Your Preview of the Biden Economy

Will Biden Reverse All Trump’s Policies? Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Your Preview of the Biden Economy - Biden shuts progressives out of his Cabinet… - Will Biden stop the trade war with China?… - Then Jim Rickards shows you why neither monetary policy nor fiscal policy can lift the economy out of the “New Great Depression”… Recommended Link [New “$2,000,000 Prediction”]( [Read more here...]( Jim Rickards is famously known for his game changing predictions throughout his career… But now Rickards has just issued what he says is, “The biggest prediction” of his career... One he is extremely confident will happen… that there is currently an estimated $2,000,000 connected to it. [Watch The Video For The Details]( Portsmouth, New Hampshire January 5, 2021 [Jim Rickards] Dear Reader, As you probably know, the runoff election for the two Georgia Senate seats is happening today. If Republicans win one or both elections, they retain control of the Senate, meaning they can block the more ambitious aspects of the Democratic Party agenda (I’m assuming Biden will be president, which is still not certain). That agenda includes packing the Supreme Court, abolishing the Electoral College, making Washington, D.C. and Puerto Rico states, enacting some version of a Green New Deal, etc. If Democrats win both elections, they effectively take the Senate (the Senate would essentially be 50-50, with Vice President Kamala Harris casting the deciding vote). But what policies can actually be expected in a new Biden administration? It will be an interesting mix of a continuation of many of Trump’s policies, with some abrupt departures on immigration and possibly taxes. Let’s break it down… Almost all of Biden’s Cabinet selections served in the Obama administration in one capacity or other. These appointments signal that there will be no place at the table for the progressive wing of the Democrat Party. The biggest change will be in immigration policy. Biden will stop construction on the new border wall with Mexico and possibly even disassemble some recently completed sections. The Customs and Border Patrol will be ordered to stand down from enforcing border security. In effect, the U.S.-Mexican border will once again be an open border. One effect of illegal immigrants is to reduce wages in the U.S., as many will work for as little as $5 per hour. What’s financially attractive for employers is sub-optimal for the economy as a whole. This dynamic favors large employers, and creates a deflationary bias in the economy that hurts aggregate demand for consumer goods and services. Part of the reason real wages rose for blacks and Hispanics during the Trump years was his aggressive polices to halt illegal immigration. That dynamic will now go in reverse. Taxation is another policy area where Biden may implement major changes to Trump’s policies. Biden’s tax proposals call for raising the top individual tax rate from 35% to 39.6% and increasing the long-term capital gains tax rate from 20% to 39.6% on incomes over $1 million. Other hidden tax increases will be implemented by eliminating or capping tax deductions. This has the effect of increasing the effective tax rate without actually changing the statutory tax rate. Taxpayers pay more not because rates are higher but because deductions are fewer. Other likely Biden initiatives will be mostly for show with little practical impact. The U.S. may rejoin the Paris Climate Agreement as a show of international cooperation on climate change. However, the Trump administration already lowered CO2 emissions from the U.S. by more than the Paris agreement required, so the immediate impact of rejoining the agreement will be nil. The greater danger is that Biden’s “climate czar” John Kerry and others will use climate change as an excuse to drive a globalist agenda including carbon taxes, limitations on fracking and offshore drilling, higher gasoline taxes and greater subsidies to unprofitable wind and solar initiatives. These initiatives will have the effect of hurting high-paying energy related jobs, increasing costs to consumers and increasing budget deficits. On the whole, this climate change agenda will hurt economic growth even in the absence of the more radical Green New Deal. But many Trump policies will remain untouched. For example, here will not be a sudden reversal in the U.S.– China trade war. This is one of the few issues where Democrats and Republicans agree on goals even if their tactics vary slightly. The rhetoric will be dialed-down on both sides. Tariffs may be eased slightly but not eliminated. On balance, Biden will ease restrictions on Chinese investment in the U.S. in exchange for new investment opportunities in China. (Biden is probably heavily compromised by Chinese intelligence and the Communist Party of China because of his family kickback schemes involving Chinese energy companies and investment funds). The trade war will continue, but the financial war and the emerging Cold War 2 scenarios will be scaled back. Added all up, it means not much of substance will get done outside of immigration, energy and possibly tax policy. Yet, those three areas are enough to put a substantial drag on economic growth through higher costs, higher taxes and lower wages. With that as background, we turn specifically to fiscal and monetary policy and the likely shape of the Biden economy. Below, you’ll see where the economy is trending today and whether any proposed fiscal or monetary changes will change that trend. Read on. Regards, Jim Rickards for The Daily Reckoning P.S. $2,000,000… That’s how much money is connected to [my latest prediction.]