Joe Biden And The New Era of Big Government
The comments below are an edited and abridged synopsis of an article by USAGold
The title of this article should serve as a warning. The Biden administration’s economic program echoes Roosevelt’s New Deal and Lyndon Johnson’s Great Society. The passage of the stimulus bill in a deeply divided Congress signals a leftward shift in US politics and economics that has gained traction during Covid-19, affording government a bigger role in solving society’s problems. Part of that shift poses a direct threat to the US dollar’s longer-term value and stability in the bond market.
Larry Summers, an Obama economic advisor and Clinton’s Secretary of the Treasury, panned the Biden $1.9 trillion stimulus package as “the least responsible macroeconomic policy in the last 40 years,” one that could lead to inflation and then to stagflation. The Powell-Yellen team will not take kindly to this public warning on a policy that both of them embraced wholeheartedly. Summers also sees serious consequences for the dollar and financial stability.
Financial institutions are worried about inflation. Bridgewater Associates’ Ray Dalio said that “the economics of investing in bonds (and most financial assets) has become stupid… [B]ecause you are trying to store buying power, you have to take into consideration inflation. In the US, you have to wait over 500 years, and you will never get your buying power back in Europe or Japan. In fact, if you buy bonds in these countries now, you will be guaranteed to have a lot less buying power in the future. Rather than get paid less than inflation, why not instead buy stuff—any stuff—that will equal inflation or better? We see a lot of investments that we expect to do significantly better than inflation.” The ultimate stores of value are gold and silver. Most inflation-proofing strategies include gold, commodities, et al.
Up for discussion: How to spot a bubble; when paper money fails, precious metals prevail; the six keys to successful gold ownership; China’s monetary tradition and the origins of money; is monetary policy regime change upon us; and final thoughts.