Biden Pushes for $1.9 Trillion in Pandemic Relief President-elect Joe Biden is urging Congress to back a round of $1,400 per-person direct payments and asking for funding for testing and vaccine distribution.
(…) His plan calls for a round of $1,400-per-person direct payments to most households, a $400-a-week unemployment insurance supplement through September, expanded paid leave and increases in the child tax credit. He would expand eligibility to include adult dependents such as college students who were excluded from previous versions and emphasized that many people who have kept their jobs need help. Aid for households makes up about half of the plan’s cost, with much of the rest going to vaccine distribution and state and local governments. (…)
Brian Riedl, a budget expert at the right-leaning Manhattan Institute who has advised Republican lawmakers, said spending to accelerate vaccinations and to reopen schools could get widespread support. And the stimulus checks have backing from some Republicans.
However, Mr. Riedl criticized the full package as too big and broad, as did Rep. Jason Smith (R., Mo.), the top Republican on the House Budget Committee. (…)
Mr. Biden said that in February he would outline a second proposal focused on economic recovery that would also use jobs and infrastructure as a tool to combat climate change. (…)
In a poverty-fighting move long sought by many Democrats, the child tax credit would rise from $2,000 to $3,000 for this year under Mr. Biden’s plan, with an additional $600 for children under 6 years old and new rules that would let the poorest households get the full benefit. The plan also includes money to help households with the costs of rent and child care, plus $350 billion for state and local governments.
Mr. Biden is proposing to extend the eviction and foreclosure moratorium, which currently goes until the end of this month, through the end of September. (…)
The president-elect won’t offer spending-cut or tax-increase offsets for his plan and will instead rely on federal borrowing, according to a Biden official. Mr. Biden’s argument is that now isn’t the time to worry about widening budget deficits, given the emergency and low interest rates. (…)
Now, because they won both Senate seats in Georgia this month, Democrats could use special fast-track rules known as budget reconciliation to advance a more partisan bill, which would require just 51 votes in the Senate. If the 50 Democrats remain united, they could tap Vice President-elect Kamala Harris to cast the tiebreaking vote. But that path comes with restrictions, including a limited number of times Democrats can use it this year and rules that confine reconciliation bills to tax and fiscal matters rather than broader policies. (…)
Goldman Sachs expects some of the proposed programs will pass through a bipartisan bill around early March and that an additional $1.1 trillion (5% of GDP) will impact the economy in 2021. As JPM’s chart (via The Market Ear) below shows, things will surely get worse before they get better:
Those $2,000 Checks Won’t Boost the Economy Politicians love direct payments, but people spend more only when long-term income rises.
A WSJ opinion from John F. Cogan, author of “The High Cost of Good Intentions” and John B. Taylor, a professor of economics at Stanford and co-author, with George P. Shultz, of “Choose Economic Freedom.” Both are senior fellows at the Hoover Institution.
(…) Since the mid-1970s, one-time cash payments to individuals to stimulate economic growth have been tried on at least five separate occasions. (…) the payments failed to deliver the promised results. Their impact on economic output was at best negligible and only temporary. (…)
These failures are consistent with the permanent-income and life-cycle theories of individual consumption behavior. Both theories suggest that individuals’ consumption is determined primarily by their income over the long term. Hence, a one-time cash assistance grant doesn’t boost consumption.
(…) a National Bureau of Economic Research study [of the CARES Act] by Olivier Coibion, Yuriy Gorodnichenko and Michael Weber found that “most respondents report that they primarily saved or paid down debts with their transfers, with only about 15 percent reporting that they mostly spent it.” Thus the payments have done little to boost the economy. (…)
Short-run economic assistance to individuals can be justified on humanitarian grounds, not on the discredited idea of stimulating the economy. That means it should be focused on small businesses and individuals who have suffered hardship from government-imposed lockdowns, while public officials keep working to make vaccines and treatments available as quickly as possible.
