The second quarter of 2020 passed with the ferocity of a California wildfire. The economic fallout from government-mandated lockdowns was swift, severe, and enduring. Yet, despite this destruction, major U.S. stock market indices saw record gains during Q2.
The Dow experienced its best quarter in 33 years, the S&P 500 achieved its most remarkable performance since 1998, and the NASDAQ surged by an astonishing 38.85 percent in just three months, marking its largest increase since 1999.
Conversely, the economy faced immense challenges. Years of accumulating debt resembled deadwood waiting to ignite, and government lockdown orders struck the match, leading to widespread economic devastation.
The outcomes, ominously predictable to everyone except the experts, unfolded in a chain reaction: supply chain disruptions led to retail declines, which triggered plummeting sales and dwindling cash flow. This ultimately resulted in layoffs, business closures, shrinking tax revenues, unmanageable public and private debts, widespread bankruptcies, civil unrest, and potential societal collapse. The velocity of this economic wildfire was so rapid that many people struggle to grasp the full extent of what transpired.
In response, Washington’s interim solutions, alongside the Federal Reserve’s efforts, revolved around pouring more fuel onto the fire. These responses largely involved vast injections of artificial liquidity to mask the economic downturn.
Money Printer Go BRRR
The onset of massive corporate bailouts marked just the beginning. Payroll Protection Program (PPP) loans were issued to over 650,000 small businesses, including the Yeezy fashion line owned by presidential candidate Kanye West and Grover Norquist’s anti-tax group, Americans for Tax Reform.
Furthermore, the Federal Reserve started generating money from thin air to purchase corporate bonds. As of June 28, the Fed had acquired $428 million worth of corporate bonds from 86 different companies, which included corporations like Berkshire Hathaway Energy, McDonald’s, Southwest Airlines, CVS, AT&T, Boeing, Coca-Cola, Exxon Mobil, Ford, Walmart, United Health Group, and Philip Morris International.
The CARES Act also provided the average worker with a $1,200 stimulus check, while the unemployed benefited even more significantly. About 20 million out-of-work Americans received an additional $600 per week to supplement their unemployment benefits. It’s hard to remember a time when unemployment was as financially rewarding.
However, every beginning has its end. The extra $600 CARES Act payments are set to conclude on July 31. The pressing issue is that many jobs lost due to lockdowns may not return. So, what will an activist government do next?
A second round of stimulus checks is all but certain. Senate Majority Leader Mitch McConnell intends to finalize a new package when the Senate reconvenes between July 20 and August 7.
According to Treasury Secretary Steven Mnuchin, arrangements are in place to expedite the distribution of the checks. Additionally, President Trump has expressed a desire for larger checks. The Senate will soon deliberate the details of who receives money and in what amounts.
Clearly, the strategy of central planners and policymakers revolves around the printing press. In other words, money printer go BRRR.
But how much fake money can be generated before we encounter a significant devaluation of the dollar? The answer may soon reveal itself.
Game Over Spending
The harsh realities of this madness are often too grim for most journalists to provide an in-depth analysis. In June, the U.S. budget deficit reached an astonishing $863 billion. For context, an annual budget deficit of $863 billion is staggering and unsustainable. Yet, this massive figure was accumulated in just one month.
For further context, the budget deficit for June 2019 stood at only $8 billion. This means the deficit for June 2020 has increased 101 times compared to the previous year. This clearly illustrates game over spending—a desperate government making extreme moves to prevent economic collapse.
Yet, the mass production of artificial money will ultimately exacerbate an already dire situation. Instead of merely facing an economic downturn and financial crisis, we may also encounter a dollar crisis. This showcases the fundamentals of game over spending. For insight, we can turn to Jeffrey Gundlach, CEO of DoubleLine Capital, who emphasizes the stakes at hand:
“There’s a risk that the dollar starts to reverse into a significant downtrend because the value of the dollar versus other currencies is greatly affected by the growth in our budget and trade deficit.”
Indeed, the systematic deterioration of the dollar, driven by policy decisions, carries serious implications. Something alarming is on the horizon. In anticipation, gold recently reached a nine-year high, approaching its all-time peak of $1,921 set in September 2011.
Regardless of interpretation, gold’s role as a reliable store of wealth seems to shine even brighter in light of the government’s reckless spending practices.
Sincerely,
MN Gordon
for Economic Prism
