Fiscal Cliffs And The Self-Destructing Treasury

We can all be very confident that there will be no change to monetary policy for a very, very long time. But there is a fiscal cliff coming—and indeed has already begun.

 It is clear that Mr. Powell is all-in on his unlimited QE and ZIRP. And, that he is "not even thinking about thinking about raising interest rates." Therefore, the stock market does not have to worry about a contraction in the rate of money printing any time soon. However, equities could soon plunge due to the crash in the amount of fiscal support offered to the economy.

  • Last month, the auto-loan and credit-card forbearance period ended
  • On July 1, state and local government budget cuts kicked into high gear, as the $330 billion in aid already dispensed has been wasted
  • Come July 15, the delayed federal income tax payments are due
  • On July 31, the $260 billion in enhanced unemployment insurance expires
  • September 30 sees the end of student loan forbearance
  • August 31st marks the end of mortgage foreclosure forbearance  
  • The end of 2020 will mark the end of the Payroll Protection Program grace period, which will coincide with most of the $1.1 trillion already being exhausted
  • The $290 billion in helicopter money ($1,200 per adult and $500 per child) given to households back in April will have been spent

Of course, I’m all for helping people through this pandemic. But, why are we incentivizing people to remain unemployed by paying them more than they would be gainfully employment? Why did the Treasury send thousands of dollars to families even if they didn’t suffer any damage from the virus? And, why is the Fed printing money to buy junk bonds and making loans to bankrupt businesses?

In any case, in order to prevent the sharp fallout from this fiscal train wreck, Trump and the democrats want yet another round of stimulus to be enacted. The House of Representatives passed the $3 trillion Heroes Act on May 15th, which was dead on arrival to the Senate. Incredibly, President Trump has stated that he wants to spend even more on direct payments to consumers than the democrats on the next round of aid…fiscal prudence has gone extinct in both parties.  

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called,  more

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Angry Old Lady 8 months ago Member's comment

Are those of us who are retired eligible for PUA?