Get Ready: More “Stimulus” Coming

Another 2.12 million Americans filed onto unemployment lines last week.

This we learn by way of the United States Labor Department this morning.

A Dow Jones survey of economists had soothsaid 2.05 million — a slight “miss” in the parlance of the trade.

Yet a miss to the downside… not the upside.

The stock market was so jolted by the job losses… that all major averages jumped.

They ended the day lower. But only on the specter of fresh tensions with China.

Today China’s National People’s Congress approved a proposal that would throttle Hong Kong’s autonomy.

This, contrary to the expressed wishes of the United States president.

Tomorrow Mr. Trump will wag his finger at the Chinese… and likely announce sanctions.

Hence the stock market was ruffled late. But the earlier unemployment report had it going…

It Could Have Been Worse!

After all, said the cheer section:

2.12 million newly unemployed is not 2.4 million newly unemployed is not 6.9 million newly unemployed.

The trend, that is, swings the right way.

Mr. Gus Faucher — chief economist at PNC — thus informs us:

Layoffs continue at a massive scale, according to the latest unemployment insurance report, but it may be that the job market is nearing a turning point.

Adds Bank of America CEO Brian Moynihan:

You’re seeing us come out of the depths of where we were in April, and that’s good news.

Just so. Yet the present depths are nonetheless deep…

40.7 Million Are Still Unemployed

40.7 million Americans have signed onto unemployment… in a mere 10 weeks.

No precedent exists at any point in United States history — not even the blackest deeps of the Great Depression.

All comparisons, all parallels ring in weak as rooster soup… and feeble as dishwater.

We cited one economist yesterday. This fellow projected that perhaps 42% of the unemployed may remain eternally unemployed.

It is mere crystal-gazing of course. The actual figure may well come in lower.

Yet even a 20% figure represents 8 million Americans gone forever into mothballs.

Meantime, we were treated to additional economic “information” today…

Q1 GDP Was Bad — But Q2’s Will Be Far Worse

This second report came issuing from the data-manglers within the Bureau of Economic Analysis.

They revealed that Q1 gross domestic product actually contracted 5%. The initial hazard was 4.8%.

Thus the United States economy has endured its grimmest quarter since Q4 2008. Yet that low distinction will soon yield to Q2…

Second-quarter GDP promises to reveal an economic Hades defying the reach of all hyperbole, all superlative.

It will be as if the Grim Reaper had struck the jackpot… pitched a perfect game… and shot a hole-in-one — all in the same day.

The Atlanta outpost of the Federal Reserve is known for seeing glasses half-full. Its GDP projections nearly always overshoot the target.

Yet even Atlanta Federal Reserve estimates Q2 GDP will shrink at an impossible 41.9% annualized rate — 41.9%!

Given their perennial cheeriness, we wager the true figure will disappoint further still.

We will have our answer come July 30.

So Much Stimulus We Can’t Keep Track

Meantime, the United States government and its central bank have already unleashed “stimulus” beyond all imagining…

Trillions, trillions and trillions again. We can scarcely keep up one day to the next.

This year’s deficit may well eclipse $4 trillion. The pre-crisis estimate was $1 trillion — itself plenty handsome.

And the nation’s debt has rapidly ballooned to $25.6 trillion… which ticks higher by the second, the minute, the hour.

The Federal Reserve’s balance sheet — at over $7 trillion — already weighs one-third of the United States economy.

And it will continue to pack on heft. Depend on it.

Fastest Money Growth Since the 1970s

The M2 money supply has already expanded some 25% year over year.

M3 — M2 plus additional “near money” as institutional money market funds — could soon scale 15–20%.

Not since the inflation-addled 1970s has the money supply burst with such ferocity.

Thus the tide of monetary and fiscal delirium runs at full flood.

Yet Mr. Mnuchin envisions “a strong likelihood” the United States will require additional stimulus.

Senate Majority Leader Mitch McConnell (R–KY) agrees. Congress will “probably” have to pass it, says he.

We are certain it will.

But is there a limit to the debt being taken aboard?

“I Don’t Think We’re Anywhere Near the Limit to That”

The president of the New York branch of the Federal Reserve — John Williams — insists the limit is nowhere in sight:

I don’t think we’re anywhere near the limit to that. The U.S. government is issuing a lot of debt right now, and global investors are gobbling it up… I don’t see any problems right now in terms of deficits. Obviously, in the long run we have to make sure that the fiscal policy in the federal government is on a sustainable path…

“In the long run.”


As once said St. Augustine against the heavy tug of temptation:

“Lord, make me chaste — but not yet.”

Temptation constantly pulls the federal government in. And “not yet” never arrives.

Chastity is tomorrow’s pledge… as it is the pledge of a freshly landed Navy man who stumbles into a cathouse.

We do not expect to ever witness the day of chastity.

Let us contrast the present reign of promiscuity with the chastity of President Warren Gamaliel Harding…

Fiscal Chastity

The United States economy plunged into depression 100 years ago… from 1920–21.

That depression, incidentally, followed another pandemic — the Spanish flu.

Yet Mr. Harding swore off sin… and summoned the people to virtue:

We will attempt intelligent and courageous deflation, and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity…

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic.

Harding nearly sawed the federal budget in half through 1922. He shriveled the national debt by one-third.

That is, he fought for the nation’s virtue… and shattered every commandment of today’s hedonism.

What was the result?

The economy pulled out of depression by July 1921. And prosperity was on its legs by 1922.

But ours is a different time. Fiscal chastity is as quaint as spats, monocles… and top hats.

We are instead the sailor ashore in the cathouse — and beating a path for the ATM.


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning