Contracting like the Great Depression before WW II, the U.S. economy showed the worst Gross Domestic Product [GDP] in 80 years. Expected to drop year-over-date 32.9%, the U.S. economy is in free-fall, spelling doom for 74-year-old President Donald Trump’s reelection bid. Whatever one says about race riots, it’s even worse in U.S. financial markets watching Wall Street start feeling the squeeze from the abysmal economic numbers. Unemployment claims continued to rise 1.434 million, showing that there’s no end in sight when it comes to economic recovery. Wall Street’s Covid-19 rally has started to disintegrate, where all excuses about future vaccines or better treatments now aren’t enough to stop waves of selling, as investors rotate to precious metals. Watching a 25% rise in gold prices over the last 13 months is a harbinger of bad things for the stock market.
Whatever vaccine or treatments are on the horizon, it’s now accepted that economic recovery isn’t going to happen quickly, could take years, maybe a decade. With the U.S. facing 4,615,358 coronavirus cases and 154,827 deaths, there’s no end to the carnage in the U.S. economy. While White House and Congress bicker over the next bailout bill, world currency markets have devalued the U.S. dollar against world currencies, including the Euro, Pound Sterling and Japanese Yen. Devalued currency stems from spiraling national debt nearing $28 trillion, but more importantly, the federal budget deficit swelling to $3.4 trillion, $2 trillion more than in the Great Recession of 2008. Even in the best case scenario that Moderna, Pfizer, Gilead Sciences, Sanofi, Roche and Johnson & Johnson, etc., find an effective vaccine, it’s going to take time before the public comes around.
Battling in Congress for the next stimulus bill, some U.S. lawmakers that understand finance know that there are real consequences to excessive debt and budget deficits. Watching the U.S. dollar drop against the Euro, Pound Sterling and Yen threatens the value of the currently, promising inflation in foreign exchanges. While American consumers face extended unemployment, 67-year-old Federal Reserve Board Jerome Powell announced today that the Federal Funds Rage won’t change anytime soon. Watching the 10-year Treasury Bond drop to 5.4% today shows how markets anticipate record low rates into the foreseeable future. With unemployment high and consumers out of cash, deflationary pressures will persist in the U.S. except when it comes to buying foreign goods. Watching the U.S. currency decline could have some benefits for the U.S. economy.
When the dollar drops in value, it reduces overseas purchasing power, discouraging consumers from buying foreign goods or travel destinations. Unlike other countries, China does not float its currency on international currency exchanges but arbitrarily sets exchange rates for individual currencies. What’s significant for U.S. lawmakers in the next round of stimulus is to avoid excessive debt to not crash the U.S. dollar any more than needed. While it’s hard to believe, tech companies like Amazon, Google, Facebook, Apple, etc., have benefited from the coronavirus global pandemic. Meeting on Capitol Hill, CEOs of major tech companies faced tough anti-trust questions from Democrats and Republicans. There’s little interest in regulating tech companies, especially among lawmakers. Republicans expressed concerns about conservative censorship.
Watching Amazon CEO Jeff Bezos make $15 billion during the Covid-19 crisis irks certain lawmakers, even though Amazon provides a necessary service during the infectious disease epidemic. Covid-19 has accelerated certain mega-trends that have been in the works for years, including telecommuting, something that’s now routine in the age of Covd-19. When you consider that some companies have stopped paying rent with employees working from home, it’s actually increased the bottom line of certain businesses. Commercial vacancy rates have increased to the point that rental prices have dropped precipitously. Whatever cash is raked in by certain tech companies during the Covid-19 crisis, it goes with the territory, something lawmakers should accept without complaints. As medical community gets a better handle on managing Covid-19, the economy will start to recover.
Wall Street won’t sustain its current rally when GDP and unemployment numbers continue to deteriorate. Watching GDP drop 32.9%, national debt spiral and federal budget deficits explode should alert lawmakers that the next bailout bill must not go too far. Exploding the national debt and budget deficits has disastrous consequences on currency markets, currently devaluing the U.S. dollar. Given the escalating Covid-19 crisis, there doesn’t seem to be much economic relief in sight, expecting more bad news when the labor department reports on the unemployment rate July 31. Republicans and Democrat lawmakers must meet each other halfway not because of politics to but save the faltering U.S. economy. With the national debt and budget deficits exploding, bailout legislation must be limited to only what’s necessary to offset the economy’s downward death spiral.
