This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 135,000 other investors today. To investors, The United States Senate narrowly voted in favor of the American Rescue Package over the weekend. The $1.9 trillion stimulus package is being presented as a savior for the citizens still suffering from the COVID-induced economic crisis, but the actual impact of the package is likely to be a net negative.
As small businesses close their doors forever, manyof these jobs won't be coming back. This translates into far higher deficits going forward as many more Americans exit the workforce. Simply throwing money at a problem does not guarantee it will halt the formation of a self-feeding loop.
To be perfectly clear, the problem we face is that poorly spending even trillions of dollars does not necessarily create a strong economy. The idea we can simply throw money at our problems is flawed. The article below delves into this subject.
As a young teen in Jamaica who is just starting their financial journey. I thank you for these free publications, although I am a little behind in my readings. Thank you for your honesty because the media or certain financial giants won't educate us with the truth because they benefit from our ignorance. Thanks again. You are appreciated!
Your post makes a legitimate point about the potential for this relief package to worsen wealth inequality. But the post also has some pretty silly ideas in it.
For example, it complains about "more money to bail out poorly run local and state governments that shut down their economies" and "showering money on the government, rather than the people", which is ridiculous for multiple reasons.
1. Governments didn't "shut down their economies" in general. Essential workers have had to keep working all along.
2. It's not as if everything would have been fine if state/local governments had refused to close anything down. There is, in fact, a pandemic.
3. Treating government spending as separate from spending money on "the people" is a false dichotomy. Local and state governments are on the hook for services they provide to people, and money spent on/by the former doesn't just disappear into a black hole. One pretty obvious reason to give money to local/state governments is to fund COVID-19 testing, which is surely spending money on "the people"!
If you're interested in future inflation and don't trust recent CPI numbers, why not just compare the yields on inflation-indexed Treasury bonds to yields on non-indexed bonds? Those show that 5-year inflation expectations dipped early in the pandemic to about 1%, and have come back up only to about 2% (https://fred.stlouisfed.org/series/T5YIFR).
Blue cities, counties and states have had poor fiscal management for decades. The bailout simply encourages more bad behavior on their part and punishes local govt that actually were fiscally responsible.
If you continue to believe this, you will not part of a credible solution to addressing poverty. The majority of local governments' spending goes to a bloated bureaucracy. Governments will continue to raise your taxes to feed this system and what little remains will only make people like you feel good about "serving the populace".
Local governments are generally quite efficient. The question is what level of infrastructure and security do you want to pay for? As rural areas with small tax bases find it more and more difficult to participate in a modern level of infrastructure and large cities and federal systems subsidize them less and less, then perhaps rural county by rural county might just vote to lower taxes to the bare minimum to support a basic 1930's level of infrastructure for the masses with the rich paying for private services above that. More gravel roads, no public hospitals, only individual satellite internet available to the rich, concierge cash only health care for the rich, run-down community health clinics for the masses, etc.
Local Governments spend much of their budgets on services that help daily life function for the general population which includes more poor than rich. Without this aid to local government, those governments would have to raise local taxes which for the most part are regressive taxes that represent a greater portion of the income of the poorer segment of society than the richer segment. Therefore, the aid to local government will avoid a spike upwards in these local taxes and is thus basically aid to the poorer segments of society.
Much of the problem was self inflicted. Many of these local govts were already in bad shape, and unwise decisions like Newsom’s arbitrary colored tier system devastated small businesses, and thus tax revenue.
So you agree that aid to local governments helps the poorer segment of the population, but prefer to not aid local government because you think they will wise up if "punished" by being left to fail more completely at a more rapid pace...well...oookaaay...but be careful what you wish for...chaos doesn't necessarily lead to progress. Bitcoin advocacy is not an exclusive club for libertarians who share a fever dream of a quick collapse of disfunctional government. The significant progressive political movements of the late 19th and early 20th centuries were vigorous supporters of sound money.
The problem is government run financial literacy would teach
"Bitcoin is bad. Invest with the government."
Just like government run nutritional literacy teaches "Eat government subsidized corn and soy."
