The Federal Reserve is poised to bring inflation to the United States, no matter what. The U.S. central bank seems intolerant of any signs of deflation, promising to turn on the printing presses and keep interest rates at historic lows for years to come. Over the next few months, the Eccles Building will complete a policy outline that would guarantee inflation and a return to pre-pandemic full employment. The average target inflation rate would likely be closer to 4%, up from the present 2% goal.
Powering the Powell Putsch
The details of this highly accommodative approach to monetary policy could be announced as early as the September Federal Open Market Committee (FOMC). The decision would push the precious metals even higher, negatively affect the U.S. dollar, and boost equities. If you are worried about the money in your wallet right now, perhaps now would be the time to hold onto something tangible.
The U.S. government has been spending like there is no tomorrow to deal with the aftermath of the Coronavirus pandemic. The Treasury Department is doing its part to help fund some of these costly endeavors without too much of an impact on taxpayers. It is an impossible task, though, since the Fed is monetizing the debt. The U.S. Treasury recently announced that it would increase the size of its two-, three-, and five-year auctions by $2 billion per month over the next three months. In the coming week, the federal government is expected to sell $48 billion in three-year notes, $38 billion in 10-year notes (the benchmark), and $26 billion in 30-year bonds. The Treasury has increased the size of its bill issuance and coupon auctions to an astounding $1.462 trillion since May 1, leaving anyone to wonder if there is that much demand in a $101 trillion global bond market.
Reincarnated Zombies Unfile Bankruptcies
Here is a head-turning development in the post-Coronavirus economy: Bankrupt companies unfiling their bankruptcy submissions to access funds from the federal Paycheck Protection Program (PPP) only to refile for bankruptcy again. What the heck is happening in the U.S. economy? Worse still, many of these reincarnated zombies went bankrupt months before COVID-19 infected the United States. Henry Anesthesia Associates, for example, initiated its bankruptcy process in September, but it exited its court protection in June and was immediately granted a $1 million PPP loan. A month later, it went back into bankruptcy protection. Ain’t life grand?
Hungry for Central Bank Money
The European Central Bank (ECB) has joined its counterparts in scooping up corporate bonds. Typically, central banks purchase corporate debt within their jurisdiction. But the ECB has expanded its parameter and started acquiring bonds of multinational corporations from outside the European Union. Christine Lagarde and Co. have engaged in this unprecedented scheme through the Corporate Sector Purchase Program (CSPP). Some of the names on this list? Coca Cola, John Deere, Nestle, Novartis, and British American Tobacco. Everyone is hungry for some freshly created dollars, euros, pounds, and yen in today’s astronomical money-printing affairs.
A Sailor Went to Sea, Sea, Sea
How does a company make money in today’s global financial markets? You lose a lot of money, of course. While Tesla and Amazon dominate the stock market with monumental gains amid the pandemiconomy, one business has skyrocketed nearly 900% over the last 18 months: Sea Ltd. The Singapore-based gaming, e-commerce, and payments company has a market capitalization of $69 billion, even though it lost $1.46 billion last year. This is a common trend in the United States and overseas markets: Money-losing tech companies posting huge market cap numbers and stock gains. It goes to show the vast money-pumping efforts and global tech bubble brewing.
Makes Billionaires Pay Act
Senator Bernie Sanders (I-VT), Senator Ed Markey (D-MA), and Senator Kirsten Gillibrand (D-NY) introduced the Make Billionaires Pay Act that proposes a one-time tax of 60% on wealth gains earned by billionaires between March 18, 2020, and January 1, 2021. The purpose of the penalty is to cover out-of-pocket health care expenses for all Americans for one year. It is estimated that the legislation would accumulate $731 billion in wealth from 467 billionaires, including $42.8 billion from Amazon’s Jeff Bezos, $27.5 billion from Tesla’s Elon Musk, and $22.8 billion from Facebook’s Mark Zuckerberg. Why stop there? Why not propose a tax for millionaires who profess socialism while owning three homes?
This Week in Jobs
It was another excellent month for the labor market as the U.S. economy beat expectations. According to the Bureau of Labor Statistics, 1.76 million new jobs were created in July, down from the whopping 4.8 million new positions in June. The unemployment rate tumbled to 10.2%, lower than the forecast of 10.5%. Job creation was felt across the board, led by leisure and retail (592,00) and government (301,000). The manufacturing sector tacked on 26,000 positions.
Also, according to the Department of Labor, the number of Americans filing for first-time unemployment benefits came in at 1.186 million, the lowest figure during the pandemic. It beat the market forecast of 1.415 million. Continuing jobless claims clocked in at 16.107 million, while the four-week average, which eliminates week-to-week volatility, topped 1.337 million.
It was a good week for employment numbers, but can the labor market that was so strong before the Coronavirus maintain the momentum in the second half of 2020?
Read more from Andrew Moran.