( And if you haven’t seen it yet, I’d highly advise you take the time to. Simply put... Those who take advantage of what I believe will happen in the years ahead could experience life changing returns in a market that [99% of Americans have no idea even exists.]( That’s why I’m strongly encouraging you to see my message and decide if this opportunity is right for you. [Please click here now for all the details.]( Recommended Link [World’s Richest Man’s Latest Bombshell]( [Read more here...]( His first BOMBSHELL shook the retail industry and completely turned it upside down. And now the man is targeting another $2 trillion dollar industry with his latest BOMBSHELL. It could bankrupt household name companies. It could disrupt established industries... It could make folks like you a fortune. The fuse has already been lit... and on Jan. 29th I believe he’ll reveal a few more details. If you missed out on taking advantage of the Amazon success story... don’t miss out again. [Click Here Now]( The Daily Reckoning Presents: Neither monetary policy nor fiscal policy can lift the economy out of the “New Great Depression”… ****************************** Biden Will Face New Depression By Jim Rickards [Jim Rickards]Economic growth or decline is the result of factors that are larger than any one administration or any one set of policies. Of course, specific policies such as tax changes or regulatory initiatives can help or hurt the economy depending on how they are designed, but they will generally not change the macro-momentum. A tax increase may be a headwind for growth, but it will not stop a strong economy in its tracks. Likewise, a tax cut or extended unemployment benefits may be a boost for a weak economy, but they will not end a recession single-handedly. Growth and recession are driven by larger events such as demographics, globalization, war, inflation, deflation and, yes, pandemic. Large changes in fiscal or monetary policy are the only policies that may or may not move the needle. The recession that began in February 2020 most likely ended in July. There has been no official declaration to that effect from the National Bureau of Economic Research (NBER), the private but widely recognized arbiter of business cycles. Still, given third quarter GDP estimates of 33.1% growth, it is almost certain that the recession is over. While the recession may be over, the new depression is not. Annualized growth in the first quarter of 2020 was negative 5.0%. The second quarter produced negative 31.4%. The third quarter produced growth of positive 33.1%. We won’t have the official numbers for fourth quarter growth until late January, but the best estimates as of now are growth of about 7%. Both the second quarter decline and the third quarter recovery were the highest annualized figures for decline and growth ever recorded in U.S. history. Here’s the problem. While third quarter growth was impressive, it was working off a much lower base as a result of the second quarter decline. That 31.1% gain has to be applied to a base that was only about 65% of the level of 2019 output because of the declines in the first and second quarters. That third quarter gain would put output back up to about 87% of that level and a further fourth quarter gain of 5% would take annual GDP up to 93% of the 2019 level. That still leaves an estimated 7% decline in GDP for the full year 2020, the worst full year decline in GDP since 1946 when growth declined 11.6% due to the demobilization after World War II. During the worst full year of the Great Depression (1932), growth fell 12.9%. The year 2020 marks an historic and traumatic decline in growth of a kind only seen in the context of depression or war. It is a New Great Depression. So, what’s the outlook for 2021? A new recession will occur in the first quarter of 2021. In fact, the economy is likely headed into another technical recession right now, which would present the first double-dip recession since 1980-1981 when a second recession began (July 1981) almost exactly one year after the prior recession ended (July 1980). The reason is the imposition of new lockdown requirements by governors in most major states. Investors may be encouraged by new all-time highs in the stock market, but the stock market indices are cap-weighted or formatted in favor of a small number of tech or digital economy companies (Amazon, Apple, Netflix, Microsoft, Facebook, Alphabet (Google) and a few others). These companies are least affected by the pandemic and are not representative of the overall U.S. economy. Over 45% of GDP and 50% of all jobs are produced by small-and-medium sized businesses. These businesses include restaurants, bars, salons, gyms, dry cleaners, bodegas, boutique stores, small manufacturers and many others. This is the part of the economy affected by the lockdowns. They are being destroyed. Many closings are no longer temporary but have become permanent as businesses fail, equipment is dumped at fire sale prices, job losses are not recovered, leases are broken and empty storefronts become a sign of the times. You see this everywhere from Fifth Avenue in New York City to any small town near you. Recommended Link [Gilder: “This Reboot Could Make You Rich”]( [Read more here...]