Biden’s signing of the $1.9 trillion stimulus bill is a big gamble for the United States and the world.
When the epidemic first broke out, people worried that the world economy would be in a long-term downturn. However, the United States has been fighting against this pessimism. President Biden yesterday signed a $1.9 trillion stimulus bill. Since December last year, epidemic-related expenditures have reached nearly $3 trillion (14% of GDP before the crisis). Since the outbreak of the epidemic, total expenditures have been approximately US$6 trillion. According to the current plan, the Federal Reserve and the Treasury Department will also inject approximately US$2.5 trillion into the banking system this year, and interest rates will remain close to zero.
The article pointed out that in January, because most Americans received a $600 check from the government, retail sales in the United States had increased by 7.4% over the same period last year. Consumers stay at home, unable to spend in restaurants, bars and movie theaters as usual, and have accumulated $1.6 trillion in excess savings in the past year. Biden's new round of stimulus plan allows most Americans to earn an additional $1,400 per person. Once the economy is fully reopened, these families may spend the money. If the vaccine continues to spread and the United States avoids encountering new virus variants, the unemployment rate should easily fall below 5% by the end of this year.
Not only the United States, the bill will further boost global commodity demand. Due to large amounts of imports, the US trade deficit is already more than 50% higher than before the outbreak, but the rest of the world cannot keep up with Uncle Sam's rapid pace. On March 9, the Organization for Economic Cooperation and Development (OECD) predicted that by the end of 2022, the size of the US economy will exceed expectations before the outbreak. From April to September, the economic growth of the United States may even surpass that of China. China is tightening monetary policy. Since mid-February, the Chinese stock market has fallen by 9%.
Biden’s spending will bring relief to those whose lives have been disrupted. Today, the United States still lacks 9.5 million jobs. Thanks to subsidies given to most families, the country’s persistent and widespread child poverty will drop significantly.
The article also pointed out that the United States is conducting a three-pronged economic experiment, characterized by fiscal stimulus reaching record levels. The Fed is tolerant of temporary excessive inflation and huge savings. No one knows whether consumers will hoard or consume. The danger facing the United States and the world is economic overheating.
Investors have been weighing risks. The 10-year bond yield in the United States is inversely proportional to the price. Since last summer, due to expectations of rising inflation and interest rates, its yield has risen by about one percentage point. The United States plays a pivotal role in the global financial system, so its monetary policy influences across national borders. In recent weeks, the Central Bank of Australia has had to increase bond purchases to prevent yields from rising too fast. The European Central Bank is deciding whether to conduct a similar intervention. Emerging markets with large deficits like Brazil or those with large debts like Argentina have reasons to worry that global financial conditions will tighten after the US monetary policy changes.
The Fed insists that it will maintain low interest rates and continue to purchase assets until the economy becomes more healthy. Inflation will inevitably rise, but the Fed ignores it. According to the new "average inflation target system" adopted last year, it is seeking to increase the inflation rate above 2% to make up for the shortcomings in the past. This is particularly desirable because, for most of the past decade, the problem with the world economy has been that the inflation rate has been too low, not too high. Federal Reserve Chairman Jerome Powell believes that even if the economy is overheating, this will be temporary. He believes that long-term inflation "will not change all at once."
Biden's stimulus plan is a big gamble. If it pays off, the United States will avoid the trap of low inflation and low interest rates that Japan and Europe fall into. Other central banks may follow the new goals of the Fed. Large-scale fiscal stimulus may become a normal response to the economic recession. The risk, however, is that the debt of the United States continues to increase, inflation is increasing, and the central bank is facing a test of credibility.
With the signing of the stimulus bill, mainstream cryptocurrencies have mostly risen. Bitcoin once rose above 58,000 U.S. dollars, further approaching the intraday high of 58,300 U.S. dollars created on February 21 this year.
Cryptocurrency supporters said that the stimulus bill may boost Bitcoin. As investors use Bitcoin as a safe haven, they worry that the U.S. dollar will depreciate due to the quantitative easing policy of the US Federal Reserve, and the long-term price trend of Bitcoin will skyrocket. .
Benchmark's CEO Sui Chung predicts that because of Biden's stimulus plan, more institutional investors will turn to Bitcoin.
Chung said: "This high inflation may prompt many long-term investors, especially pension funds and insurance funds, to invest in assets that are not under inflationary pressure, such as cryptocurrencies."