America Is The Spending King

America Leads In Spending

It’s interesting that on Twitter, it’s common to complain about America’s handling of the virus from an economic perspective. The numbers tell a different story. America seems to have done a poor job of limiting the spread of the virus, has done a good job with dispersing the vaccines, and done a good job supporting the economy. This is just in comparison to other countries. Of course, not enough has been done to help restaurants and small businesses. It will be interesting to see how quickly the industry bounces back later this year. Our expectation is there will be a sharp rebound because demand will increase. In these markets, there is almost always capital available to chase demand.

Our basis for saying America has done a good job in supporting its economy is counting the fiscal stimuli as a percentage of 2019 GDP. 2019 is used because it’s a state of normalcy before the virus tanked GDP. As you can see from the chart above, before the recent $900 billion spending package, America was tied for 3rd in spending. After it, America was in 2nd. If Biden’s $1.9 trillion plan passes, America will be in first by a lot. Our theory on this stimulus is it will create more inflation than the prior two because there will be goods and services available to spend money on. Less should find itself in financial markets. This will be a true stimulus, while the prior two were life support for the economy. We don’t know when it will pass, but if the money goes out in March, there will be opportunities to spend it normally.

Inflation Expectations At A Record High

As you can see from the chart below, the net percentage of fund managers who see higher inflation is at a record high going back to 1995. Of course, there hasn’t been that much inflation since then. The year with the highest inflation was 2008 at 3.8%. The previous peak in this reading was May 2004. That expectation ended up being correct as CPI went from 2.7% in 2004 to 3.4% in 2005.

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