The economic fallout of 2020 is leading to greater wealth divide within first world countries and between first world countries and developing ones.
March 8, 2021
By: Bobby Casey, Managing Director GWP
Those who know me, know I don’t vote. If anything, I vote with my wallet and my feet. I’ve opted out of the American life and into a location-independent one. The US government all but sold me on that decision too!
From an offshore perspective, the US government sells expatriation the way Gavin Newsom sells leaving California!
At one point I was convinced I would live out my days in this one house in North Carolina. I’m so far from those days I barely recognize that guy in the memories as me.
2021 and the next three to five years following will be the years to watch. Last year’s response to Covid has a bill that will be coming due, and if the layers of government are as sloppy paying that off as they were in handling the pandemic, humanity is in for a bumpy ride.
Biden in general is backing off some of his more lofty promises. When I say backing off, I don’t necessarily mean abandoning them entirely, but it’s not what people were sold on.
A small example is the recent $1.9 trillion “Covid Relief Bill” that made it to the Senate. The checks won’t be for $2,000 as originally promised, and the minimum wage won’t be brought up to $15 per hour. Two things people were told would happen. He even cut unemployment benefits by 25%!
He hasn’t done a thing about the kids in cages other than call them children in overflow detention facilities.
He launched a strike against Syria before even doing a thing for the US! Regardless of whether your politics lean left or right, it should bother anyone who’s paid a dime in taxes to see their money getting blown up overseas especially during a time like this.
He was supposed to end the trade war but wound up imposing even more tariffs:
Biden’s decision … to reimpose 10 percent tariffs on aluminum imports from the United Arab Emirates (UAE) contains all the major hallmarks of former President Donald Trump’s misguided trade policies. Biden even sounded downright Trumpian as he announced the renewed tariffs—which Trump had lifted during his final days in office. “The available evidence indicates that imports from the UAE may still displace domestic production, and thereby threaten to impair our national security,” says Biden’s executive order announcing the policy.
But as the world starts to look toward a more normal future, what is waiting for hem on the other side? The economy has become the can kicked down the road.
First, let’s talk about the rest of the world.
Nothing foments the unrest of developing nations quite like food shortages and wildly unstable pricing. This happened in Egypt in the early 2010s. There was certainly political unrest, but the fact that someone would go to the market to buy lentils on a Tuesday and pay one price and the next day the price would be triple exacerbated the situation.
That’s what’s on the horizon now. First world nations are seeing hikes in food prices, but not in the same way developing countries are:
The Food and Agriculture Organization’s Food Price Index rose for a ninth consecutive month in February, hitting levels not seen since July 2014, led by sugar and vegetable oils.
Keeping these developing countries unstable in the wake of the economic downturn from the pandemic response furthers the divide between first and third world. Which is no different from the growing divide in wealth within first world countries.
Second, let’s talk about the wealth gaps. I don’t think the central banks have had control over the monetary system for decades, but I think 2008 kicked what was bad into much worse.
Where exactly is that $1.9 trillion stimmy money coming from? The Federal Reserve and their infinite monetization of debt scheme. That’s where. They can’t stop printing. They can’t even bring the rates up! Interest rates on a 30 year fixed mortgage have been around 5% or under since 2009.
The US finds itself squarely in the center of a debt based economy with no real painless options to get out of it. The debt isn’t just with the country, but individual debt. Currently, 10% of the economy is investing while the other 90% is supporting itself with debt.
The United States’ economy is addicted to debt:
“The debt surge is partly by design. A byproduct of low borrowing costs the Federal Reserve engineered after the financial crisis to get the economy moving. It has reshaped both borrowers and lenders. Consumers increasingly need it. Companies increasingly can’t sell their goods without it. And the economy, which counts on consumer spending for more than two-thirds of GDP, would struggle without a plentiful supply of credit.”
What started off as a stopgap has become a long-term solution with only grim long-term consequences. Those who are in debt went deeper into it. Those who were invested, saw greater returns. Obviously personal choices play a role in all this, but so does inflation and the irresponsible rigging of the markets.
This is what happened with housing and higher education. What started off as a painkiller, turned into a habit:
The trap the Fed has fallen into is that markets are predicated on ever-cheaper cash being freely available. Even the faintest threat that the cash might become more expensive or less available causes shock waves.
Such was seen in late 2018 when the Fed signaled it might increase the pace of normalizing monetary policy. The markets imploded, and the Fed halted its plan of shrinking its balance sheet. Then, during the pandemic, the Fed flooded the system with liquidity to halt a market crash.
The reality is the Fed has left unconventional policies in place for so long after the “Financial Crisis,” the markets can no longer function without them. Risk-taking, and the build-up of financial leverage, have removed any ability to “normalize” monetary policy. At least not without triggering violent market convulsions.
The US has been bailing out companies, pushing debt, and regulating in favor of larger business for decades. The recent discussion of doubling the national minimum wage and the constant quantitative easing is how the larger corporations exponentially grow in market share. And so the divide keeps growing.
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