As small businesses close their doors forever, manyof these jobs won't be coming back. This translates into far higher deficits going forward as many more Americans exit the workforce. Simply throwing money at a problem does not guarantee it will halt the formation of a self-feeding loop.
To be perfectly clear, the problem we face is that poorly spending even trillions of dollars does not necessarily create a strong economy. The idea we can simply throw money at our problems is flawed. The article below delves into this subject.
https://brucewilds.blogspot.com/2021/01/the-next-wave-of-spending-will-not.html
As a young teen in Jamaica who is just starting their financial journey. I thank you for these free publications, although I am a little behind in my readings. Thank you for your honesty because the media or certain financial giants won't educate us with the truth because they benefit from our ignorance. Thanks again. You are appreciated!
TLDR - we are screwed. :(
Your post makes a legitimate point about the potential for this relief package to worsen wealth inequality. But the post also has some pretty silly ideas in it.
For example, it complains about "more money to bail out poorly run local and state governments that shut down their economies" and "showering money on the government, rather than the people", which is ridiculous for multiple reasons.
1. Governments didn't "shut down their economies" in general. Essential workers have had to keep working all along.
2. It's not as if everything would have been fine if state/local governments had refused to close anything down. There is, in fact, a pandemic.
3. Treating government spending as separate from spending money on "the people" is a false dichotomy. Local and state governments are on the hook for services they provide to people, and money spent on/by the former doesn't just disappear into a black hole. One pretty obvious reason to give money to local/state governments is to fund COVID-19 testing, which is surely spending money on "the people"!
You also cite "Shadow Stats" as evidence that "official inflation numbers are widely inaccurate". But SS has been known for literally years to juke its own stats by adding an arbitrary fudge factor — see http://econbrowser.com/archives/2008/10/shadowstats_res and https://azizonomics.com/2013/06/01/the-trouble-with-shadowstats/.
If you're interested in future inflation and don't trust recent CPI numbers, why not just compare the yields on inflation-indexed Treasury bonds to yields on non-indexed bonds? Those show that 5-year inflation expectations dipped early in the pandemic to about 1%, and have come back up only to about 2% (https://fred.stlouisfed.org/series/T5YIFR).
Blue cities, counties and states have had poor fiscal management for decades. The bailout simply encourages more bad behavior on their part and punishes local govt that actually were fiscally responsible.
You neglect to mention, though, that red cites, counties, and states get more funding from the federal government than what they pay in federal taxes.
If you continue to believe this, you will not part of a credible solution to addressing poverty. The majority of local governments' spending goes to a bloated bureaucracy. Governments will continue to raise your taxes to feed this system and what little remains will only make people like you feel good about "serving the populace".
Local governments are generally quite efficient. The question is what level of infrastructure and security do you want to pay for? As rural areas with small tax bases find it more and more difficult to participate in a modern level of infrastructure and large cities and federal systems subsidize them less and less, then perhaps rural county by rural county might just vote to lower taxes to the bare minimum to support a basic 1930's level of infrastructure for the masses with the rich paying for private services above that. More gravel roads, no public hospitals, only individual satellite internet available to the rich, concierge cash only health care for the rich, run-down community health clinics for the masses, etc.
Local Governments spend much of their budgets on services that help daily life function for the general population which includes more poor than rich. Without this aid to local government, those governments would have to raise local taxes which for the most part are regressive taxes that represent a greater portion of the income of the poorer segment of society than the richer segment. Therefore, the aid to local government will avoid a spike upwards in these local taxes and is thus basically aid to the poorer segments of society.
Much of the problem was self inflicted. Many of these local govts were already in bad shape, and unwise decisions like Newsom’s arbitrary colored tier system devastated small businesses, and thus tax revenue.
So you agree that aid to local governments helps the poorer segment of the population, but prefer to not aid local government because you think they will wise up if "punished" by being left to fail more completely at a more rapid pace...well...oookaaay...but be careful what you wish for...chaos doesn't necessarily lead to progress. Bitcoin advocacy is not an exclusive club for libertarians who share a fever dream of a quick collapse of disfunctional government. The significant progressive political movements of the late 19th and early 20th centuries were vigorous supporters of sound money.