Now that the votes have been cast, the speeches have been given, and the promises have been made, America is looking past the heady glow of election day and remembering the fact that the American economy is still about 3.5% smaller than it was pre-COVID-19, and about 10 million jobs lighter.
Futures might be soaring on the optimism, but that headrush could be illusory (a product of the same aggressive trading strategies that earned SoftBank the nickname “the Nasdaq Whale”- or at least so JPM thinks).
Though many on Wall Street are more optimistic, with even MS equity bear Mike Wilson forecasting the market to remain rangebound in the coming months, Bloomberg recently reminded us that despite all of Joe Biden’s promises about comity and “healing”, a divided Congress could deprive a Biden Administration of the votes it needs to pass the kind of broad, sweeping fiscal stimulus that the market – thanks in part to the pleas of Bill Dudley and other central banker-types – has come to expect. Biden has promised to provide this fiscal stimulus (which would in theory deliver a badly needed financial shot in the arm to the consumers who are most likely to spend, rather than save, their money), along with delivering on the infrastructure package that alluded Trump, and securing some wins for the “Green New Deal” – one of the top priorities for lefties like AOC and Elizabeth Warren who will almost certainly have an outsize voice once Biden occupies the White House – along with expanded public child care.
All of these agenda items have been couched as do-or-die priorities by certain ‘Green New Deal’ types who accuse the GOP of just “taking and taking and taking” from the poor.
Passing all of these “reforms” is also essential to complete the transition toward an MMT economy, which is something that the AOC school of Democrats view as absolutely essential if we ever want to solve the problems of “economic inequality” that so plague our nation, according to them.
With no movement expected until January, one economist from Moody’s points out that even then, Biden will likely be stuck with “very high” unemployment as the economy takes years to heal.
But Biden’s agenda risks running into immediate skepticism from the new Congress, where control may hinge on runoff elections in Georgia. Lawmakers on the right could seek to stall or limit the scope of Biden’s plans just as they did when he was vice president under President Barack Obama, likely balking at running up debt even further and raising taxes on companies.
“Presidents inherit economies, and President-elect Biden’s inheriting one that’s in trouble,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics. “You have a very high unemployment rate, there’s still slack in the labor market. It’s going to take time to heal.”
Moody’s forecasts that there won’t be additional stimulus from Congress until after Biden is inaugurated, he said. Bloomberg Economics said the combination of a Biden win and divided Congress could mean direct fiscal support of $500 billion to $750 billion at most, meaning growth of 3% in 2021, rather than the 3.5% possible with $1 trillion of aid.
It goes without saying that, in a world that demands instant gratification for political purposes, Biden and his team are campaigning on dumping trillions more in stimulus after the historic runup in deficit spending seen earlier this year.
To fund Biden’s proposals, the administration would be adding to the national debt while taking advantage of historically low interest rates. Biden spent decades in government warning about the dangers of budget deficits. But as president he’ll take over one of the biggest in U.S. history, and has signaled he’s in no rush to pare it back.
Biden has proposed raising corporate taxes to 28% from 21%, increasing income taxes for those earning more than $400,000 and taxing capital-gains earnings the same as regular income for top earners. A split Congress, though, would create high hurdles to such moves.
The campaign has outlined a $3.5 trillion economic program to fund his key goals:
Shift millions of jobs into clean energy, with the goal of cutting carbon emissions. Boost manufacturing through incentives to buy American goods and support for high-tech research. Expand the availability of care for the youngest and oldest Americans, including universal preschool for three- and four-year-olds. He’s also promised to address inequalities through his plan, saying he would provide aid for minority small-businesses owners. He’s voiced support for a $15 federal minimum hourly wage, equal gender pay and expanded sick leave.
Those reading the description of Biden’s proposals included above can probably figure out that what Biden is proposing isn’t just some kind of economic band-aid: if enacted, it would be the most expansive new government spending programs since the New Deal.
Is it any surprise that Republicans, and possibly even some Democrats, might oppose such an expansion when there are other options to mitigate the economic fallout from the virus, including rolling out more rapid tests? Setting aside Democrats’ high-minded rhetoric, it’s clear that the Dems and their allies in the central-banking cabal are seizing on this crisis to push through a transition to an economy where the relationship between money and work is diluted, in favor of a more centrally planned style. Would Republicans be morally “wrong” to keep them in check?
At any rate, the success of Biden’s economic program could very well depend on two US Senate races that have entered runoff territory in Georgia.
With Gridlock the order of the day, between now and the inauguration, Wall Street analysts expect developments related to the virus, and humanity’s attempt to produce and distribute a safe and effective vaccine, to have a greater bearing on the outcome.