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Swamponomics: Thanks, Federal Reserve 

An ETF bond market record, Christmas shopping, and the federal deficit.

If you want to see how the Federal Reserve influences financial markets and gives certain segments of Wall Street a push, then look no further than the bond market. The U.S. central bank has been actively purchasing both government debt and corporate bonds since the end of March to support the post-coronavirus economy and ensure that governments and companies can focus on growing instead of paying off obligations.

Forging a Bond

According to data compiled by Bloomberg, inflows to bond exchange-traded funds (ETFs) reached $170 billion in the first nine months of 2020. Last year, bond ETF inflows totaled $154 billion in all of 2019.

In addition to its Treasurys buying spree, the Eccles Building has scooped up 16 corporate bond ETFs, led by BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and Vanguard’s Intermediate-Term Corporate Bond ETF (VCIT), which have been the biggest gainers this year.

Of course, this means that the Fed is coming to the rescue of some of the world’s wealthiest companies, such as Walmart, Apple, and Microsoft. Does the Fed need to threaten inflation by purchasing billions in debt issued by Corporate America? Fed Chair Jerome Powell believes it is necessary.

It is highly unlikely that the Fed will taper these programs anytime soon. The U.S. economy is chugging along right now, even with unlimited quantitative easing and a Federal Reserve willing to do whatever it takes to cushion the economic blows from COVID-19. St. Louis Fed President James Bullard stated during a panel on the sidelines of the International Monetary Fund (IMF) and World Bank annual meetings that “we have got a good policy in place,” alluding to the unprecedented QE endeavors that he believes are “appropriate.” But will it be enough to resuscitate the world’s largest economy from the rampage caused by a virus with a 0.02% fatality rate?

Bah, Humbug!

How do you plan to spend Christmas this year?

If you listen to Dr. Anthony Fauci or the myriad of other health authorities, you should just hide in your basement while eating cans of Chef Boyardee and wearing a HAZMAT suit. But considering that the public health crisis decimated the economy and destroyed the livelihoods of millions of Americans, most people will be unable to enjoy the festive season.

A new study from Finder.com shows that 40% of Americans plan to spend less this Christmas. According to the survey, one in five U.S. adults is anticipating spending just $732 on gifts, travel, and food. This could have broader implications as the significant cut in personal spending could end up costing retailers and service providers nearly $13 billion during the busiest time of the year.

Retailers have been attempting to adapt to the unprecedented Christmas shopping season that is right around the corner. From kicking off early Christmas sales to investing millions in temporary shipping and packing stations, companies are embracing the idea of adapt or die.

Will you say “bah, humbug!” to the concept of Christmas this year? Many families might embrace the holiday rush as a way to say goodbye to an awful, no good, terrible, rotten 2020 and keep their minds off of the ubiquitous loneliness, misery, suffering, and unhappiness this year.

Tell Me, Do You Bleed?

The U.S. government just ran a record federal deficit, and nobody seems to care. President Donald Trump, the Republicans, the Democrats, and the financial markets seemingly gave a dismissive shrug to an astronomical budget gap that will be added to the already enormous national debt.

In the fiscal year that ended in September, Uncle Sam posted a $3.1 trillion deficit. The ocean of red ink was reflected by four financial relief bills, including the $1.7 trillion CARES Act. But here are the big picture numbers:

  • Total outlays surged to $6.55 trillion.
  • Total receipts advanced to $3.42 trillion.
  • Personal income taxes fell to $1.6 trillion.
  • Corporate income taxes dropped to $212 billion.
  • Payroll taxes climbed to $1.3 trillion.

Overall, American taxpayers can expect Washington to run trillion-dollar deficits for the next several years, whether a Republican or a Democrat occupies the White House. The Congressional Budget Office (CBO) forecasts that the lowest projected deficit over the next ten years will occur in 2027 with a $1.08 trillion chasm.

Indeed, these are conservative estimates that do not consider how much Democrats want to spend on everything from free health care to free tuition to the Green New Deal, should they receive the keys to power. Still, Washington will be able to get away with all this hemorrhaging because borrowing has never been cheaper amid historically low interest rates. Thanks, Federal Reserve – again.

~

Read more from Andrew Moran.

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