Jay Powell says otherwise, acknowledging that the Fed needs help:
Jobs Market Has Long Recovery Ahead, Says Fed’s Powell Fed chairman’s comments are indication that easy-money policies will remain in place for the foreseeable future
(…) “Now is not the time to be talking about exit” from easy money policies, Mr. Powell said in a webcast with Princeton University, his undergraduate alma mater, adding, “The economy is far from our goals.” In addition to high unemployment, he noted, inflation isn’t clearly on a path to reaching 2% on a sustained basis, even though it might spurt higher this year. (…)
He added that under the Fed’s new framework for interest-rate policy adopted last year, the central bank won’t raise interest rates to prevent unemployment from falling unless it sees a serious risk of excessive inflation. (…)
Mr. Powell said a strong fiscal policy response to the latest crisis could help the economy to recover sooner than it did after the 2007-2009 crisis, when he said fiscal policy was tightened too quickly.
What about longer-term interest rates? FOMC members are starting to try to talk rates down…
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Derby’s Take: Lots of Life Left in Fed’s Bond Buying, Central Bank Officials Say Top Federal Reserve officials have been driving home in comments that they see no looming shift in the central bank’s bond buying stimulus campaign, suggesting the effort will remain in place under its current terms through this year.
U.S. Unemployment Claims Rise as Coronavirus Weighs on Economy Initial claims for benefits jump to highest level since pandemic began
Applications for unemployment claims, a proxy for layoffs, rose by 181,000 to 965,000 last week, the Labor Department said Thursday, reflecting rising layoffs amid a winter surge in coronavirus cases. Last week’s increase in claims was broad-based, with new applications rising in 36 states and the District of Columbia.
The total for the week ended Jan. 9 also was the highest in nearly five months and put claims well above the roughly 800,000 a week they had averaged in recent months. (…)
Delayed filings by workers over the Christmas and New Year holidays and $300-a-week in extra jobless benefits included in a coronavirus-relief package signed into law last month could have contributed to the climb in claims, she added. (…)
So-called continuing claims rose to nearly 5.3 million for the week ended Jan. 2, from 5.1 million a week earlier, according to the Labor Department. That marked the first weekly increase since November. (…)
(Bespoke)
JPMorgan Strategists Boost Exposure to Commodities, Cut Bonds
A team including Marko Kolanovic, Nikolaos Panigirtzoglou and John Normand raised the commodities weighting of a JPMorgan model portfolio to 6% from 4% previously, in a note Thursday. It reduced exposure to government bonds to minus 13% from minus 12% and corporate bonds to 2% from 3%. Equity holdings were held steady at 10%.
“We increase our overweight in commodities, in particular energy, both as an inflation hedge and to position for a continued cyclical recovery,” the strategists wrote. The changes are “funded by a decreased overweight in credit where spreads are already testing our strategists’ year-end targets.”
The JPMorgan team expect strong growth in the global economy and see risks fading from issues like the trade war, Covid-19 pandemic and Brexit, according to the note. That’s broadly in line with the outlooks of much of their Wall Street peers. (…)
COVID-19
GS says that over 11mn people (3.4% of the U.S. population) have now received their first dose of the vaccine and there are early signs of a pickup in the daily pace of new vaccinations. In Florida, the pace of vaccination has really picked up in the past 20 days and nearly 9% of Floridians aged 65+ have received their 1st dose.
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The Covid-19 Death Toll Is Even Worse Than It Looks World-wide deaths are running far beyond what would have been expected without the pandemic, a Wall Street Journal analysis shows—and many of those excess deaths aren’t accounted for in official Covid records.
The recorded death count from the Covid-19 pandemic as of Thursday is nearing 2 million. The true extent is far worse.
More than 2.8 million people have lost their lives due to the pandemic, according to a Wall Street Journal analysis of data from 59 countries and jurisdictions. This tally offers the most comprehensive view yet of the pandemic’s global impact. Deaths in these places last year surged more than 12% above average levels. (…)
U.S. Blacklists Xiaomi, Spares Alibaba, Tencent and Baidu Smartphone giant Xiaomi became the latest Chinese technology group to be targeted by the Trump administration, with its surprise addition to an investment blacklist sending its shares sharply lower.
TESLA’S BULL CASE
Really only FYI as a follow up from last Monday’s FYIs.