Authorities Spending Means Buyers Ought to Search Hedges

This week I got here throughout a statistic that shocked me. It seems that 34% of all US revenue presently comes from the federal government. Right here’s a chart from an article on ZeroHedge exhibiting the rise of presidency “switch funds” to residents.

I simply can’t consider that greater than a 3rd of the whole nation’s revenue is presently depending on the federal authorities. That quantity consists of stimulus checks, unemployment advantages, welfare, social safety, and so on.

Many individuals suppose that when the COVID-19 disaster is over, issues will return to regular. However I don’t suppose so. Again within the 1960s, solely round 7% of all revenue got here from the federal government. That determine had grown to round 17% earlier than this most up-to-date disaster started. The pandemic merely accelerated a development that was already in place.

As soon as a authorities profit is in place, it’s very tough to cancel it. We appear destined to enact “common fundamental revenue,” the place everybody will get a month-to-month stipend.

Staff Not Rejoining The Workforce

One of the troubling elements of all of that is the unintended penalties. If you give individuals simply sufficient cash to get by, there’s the chance that a few of them will lose their motivation to work. What’s the purpose in working when you may acquire nearly the identical paycheck by not working? 

Now that the disaster is winding down and plenty of are vaccinated, firms are having hassle hiring. Bloomberg simply ran a characteristic article about this “Job Paradox.” Right here’s an excerpt speaking about how some economists view the scenario.

“…the labor power participation charge stays nicely beneath pre-pandemic ranges…

And anybody who beforehand made lower than $32,000 per yr is best off financially within the close to time period receiving unemployment advantages, in response to economists at Financial institution of America.“

Different causes for individuals not returning to work embrace searching for jobs with advantages and jobs with a assured variety of minimal hours. Evidently, I’m extraordinarily sympathetic to all of the individuals put out of labor by COVID-19. It’s an terrible factor, and we do must assist these individuals till they will return to work. I’m, nevertheless, additionally involved concerning the route we’re headed with all of this. 

We’re going to must print cash to pay for all these packages — and that doesn’t occur with out penalties. I feel we’re more likely to see stagflation (sluggish development and excessive inflation) that would final some time. 

I don’t actually see any technique to keep away from what’s coming. Extra spending, extra debt, extra inflation. This, in brief, is why traders want hedges.