Before President Joe Biden signed the America Rescue Plan Act of 2021, a $1.9 trillion coronavirus stimulus and relief package, the U.S. government’s red ink already hit a record high after only five months into the current fiscal year. What will the next seven months bring for Uncle Sam’s pocketbook and balance sheet? More hemorrhaging.
US Deficit Hits New Record
According to the Treasury Department, the federal deficit through February surged to an all-time high of $1.05 trillion as spending outpaced tax revenues. This means that the budget gap is 68% larger than the $624.5 billion hole posted at the same time last year.
Could Washington be on pace to top last year’s record $3.1 trillion deficit? The Congressional Budget Office (CBO) forecast that the Fiscal Year 2021 (October to September) deficit would be $2.3 trillion. But this did not include the president’s near $2 trillion spending bill because Congress only approved the legislation on March 10. Additionally, House Speaker Nancy Pelosi (D-CA) and other Democrats are already discussing another spending blitzkrieg later this year.
Nancy Vanden Houten, a senior economist at Oxford Economics, projects that this fiscal year’s gap would add up to $3.4 trillion. Sen. Rand Paul (R-KY) published an op-ed on Fox News, warning that “free money is not the answer to our problems”:
“Democrats (and many Republicans) don’t seem to care about the mountain of debt Congress added last year and continues to add this year. Instead of simply opening the economy back up as the virus wanes, Democrats are plowing ahead with another $2 trillion in deficit spending.”
This has the former presidential candidate wondering if the U.S. will “be the next Venezuela with Congress borrowing over $6 trillion in one year?”
Treasury Secretary Janet Yellen has stated that she is concerned about inflation, but, echoing her boss in the Oval Office, noted that “the price of doing nothing is much higher than the price of doing something and doing something big.”
Europe Braces for Inflation
At the end of its March policy meeting, the European Central Bank (ECB) announced that it would accelerate its quantitative easing program, known as the pandemic emergency purchase program (PEPP). Although the central bank will not increase the $2.2 trillion price-tag attached to this extraordinary and unprecedented monetary stimulus measure, the ECB plans to expand asset-buying at a “significantly higher pace.”
But the ECB Governing Council press conference was more revealing than the policy statement. Central bank head Christine Lagarde stated that the institution would monitor exchange rates. The real gross domestic product (GDP) will likely contract in the first quarter, and inflation is now projected to rise 1.5% this year. She also dismissed “premature tightening,” stating that the Governing Council will “judge that the coronavirus crisis phase is over.”
“Market interest rates have increased since the start of the year, which poses a risk to wider financing conditions. If sizable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy.”
Should Europe be prepared for higher inflation, or is this doom-and-gloom talk emanating from Frankfurt? According to Eurostat, the inflation rate soared in January, coming in at 1.2%. From September to December. The consumer price index (CPI) had been stuck at 0.2%. Europeans should not expect anything else after years of money-printing, fiscal expansion, and historically low interest rates.
Well, that was fun while it lasted – not that you could take advantage of it anyway due to the nation being under house arrest. The national average price of gasoline inched higher for the ninth straight week, increasing five cents per gallon to $2.79. At the height of the first wave of the COVID-19 public health crisis, the price of gasoline had plunged to a four-year low of $1.74 a gallon.
What gives? There are multiple factors to explain why gas prices are spiking. Many refineries in Texas were closed following last month’s blast of wintry weather, and only now is the Lone Star State playing a game of catch-up. Global demand is slowly returning to pre-pandemic levels as restrictions begin to lift and coronavirus cases start to subside. The Organization of the Petroleum Exporting Countries (OPEC) defied forecasts and extended crude output cuts for another month, while Saudi Arabia maintained its voluntary cuts of one million barrels per day (bpd).
“At the start of this year, it was somewhat outlandish to predict a $3 per gallon national average for the summer driving season, but thanks to the speed of recovery from the pandemic pushing demand higher and OPEC’s reluctance to raise oil production, we’re on the cusp of making that a reality,” said Patrick De Haan, the head of petroleum analysis for GasBuddy.
Of course, not all gas prices are equal. Motorists will pay more in California ($3.74), Hawaii ($3.44), and Washington ($3.17). Drivers will pay less in Mississippi ($2.43), Louisiana ($2.44), and Texas ($2.49). But they cannot hit the July 2008 record high of $3.63, right? Right?!
Read more from Andrew Moran.