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The Biden Boom

You can read about who I am here. If you like this writing, you will enjoy my books Master, Minion, and Raising a Thief. This is not investment advice. Investing is risky and sometimes painful. Paid subscribers: note the conference call details later on.

“Religion is the opium of the people…yes, and music is the opium of the people…and now economics is the opium of the people, along with patriotism … what about sexual intercourse; was that an opium of the people?”

-Hemmingway, The Gambler, The Nun, and the Radio

“The hunter-gatherer needs a good sense of direction and an alertness to the subtle signs of nature…traits and skills essential for survival in one era of human history are seen as wholesome but trivial recreations in another.”

West, In the Mind’s Eye

The US economy is doing well despite interest rates so high borrowing is drying up. There are a few reasons for this. One of them is an infrastructure boom financed by government borrowing. Unlike the rest of us, Washington doesn’t stop spending when rates rise. Today, the US budget deficit is roughly 6%, versus a long-run average of 3%.

Some people look at that number and freak out. Some perspective:

  • the deficit is a problem if investors won’t buy the debt and so far they are buying. Ten-year US bonds are being funded at 3.8%,

  • the deficit only will decrease either a) when Congress makes painful, growth-crushing, politically unpopular cutbacks — slashing defense spending,  raising taxes or b) if economic growth accelerates and tax receipts go up,

  • the deficit got this big because of one crisis (the pandemic combined with fear over Trumpism) and Washington will likely only act when/if there is another crisis, which there may or may not be depending on how fast inflation and interest rates decline.

The US system is chaotic, skirts awfully close to collapse (Civil War) but, 247 years into the experiment, has so far not collapsed. The system is resistant to change but does change when it has to, typically after a crisis.  Today, we have emerged from a pandemic into a new equilibrium of private sector credit squeeze and government largesse on bridges, defense, and healthcare. This is polite redistribution. The tech bros have trouble getting financing and unionized steel workers don’t.

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