March 12 2021

Thought of the Week:

Economists ratchet up U.S. growth forecast as inflation risks mount: Although growth prospects for the U.S. economy are brightening as Americans get vaccinated and Congress passes another fiscal relief package, excessive economic policy stimulus rarely ends well. The recent increase in the U.S. money supply has been unprecedented; over the past year, the money supply has grown at an annual rate of 30% due to the Fed’s aggressive bond-buying program; this growth is three times higher than at any time over the past sixty years. Of even greater concern may be the Biden administration’s budget policy excess. Following last December’s $900 billion bipartisan budget stimulus, an additional $1.9 trillion stimulus has been fast-tracked through the reconciliation process. This means the amount of budget stimulus to be provided to the economy in 2021 will be more than three times the size of the 2009 Obama budget stimulus. While such a massive amount of policy stimulus is expected to supercharge the economy by the second half of the year, the combination of monetary and fiscal excess could lead to an overheating of the economy and higher inflation. In fact, bond markets already demand significantly higher yields on U.S. Treasuries. The large amount of economic policy stimulus comes at a time of a global asset and credit market bubble larger than the U.S. housing bubble of 2008. Highly leveraged U.S. companies and overly indebted emerging-markets have raised massive amounts of money on the assumption that U.S. interest rates will remain at ultra-low levels indefinitely. If bond markets continue to lift yields higher out of fear of an overheated U.S. economy, the bubble might burst. In 2008, the bursting of the bubble triggered the Great Recession. With today’s bubble so much larger, another significant drop in the U.S. and global economies cannot be ruled out. Politically, this suggests that by pushing an excessive budget policy agenda, President Biden is playing with economic fire that could come to haunt him in next year’s mid-term election. 

Cool Graphic: 


Thought Leadership—from our Associations, Think Tanks, and Consultants:

American Enterprise Institute (AEI): Trump’s protectionist failure: Donald Trump was the first post-Depression presidential nominee to make protectionism a major plank of his platform. During the 2016 campaign, he presented it, along with tax cuts and deregulation, as an antidote to President Obama’s weak economic recovery. In his first two years as president, Mr. Trump lifted regulatory burdens and pushed through a major tax cut, which triggered a broad-based rise in income and employment. He then turned to protectionism, which reduced economic growth and failed to deliver the 2020 election. Protectionism failed as economic policy and political strategy. 

Eurasia Group: Democrats favor two-track plan for infrastructure, but large partisan bill is the way forward: As the White House looks to its next legislative effort after the Covid relief bill, congressional Democrats are pitching a two-pronged plan—pass a series of tax increases and revenue-raising provisions through reconciliation, then pass a bipartisan infrastructure package. Although there is bipartisan interest in infrastructure as an abstract concept, there are massive differences in how Democrats and Republicans approach the policy and no agreement over project financing. A partisan $2-3 trillion partially tax-financed reconciliation bill is the most likely outcome to fund new infrastructure projects this year.

In Other Words (Quote): 

“I’m Texas from the beginning,” Matthew McConaughey floating a Texas Governor bid. 

On the Lookout (what’s coming up in Washington): 

  • President Biden delivers first primetime address to nation since taking office. 
  • National Guard presence at Capitol extended to May 23.
  • Top U.S. and Chinese officials to meet for two-day summit in Alaska. 
  • Senate to vote next week on Katherine Tai’s nomination for USTR. 
  • Congressional Budget Office sees U.S. debt as double the size of the economy by 2051.

Did You Know: 

There are 147 women—40 Republicans and 107 Democrats—in the 117th Congress. The number represents the most women to serve in Congress in U.S. history. There are 24 women in the Senate, and 123 women in the House. 

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