In what is becoming the largest bailout in US history, some investors are not rejoicing. While the markets soar and money rushes in, is anyone asking about the cost and the ability to repay the trillions upon trillions that the Fed and US taxpayers are now comitting to? Furthermore, what damage to the US dollar and the purchasing power of its citizens will this have? Finally, if the US ever enters a recession the Fed cannot delay, what happens to budget deficits? Let’s tap a few different financial minds to discern how this bailout package may play out.
In Mike Maloney’s latest podcast from yesterday, he outlines the size of the combined bailouts and the potential implications.
Bailout Mania as Trillions Prepare to Flood Markets
In discussing unprecedented government bailouts, Maloney notes the previous $800 billion package for the coronavirus, combined with the annual $1 trillion dollar deficits…
“This takes the deficit spending up above $8 trillion dollars, already and it hasn’t stopped. This is going to go on. It isn’t $6 trillion, it isn’t even going to stop at $60 trillion. We are at the end of the debt super cycle right now.”
Finally, Mike notes,
“They’re just cutting the currency up, the currency supply into smaller and smaller pieces. And what this does, is this pushes some sectors into bubbles and warps the economy. At the expense of other portions of the economy. Those other sectors have to be stolen from. So, some people are enriched at the expense of the other people that they are going to impoverish.”
Why Unlimited Cash May Not Save U.S. Economy This Time
These are historic, unprecedented times by any measure. While the crash was bad, the bear market in stocks is not over yet, not by a long shot.
Watch How Coronavirus Rescue Package Differs From Financial Crisis Bailout by the Wall Street Journal for a balanced take on the current bailout.
Ben Hunt, Founder of Epsilon Theory and CIO from Second Foundation Partners explains what he dubs an unholy trinity:
“More debt, more stock buybacks, more stock-based compensation for senior management. It all goes together and it all creates hollowed-out companies. Companies that are so much weaker when they face a crisis like these companies are facing now.”
The lure to buyback shares, thus increasing the value of stock-based compensation doesn’t allow much for a rainy fund.
Finally, it wouldn’t be a crisis without Peter Schiff, who we interviewed in his home back in 2015, saying he was right. In all fairness, most of Peter’s forecasts have now come to fruition. Watch QE Infinity and Beyond, where he addresses the current bear market rally, when you have a few minutes.
The U.S. has become the bailout nation. How long it can get away with papering over these larger and larger crises is yet to be seen. With the CBOE Volatility Index, or the VIX, still above 59, we are certainly not out of the woods.