COVID Costs More Than World War II, Impacting Securities Markets

Please watch our video on the impact of COVID relief on the economy and securities markets.

President Biden’s $1.9 trillion American Rescue Plan is the third dose of economic COVID relief bringing the total to $5.2 trillion, which is about 25% of GDP (Gross Domestic Product). It’s huge. $5.2 trillion is the total cost of all our wars since 2001, and is greater than even our most expensive war in history, World War II.

Many believe that all this relief is simply spending our previous tax payments, but the truth is that our government is creating new money, spending future tax payments, and distributing it widely as summarized in the next graph.

Approximately $1 trillion out of $5.2 trillion has been paid directly to taxpayers in the form of personal relief checks. The remaining $4.2 trillion has paid for vaccines, unemployment, and other purposes. Controversially, this newest package is loaded with what is called “Pork” – unrelated applications.

The general sentiment so far is that this relief is welcome and good, but there is legitimate concern about its impact on the US dollar, namely inflation. For example, there is a lot of concern about the recent increase in the yield on 10-year government bonds, from 0.5% to 1.7%. Rising interest rates mean lower bond prices and can lead to lower stock prices, as I discuss in this article.

Inflation on the Horizon

The US has jumped in with both feet in providing COVID relief. We are spending more than any other country, including Japan, the acknowledged pioneer of liberal money printing. We’ve spent 25% of GDP so far.

Demand-pull inflation occurs when too many dollars are chasing too few goods, which is a real possibility. The money supply normally grows about 7% per year but quantitative easing (QE) of more than $4 trillion has increased money supply by 14% per year over the past decade. The $5 trillion in COVID relief increases the money supply by 27% and does so very quickly – the floodgates are open.

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For more guidance please see Bursting Bubbles Blast Baby Boomers and  more

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