done? For every month that Mnuchin and Yellen ran a deficit, I would have raised rates and/or executed a meaningful QT effort that would have aggressively shrunk the money supply.
Instead, the United States is stuck with fiscal and monetary policy that bails out companies and financial institutions at the expense of the American people. Americans’ income is the collateral that underpins this irresponsible spending. There is no reserve currency status without the American people.
Here is the dirty little secret: both political parties are sticking it to us with out-of-control inflationary spending. Both political parties are guilty of hollowing out the middle class by way of inflationary fiscal and monetary policy. Government Spending Is Enemy #1.
Oh, but equities will move higher.. for now.