WILL THE DEFICIT TOP $30 TRILLION BY YEARS END?

Equities were mixed as all weighed the likelihood for a new spending bill, potential coronavirus vaccines and an escalation of trade tensions with China that could spill over into trade.  The dollar weakened and gold and silver advanced to the highest level in over nine years.  Oil was essentially unchanged.

As discussed several times, it is not whether there will be another stimulus but rather how much?  Will it be $1.3 trillion?  $3.5 trillion?  In my view these amounts are unfathomable.  The year to date budget deficit is $2.7 trillion, shattering the previous record by a large amount. The current deficit is $26.5 trillion and there is a possibility it could reach $30 trillion by year’s end., up from the $22.5 trillion at the start of the year.

Wow!  Writing cynically, we are already experimenting with Modern Monetary Theory (MMT), or the idea that a government can spend and borrow exponentially if it is done in their own currency and suffer from no ill effects.

I and so does the vast majority of market professionals believe MMT is at a best a misguided idea that will forever alter and perhaps destroy economies that endorse such a concept.  There are ample examples to support such a supposition.

There are only two manners in which to overcome massive debt…restructure or inflate.

I can argue inflationary pressures will be considerably higher in the proceeding months, adding yet another plank to the income inequality discussion.  The nine year high in gold and silver and weakening dollar supports such a view.

Last night the foreign markets were mixed.  London was up 0.58%, Paris up 0.49% and Frankfurt up 0.58%.  China was down 0.24%, Japan down 0.58% and Hang Sang up 0.82%.

The Dow should open nominally higher for a myriad of possible reasons including another stimulus, vaccine hopes and the belief the expansion will continue.  Gold is again advancing.     The 10-year is unchanged at 0.59%.

 

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