The dollar amounts of aid in various categories of the U.S. economic rescue plan total about $1.65 trillion, not the $2.2 trillion as advertised. The balance is expected to come from a “multiplier effect,” by which the $1.65 trillion in federal money generates an additional $500 billion in economic activity.
Their comic book theory: federal loan guarantees will generate hundreds of billions of dollars in private sector loans; government grants to businesses and industries will give investors confidence to buy back in.
Federal officials calculated the multiplier effect that the federal bailout program would create under normal economic conditions.
Current conditions, however, are grossly abnormal: unemployment applications have reached a record 3.2 million this month, while applications for new mortgages are down 29 percent at the same time. Entire sectors of the economy have shut down.
TREND FORECAST: As evidenced by previous Federal Reserve and government money-pumping schemes, we forecast their expected multiplier effect will not multiply as they project.
Furthermore, as with previous bailouts, such as the Federal Reserve secretly injecting $29 trillion into banks at the onset of the Great Recession, the majority of the new bailout program will again enrich the richest one percent.
While Washington and the business media applaud the size of the new relief budget, at best it has a projected multiplier effect of about 9 percent of the U.S. GDP.
During the Great Depression, federal agencies spent about 15 percent of GDP in aid to businesses and individuals. Last week, Great Britain announced a rescue plan equal to 15 percent of its GDP.
Some analysts, such Jack Rasmus, suggest that to rescue the tanking economy, it will require the federal relief fund to equal to 20 percent of GDP, or $4 trillion.
TREND FORECAST: Virtually absent in the media coverage are the ramifications of printing up trillions of dollars to artificially inflate the economy.
While the U.S. dollar remains strong (as we have long noted before the Pandemic Panic), as a result of other nations’ declining economies, the flow of cheap money into the system will, in the long term, continue to drive up gold prices, which are now being held back because of the dollar’s strength.
Moreover, as national debt levels continue to climb and currencies rapidly fall, as forecast in last week’s Trends Journal, governments will go “From Dirty Cash to Digital Trash,” eliminating the currency of the realm and replacing it with untouchable digital currencies… backed by nothing and printed on nothing.
Treasury Bills Produce Negative Yields
On 25 March, yields on one-month and three-month Treasury bills fell below zero.
The yield on one-month bills dropped to -0.01 percent and the three-month to -0.03 and stayed negative on 26 March, closing at -0.112 and -0.072 respectively.
It was the first time since September 2015 that a government instrument gave a negative yield. Then, the Federal Reserve postponed a rate increase after China’s economic growth stalled and roiled global markets. In the aftermath, short-term treasury bills’ yields dipped to -0.002 percent.
Spiking demand for short-term “safe harbors” for cash bid up the bills’ selling price, which pushed down yields; the bills’ face value and yield rate always move in opposite directions.
“This is part of the whole ‘flight to quality’ thing,” noted Kim Rupert, director of global fixed income at Action Economics.
TRENDPOST: Greater demand for short-term safe places to stash cash indicate that investors are leery of putting money back into the markets now but hopeful the economy will show signs of rebounding before September.
