I have been doing a lot of thinking over the last several weeks, watching our economy’s woes, the political discourse, Covid-19 wrecking ball, the Fed and rest of the World. The Democratic Congress keeps fighting with President Trump, believing in their altruistic motives, whilst the Republicans view it some type of pre-election conspiracy. Or worse, Democrat’s perceived efforts to give it all away in a Socialist style agenda.
Meanwhile the US economy, and most of the world for that matter are suckling the teats of the Fed for sustenance and direction. If Jerome Powell wants Congress to bestow Fiscal relief on the American people, thus helping developing economies across the globe, the Congressional infighting will accomplish little to nothing. Even if Congress gets its act together, they will only succeed in indebting the American people more. Yes, we will avoid the whiplash of a recession or deeper deflation, unemployment, with additional giveaways.
In the old times, there used to be debtor’s prisons and once a third of the US budget is utilized for servicing debt, who is going to throw USA in a prison? The world watches and as long as the needs of the world are fulfilled by a strong American Dollar, we are safe. But once these needs for dependence on “King Dollar” are lessened by rise of domestic markets in developing economies, currency swap arrangements, digital currencies, China’s belt and road initiative in more than 100 countries, USA will be in trouble.
If China alone decided to sell their entire treasury Bond holdings, overnight the interest rates in USA will spike to 10-15%. Dollar will collapse. Imagine what that will do to our purchasing power. We would be able to buy maybe 1/5th. of the goods and services, with the new value of the dollar vis a vis other currency! In about 20 years’ time, we’d probably feel safer in prisons than our own homes, because our economy will collapse, social fabric will be in tatters and law and order will be in disarray. We may even experience another new civil war due to the altered economic realities, widespread demonstrations, looting and rioting. This election could possibly do the same.
The quickest band aid for the near term are negative real interest rates. Fed must immediately go negative from -100 to -125 basis points in a shock and awe nuclear strike. The Congressional squabbles and delays can be counteracted by Fed’s first strike of huge rate reduction with the caveat that Banks can’t use this money to load up with debt instead of lending this money out. In a Capitalist economy, when you give people money to take risk, OMG, heavens will open up. Investment appetite will go up, stock market and gold will go up and globally markets will cheer. This will spur global rate reductions by Central banks, spurring worldwide growth of industry, small businesses and employment.
The Chinese aggression must also be addressed, so it does not happen again. China won WWIII by design or by accident by unleashing Covid-19 biological warfare upon the world. While China ostensibly lost only 10,000 or so Citizens, they got quickly back up on their feet by April 2020 and their economy is running hot again. China has benefitted the most from selling PPE equipment to the world. China must stand trial in the World Criminal Court for unleashing the “China Virus”. The Chinese must set aside $400 Trillion for reparations to countries around the world for singlehandedly destroying their economies. The rest of the world is still mired in crises, with citizens dying on a daily basis, and Coronavirus is still spreading. I’m Asian myself, so I have no personal enmity towards the Chinese people or anyone else. My record on worldwide community service projects speaks for itself. You can see my LinkedIn profile, https://www.linkedin.com/in/sid-jain-a119a06/!
In the USA, the real unemployment is now close to 20%, if you count the underemployed, people who have stopped looking for work, the self-employed who may or may not have any net incomes. The 8.5% unemployment number is an assumed number based on archaic calculations. In this day and age, why is the Fed not mining the social security data of working age adults 18 to 65 in the USA, and see how many are not contributing anything to Medicare or Social Security? They may deduct those workers who are exempt for any reason to pay into Medicare or Social Security. Also, we will need to see how many of those contributing something into Medicare and Social Security are full time workers. If they are not full time, they really should be counted as unemployed, because some of them may be living in poverty or barely able to make ends meet and are living on government assistance.
With negative rates, the Fed gives the American people a tax cut in the form of lower borrowing costs for mortgages, credit cards, auto financing, student loans, business and personal loans, etc. For new mortgages, full doc loans, minimum 680 credit score, 43% back-end DTI ratio, minimum 10-year hold time to discourage flippers and contributing to wildly escalating real estate prices, minimum 620 credit score for new or used car buyer loans with verified income via paystub or tax returns for self-employed borrowers to minimize loan defaults, American people will take more risk with asset purchases with the help of the Fed.
New home construction will go up. For every house sold, it indirectly contributes to creation of 10 new jobs! That’s money in motion. The gold dust rubs off on everybody and it leads to economic expansion. That’s why Real Estate and Automobiles have always been the two major drivers in past economic growth cycles.
Multifamily, Commercial Real Estate Construction, Auto sales will all go up. Employment will follow. It will attract global investors to start businesses in America. Asset prices will go up. Some retirees with existing homes will benefit due to rising real estate prices, allowing them to retire more comfortably. Existing real estate owners, investors will all benefit. Inflation will follow and the Fed’s 2-3% unspoken range of inflationary expectations, maximum employment and price stability will soon be a reality, rather than massive borrowing and political uncertainty. Fed can really help the people of USA, rather the world, by using Monetary policy tools, rather than letting Congress drive us deeper into debt. Freedom in USA is at stake. USA can’t remain China’s bitch or Japan’s bitch! We are a proud nation, so let’s stop whoring to the world. We cannot keep selling bonds to crawl out of crises after crises.
Look, I don’t want to sound the trumpet of gloom and doom. I say all this because of the love of our country, USA! Our survival is at stake. We need to be number one country for a long time to come.
-Sid Jain, MA Economics, is President and CEO of MoneyMallUSA Corporation, www.mymoneymall.com, specializing in off market, institutional quality, financed, fully managed, turnkey, income and investment properties. He can be reached at 408-836-3858.