( A wealth revolution is coming. And it could make you very… very… rich. That’s the latest forecast from the man they call “America’s #1 futurist”… “Wall Street’s most influential technology trader”… and “a true American genius.” How so? “We’re headed for a potential $16.8 trillion reboot,” he says. “Nobody will remain untouched. And a few early investors could walk away with a king's ransom.” [Click Here To Find Out More]( The vaccines are being administered, but they won’t come fast enough to stop a new recession (and there are concerns about the effectiveness of the vaccines given viral mutation and doubts about how long the antibody response remains robust). Lower unemployment rates reported in recent months are not quite the cause for cheer that Wall Street analysts make them out to be. Those rates do not include individuals who have lost jobs but have dropped out of the labor force and are not technically counted as unemployed. This phenomenon shows up in the labor force participation rate, which is dropping sharply and is near the lowest rate since the 1970s when women started to enter the workforce in large numbers. An able-bodied person without a job has zero productivity whether you’re technically counted as unemployed or not. This is another drag on growth and one more reason not to believe the Wall Street cheerleaders. Biden’s policies will not change this result, but they will make it slightly worse. Biden supports the lockdowns despite scientific evidence that they don’t work to stop the spread of the virus. (Hand washing, social distancing and masks do work; lockdowns do not). Biden’s plans for immediate border reopenings will put downward pressure on wages. His plans for green regulation will raise costs for consumers and cost jobs in the energy sector. His tax increase plans will be another drag on growth. The Biden plan will not cause the recession; it’s already here. His plans will make thing worse and possibly extend the new recession into the second quarter as well. Monetary policy is not stimulus because the new money is going to the banks and the banks simply deposit it with the Fed as excess reserves on which they receive interest. If the money is not being loaned by banks and spent by consumers, there is no turnover or “velocity” of money. That means deflation will be a bigger problem than inflation, at least for the next year. Deflation increases the real value of debt, which is another drag on growth. Fed policy is impotent; Jay Powell and his colleagues are out of the game and can safely be ignored. Fiscal policy is not stimulus because the U.S. debt-to-GDP ratio is now over 130% and rising quickly. Extensive research shows that at debt-to-GDP ratios above 90%, the multiplier on new debt is less than one. This means we’re in a debt trap (in addition to a liquidity trap caused by the Fed). We cannot print our way out of a liquidity trap. We cannot spend our way out of a debt trap. Neither fiscal nor monetary policy will produce stimulus given current conditions of low velocity, high savings rates, high debt, high unemployment and new lockdowns. The Fed and the Congress may try to stimulate the economy, but they will fail. The path for investors is clear. Equity exposure should be reduced because the gap between market perception and economic reality will close quickly once the new recession becomes apparent. Cash allocations should be increased to reduce overall portfolio volatility and to give investors flexibility and optionality once some of the political and economic uncertainty begins to clear. Allocations to gold, silver and mining shares should be at least 10% of investor portfolios both as an inflation hedge and a hedge against declining confidence in central bank currencies. Regards, Jim Rickards for The Daily Reckoning P.S. $2,000,000… That’s how much money is connected to [my latest prediction.]( And if you haven’t seen it yet, I’d highly advise you take the time to. Simply put... Those who take advantage of what I believe will happen in the years ahead could experience life changing returns in a market that [99% of Americans have no idea even exists.]( That’s why I’m strongly encouraging you to see my message and decide if this opportunity is right for you. [Please click here now for all the details.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. 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