$3.3 Trillion in Total

Macro Perspectives: Wed 23 Dec 2020

We have another $900 billion added to the policy response this year.

That gives us a total of $3.3 trillion in fiscal stimulus/aid and we have about $3 trillion from the Fed. That's about a third of annual U.S. GDP. The economy peaked in Q4 GDP at $21.7 trillion (in economic output), the trough was in Q2 at $19.5 trillion - the simple math on that is a $2.2 trillion contraction (the gap).

Policymakers have plugged that gap with $6.3 trillion.

This is the dynamic we've been talking about in this daily note since this summer. Assuming the economy continued to open up and recover, the response was going to be far greater than the damage, and the result we've been discussing along the way has been: A global reset of asset prices.

We've seen it and it's still in the early stages. People are still hoarding cash - the last time the savings rate was this high was 1975 - personal savings is $1.2 trillion higher than it was last year this time.

That's why this chart has continued to plunge.

This is the velocity of money - the rate at which money circulates through the economy. From the far right of the chart, it hasn’t been fast over the past decade (therefore, no inflation).

We get inflation, only if the recipients of the money, spend it (if it circulates). That didn't happen coming out of the global financial crisis. Banks used cheap/free money from the Fed to recapitalize, not to lend.

In the current case, by design, money is being dropped directly into the hands of consumers (for the second time). But confidence in the future, job security and earning potential has been damaged by varying virus mitigation policies around the globe.

As that clears, and confidence is restored, that savings hoard will be spent. Prices will go higher, Asset prices will continue to go higher.