• GB Davis

$1.9T Stimulus Force Fed through Unconventional Means PERMANENTLY REDUCES L/T US GDP by 20% - 2/12

The Year is 2021:

(i) U.S. Debt : GDP rests at 127%,


a. click HERE for context à https://fred.stlouisfed.org/series/GFDEGDQ188S


b. now compare to Reinhart, Rogoff, “[economic] [g]rowth deteriorates markedly at external debt levels over 60 percent, and further still when external debt levels exceed 90 percent, which record outright declines. Our main finding is that across both advanced countries and emerging markets, high debt/GDP levels (90 percent and above) are associated with notably lower growth outcomes. Much lower levels of external debt/ GDP (60 percent) are associated with adverse outcomes for emerging market growth. Seldom do countries “grow” their way out of debts. The nonlinear response of growth to debt as debt grows towards historical boundaries is reminiscent of the “debt intolerance” phenomenon developed in Reinhart, Rogoff, and Savastano (2003). As countries hit debt tolerance ceilings, market interest rates can begin to rise quite suddenly, forcing painful adjustment.” From “Growth in a Time of Debt” (May 2010) à https://scholar.harvard.edu/files/rogoff/files/growth_in_time_debt_aer.pdf

(ii) Unemployment (U3) rests at 6.3%, a level consistent with April 2014 – mid cycle (‘08-‘20) – with the hardest hit service sectors likely to rebound when the pandemic, likely every other pandemic before it, in a three (3) wave cycle (second wave, now, amplitude peak) subsides – yet already at mid-cycle reasonable level


a. Click HERE for context à https://fred.stlouisfed.org/series/UNRATE

(iii) US GDP Growth for 1Q21e by the New York Fed (Nowcast) currently rests at 6.79% (w/ an update this morning) and has also been accelerating. While this is projected to slow in 2Q20, it will still evidence above L/T growth / very very very healthy growth.


a. See here à https://www.newyorkfed.org/research/policy/nowcast

(iv) Economic Cycle Research Institute (ECRI), Weekly Leading Indicator Index (WLIW) is at 150.2 and a Growth Level of 21.6 – a level that has not been seen since January 2010 – the economy is growing faster than at any point since January 2010. It is a forward indicator. The prior stimulus + Fed policies, have in fact, worked – as can be evidenced without political rhetoric and outright propaganda replete with fallacy; which is what the American people are clearly being delivered – why though, who would choose this path? Or better yet, what forces are intent on continuing to spend America silly? To weaken America?


a. See here à https://www.businesscycle.com/ecri-reports-indexes/all-indexes#


b. Entire series available for download, as I do, via Excel.

(v) THE DEFICIT – a major problem

a. How many times have cited to Andrew Dickson White’s, “Fiat Money Inflation in France,” replete with French politicians drunk on printing money and leading to the ultimate events that also permanently destroyed France’s economic engine? And led to revolution, in fact.

i. See 2020 emails of 4/20, 5/23, 5/30, 6/1, 6/23, 9/9, 12/20 and 2021 of 1/6 and 1/9.

ii. Link to a free ecopy of this quick and insightful read, truly remarkable, it’s actually amazing there is a historical account of this nature of the events of the day, as the third party forward also concludes à https://mises.org/library/fiat-money-inflation-france


b. The Deficit in Context

i. See here, “US Budget Deficit by Year Compared to GDP, Debt Increase, and Events,” à https://www.thebalance.com/us-deficit-by-year-3306306


1. Look at the ’50 – ’74 period (in the link) of reasonable deficit / budget management (% basis)


2. Look at the period between ’75 and ’08, where a number of ‘reasons’ for deficit spending were conjured – we need to spend X because of Y – there’s also a new plot line, reason, etc.


3. NOW, look at the GFC, the intervening period, and now ‘20/’21 – do you not say, “holy shit,” what the fuck is going on here? How does anyone with a college degree not reach that conclusion of shock and disgust? How do you not compare these above FACTS to prior sovereign nations totally melting down? Is your one saving argument that everyone is being affected – there is validity to this – but, why are we, once again, doing more than our fair share – I see no sovereign wealth fund here, like Norway – I see power hungry politicians destroying America and de facto enslaving future generations in the bondage of ever increasing and alarmingly so – debt.


c. We have provided Moody’s estimates of US GDP Growth and Unemployment (U3) with the $1.9 Trillion stimulus and with $0 of additional stimulus (see emails of 1/15/21, 1/21, 1/22, 1/30, 1/31)


d. Let’s look again at Moody’s estimates for each of run-rate steady state U.S. GDP Growth and U3 under $1.9 Trillion of stimulus and $0 of stimulus, and do note:


i. At the SAME U3 by ‘23/’24


ii. US GDP Growth in ’24 under $1.9 Trillion of additional stimulus is 1.9% compared to 2.3% with $0 of additional stimulus; and the economy already humming along. IN ESSENCE, the trade is this: the $1.9 Trillion stimulus for the SAME level of out year unemployment rate, merely giving it a little weenie push and acceleration (a tiny weenie one – see chart below) the L/T US GDP Growth Rate is PERMANENTLY REDUCED BY A FACTOR OF 20% !!!!!! Who would EVER make that trade?



©2020 by H-Fin Capital Advisors, Inc.. Proudly created with Wix.com