On economic matters, no one really knows what is about to happen, with one possible exception. It is demonstrably certain inflation into 2022 will continue increasing. Beyond that, after pumping $9+ trillion into the U.S. economic system under the guise of COVID relief, we are entering some very uncharted waters.
On a macro level, CTH has an idea what is likely to take place in the next three years; however, before getting to that, allow me to present evidence for the underlying supposition. As you can see from this Biden message, shaped entirely by politics, on an economic basis the people around him have no idea what the downstream consequences of 2020 and 2021 will present in 2022:
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The team behind Joe Biden brag about the U.S. economy being the only economy to continue growing during the COVID-19 pandemic period. Their top line reference point is the Gross Domestic Product, or GDP. Their brag is the U.S. GDP did not shrink during 2021 and the COVID pandemic.
However, what they omit (for political reasons) is that massive U.S. spending and bailouts covered the GDP hole. More than $9 trillion was injected for stimulus payments, blue state bailouts, payroll protection programs, rent moratoriums, school subsidies, medical payments to hospitals, student loan payment pauses, vaccination purchases, covid sick pay and years of continually extended and enhanced unemployment benefits.
They also omit that none of this domestic spending would be possible if the global trade currency did not take place in dollars. Our value is propped up by the fact that almost all trade takes place in U.S. currency. If that system was not in place, congress could not spend this much money without collapsing the U.S. into a devaluation position resembling what happened previously in Greece.
The only way for Biden to avoid the direct economic consequence of this massive injection of $9+ trillion, which has created the illusion of a strong GDP by subsidizing consumer spending, is to keep injecting more money to keep the artificial GDP inflated.
Biden really needs congress to keep spending. However, it now looks like congress does not have an appetite to do this….. so, the consequences are coming.
The prior spending covered a hole created by a drop in total economic activity. Outputs dropped, payrolls dropped, consumer spending would have dropped, etc. In essence, the void in economic activity was subsidized on a massive scale by government.
The U.S. economy was essentially a $20 trillion GDP going into the pandemic period. Think of the GDP as total value. We do not know what the total contraction on the economy was due to the first subsidy; but we do know the aggregate response over the past two years has been to subsidize -or cover- the contraction with a $9 trillion blanket.
That $9 trillion in artificial GDP value is the most direct cause of inflation. There are other aspects related to energy policy making products more expensive (energy, gas, fuel, transportation, heating, cooling, etc), but the $9 trillion artificial spend is the largest factor of current inflation.
These two figures will become important moving forward. A $20 trillion natural economy, and $9 trillion in unnatural spending to maintain it.
In our economic studies, CTH has assembled a reference library from which we can draw guidance. The 2008 and 2009 bailout phase [TARP, auto-bailouts, American Recovery and Reinvestment Act (ARRA), QE1 and QE2 as well as the porkulous bill] provide some reference points for long term outlooks.
There is a general investing guideline consisting of a factor of seven. Seven years to double money, seven years to recover investment, seven years of depreciation etc. The number seven shows up in multiple macro-economic reference points. Seven is also represented by an approximate of 13%.