Biden has been in office for less than three months, and the veteran politician, who has been in politics for more than 40 years and has always appeared as a moderate, now has very inflated revolutionary ideals. Not to mention the nearly 60 presidential decrees he issued to achieve the Democratic Party’s dream of gender diversity, legalization of marijuana, green energy program, opening the country to non-immigrants, black reparations program and other social projects, just recently launched three super huge economic stimulus package, a total of more than $6 trillion. This government’s rhapsodic energy to stimulate the economy through a massive spending spree is comparable to Mao’s Great Leap Forward into communism, and makes Beijing, which spent 5 trillion yuan in 2009, feel ashamed of itself.
Biden’s “Great Social Construction Project”
Biden says his plan presents a once-in-a-century opportunity for the United States, including three phased programs: the $1.9 trillion American Rescue Plan, with most of the money going to Democratic states, including a lot of foreign aid; and a just-announced $2.3 trillion infrastructure plan over eight years, centered on repairing roads and bridges, expanding broadband access and increasing research and development funding. It includes $621 billion in infrastructure rebuilding, such as roads, bridges, highways and ports, as well as $174 billion in investments in the electric vehicle market and the construction of a national charging network by 2030. On top of that, Biden will release another economic proposal in April that would add another $2 trillion to the stimulus total. Where will the money come from? Biden’s approach is straightforward: raise corporate taxes to 28 percent from the current 21 percent to cover huge government spending.
Democrats, like leftist governments around the world, are in power to spend money and enjoy the God-like thrill of sharing the cake, but never want the money to come from – and even if they did, there are only three ways: raise taxes, print money, and raise debt.
Tax hike plan makes Biden-supporting business community worried and angry
According to various media reports, Biden’s plan would raise the corporate tax rate from 21 percent to 28 percent for 15 years and impose a minimum tax on the profits of multinational corporations.
Democratic progressive lawmakers are enthusiastic about the plan, with AOC highly praising Biden’s stimulus plan and saying they want to spend more money and do more; Republicans are upset, including McConnell, who opposes it; multinational corporations that have fully supported Biden’s campaign, including the Alliance for the Defense of Democracy (Protect Democracy), which came forward a week before Election Day 2020, have asked to join in a statement in support of Biden’s plan. The U.S. Chamber of Commerce (U.S. Chamber), which has supported Biden’s campaign, is on the edge of its seat and preparing to lobby hard.
The Washington Post, which has always supported Biden and the Democratic Party, published “Democrats, Republicans and Businesses Fight Over Biden’s Proposed Tax Hikes” on April 1, while Bloomberg published “Biden’s Infrastructure Plan Squeezed by Congressional Parties” on March 31, referring to various voices opposing the tax hikes.
Printing money and issuing debt in a two-pronged approach
2020 encountered a new crown epidemic, countries around the world without exception to print money and raise debt to tide over the difficulties, the Federal Reserve crazy money printing 3 trillion dollars – according to the data released by the Federal Reserve estimates that the incremental amount of U.S. currency in 2020 is about 11 trillion dollars, this year the U.S. money printing accounted for 34% of the total dollar. Now, Biden to launch the United States never before in the history of large-scale economic stimulus plan, a total of 6.2 trillion (three programs in turn for 1.9 trillion + 2.3 trillion + 2 trillion), the last can only rely on money printing, debt solution, the dollar want not to devalue is difficult.
Printing money crazy risk, so the U.S. government also has to think of issuing treasury bonds. The so-called national debt, is the U.S. Treasury Department on behalf of the federal government issued the national public debt. According to the U.S. Treasury Department data, about one-third of the U.S. national debt in public debt held by foreign governments, the rest by investors, state and local governments, mutual funds, the Federal Reserve and other holdings.
