$4.5 Trillion - All Borrowed

Macro Perspectives: Fri 15 Jan 2021

Biden was set to unveil his stimulus plan last night.

This comes as Congress just passed $900 billion of aid in late December, about half a trillion of which was unspent from the original Cares Act from March.

Meanwhile, we have a vaccine in distribution. The economy is nearly back to pre-pandemic economic output levels and even leaders of locked-down states and cities are changing their tune, pushing to open up.

So, one might ask, why do we need another multi-trillion dollar aid package?

We already have an exploding deficit and asset prices are ratcheting up day-in and day-out, eroding the buying power of the dollars in our pocket. Why pour (more) gasoline on the fire?

Over the past 10 months, we're now looking at three tranches of federal stimulus/aid, that totals $4.5 trillion - all borrowed.

There's talk that Biden wants a separate/additional package to address his economic transformation/clean energy plan - with an aligned Congress, he will get it.

If that type of deficit spending doesn't sound like something you would like to be a creditor too, you're not alone. And that's why global investors are selling U.S. Treasuries, and those willing to buy (lend) are commanding higher compensation (higher yields).

With that, it's early days in a new long-term bear market for U.S. government bonds - that means higher rates. It's a matter of how high, and how fast they move.