Declining attractiveness of U.S. Treasuries
As of March 1, 2021, the U.S. national debt is more than $28 trillion, about 30 percent above GDP, and will burden the average household with about $280,000 and each person with about $85,000. Readers who live in New York City have the advantage of knowing the immediate change in the U.S. national debt by going to Sixth Avenue in Manhattan and looking at the giant digital clock marked “Our National Debt” to see the latest size of the U.S. national debt. Some experts already estimate that Biden’s four-year term will end with a new national debt of at least $7 trillion, more than Obama’s $5 trillion.
The attractiveness of the U.S. debt is beginning to ebb. According to a report released by the U.S. Treasury on Feb. 16, 2021, global central banks have been selling a significant net of about $1 trillion in U.S. debt in 25 of the past 33 months, a record level of global central bank dumping of U.S. debt. At the same time, including Japan, Germany, India, Russia, the United Kingdom, France, Canada and other 29 holders of U.S. debt have reduced their holdings to varying degrees. Among them, Russia is the most reduced holdings, has more than 90% of the U.S. Treasury bonds in hand dumped. Old debt is selling off, new debt is not actively claimed, the latest auction of 10-year and 2-year U.S. debt totaling $100 billion has been a trend of subscription stagnation, U.S. Treasury Secretary Ms. Yellen said on February 23, although the market is not interested in the 100-year Treasury bonds, but does not rule out reconsideration. She even wanted to change the debt measure, suggesting that it might be better to measure a country’s debt by the debt interest payment ratio than the debt-to-GDP ratio.
The U.S. 10-year Treasury yield has historically been the pricing anchor for global risk assets, and even aggressive advocates who see minimal risk in globalization have identified high U.S. Treasury yields as the biggest risk to globalization. Unfortunately, the U.S. 10-year Treasury yield has continued to rise in recent months (equating to a disguised Fed rate hike), approaching 1.7% in late March. While most U.S. asset valuers set a threshold of 1.5% for 10-year Treasury yields, Citi is slightly higher, set at 1.7%, while JPMorgan Chase has adjusted to 2%.
Foreign Buyers Deterred, U.S. Treasuries Have Entered the Inner Circle
U.S. debt has become less attractive to foreign purchasers. The current total of assets on the Fed’s balance sheet has reached $7.34 trillion, but back on Dec. 16, 2020, the Fed held $4.66 trillion in U.S. debt (excluding corporate debt, MBS, etc.), meaning that the Fed already holds more U.S. debt than the combined number held by major official holders overseas – -This figure indicates that the U.S. debt has been “circularized and internalized,” rather than purchased globally as in the past, spreading the inflationary pressure within the U.S. The reality of the increasing trend of the US Treasury’s internal circulation and internalization will certainly reinforce the question of “the weakening position of the US financial market” and raise the question of “how long can the dollar hegemony last”.
The progressive wing of the Democratic Party has the same spirit of Mao Zedong when he launched the “Great Leap Forward”: how bold people are, how productive the land is, never spend money without hesitation, always thinking that Congress is omnipotent, passing a bill, approving a plan, money will come rolling in. To Biden the total amount of up to 6.2 trillion dollars of investment, Nancy Pelosi and others are considering how to find a way in the process, the project will be broken down and packaged, approved by item, only did not think of Yellen Treasury Secretary to raise money troubles: in the expanding trend of the U.S. debt “internal circulation and internal debt”, how to convince external buyers to enter the purchase is The most important thing is to convince external buyers to buy. If external buyers will not enter on a large scale, then we have to think about coping with inflation and dollar devaluation.
In short, Biden’s vision is ambitious, and the desire of the progressive wing of the Democratic Party to spend money is very strong. But they are completely wrong in thinking that it is the Republican Party that is preventing Biden from achieving his self-proclaimed “once-in-a-century” dream of greatness. The “roadblock” to Biden’s dream is not the Republican Party, nor those who once supported him but now oppose tax increases in the business community, but money, the United States of America’s unparalleled high debt, not to mention that, in the United States of America’s high debt, this mega-stimulus package is a big gamble on national fortune.
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