Unimaginable fiscal spending

Posted By Darren Winters on Aug 25, 2019


Unimaginable fiscal spending

Unimaginable fiscal spending could be the next stage of this ongoing recession, which has been building momentum for years. I have been reporting about the retail apocalypse, Carmageddon, the real estate bubble in October 2018 and the inverted yields curve for months, but it is only in the last week mainstream has decided to talk about a recession.

A manufactured crisis could usher in a period of unimaginable fiscal spending

Perhaps US President Trump is the globalist elite’s fall-guy and that the Trump train-wreck has been engineered to crash just in time to shatter Trump’s re-election in the 2020 Presidential elections. Every tailwind, corporate tax cuts, public infrastructure spending implemented by the Trump administration has been counteracted by four Fed rate hikes and quantitative tightening in 2018. 

So perhaps the Fed is willingly indirectly influencing the political outcome of the 2020 elections through its monetary policy, bearing in mind policy time lag is about 12-18 months. 

Meanwhile, the mainstream media is stoking up recession fears which could become a self-fulfilling prophecy if it has an impact on investment and consumption.

But with the polarization of politics so pronounced a Trump defeat could give way to an ultra-left candidate with unimaginable fiscal spending who would willingly endorse helicopter money, also known as Universal Basic Income.

Indeed, PIMCO the world’s largest bond investor is forecasting uncontrollable fiscal spending in the next downturn

So if capital flows are the holy grail of investing how then is PIMCO investing in the coming era of unimaginable fiscal spending?

This is what should have made headlines, instead the media circus decided to ignore it.

PIMCO, the world largest bond investor is dumping sovereigns, reported PIMCO in a highly under-reported story

In PIMCO’s words, which also echo a report from BlackRock, co-authored by Philipp Hildebrand, Stanley Fischer and Jean Boivin, the central banks have limited firepower left in their monetary armory, and that fiscal policy is constrained by still-high debt levels.

Reading between the lines PIMCO believes that policymakers will be so desperate in the next downturn that they will resort to uncontrollable fiscal spending

Unimaginable fiscal spending

“Unprecedented policies will be needed to respond to the next economic downturn”, the PIMCO report wrote. 

Without a clear framework in place, policymakers will inevitably find themselves blurring the boundaries between fiscal and monetary policies… This threatens the hard-won credibility of policy institutions and could open the door to uncontrolled fiscal spending,” added the report.

“We could still see more unorthodox policies, like ‘helicopter money’,” said the report. But US National Debt has already spiked $363 billion in two weeks, $1 Trillion in 12 months.

So with PIMCO dumping sovereigns who is the bigger fool buying US paper in what is supposed to be a great deal of 2% yield in a negative-yielding world? 

Even the Fed is dumping notes and China isn’t buying either.

The latest TIC Report showed that American institutions and individuals added $576 billion of Treasuries to their holdings. Japan has also been a loyal buyer.

So in what could be the coming of unimaginable fiscal spending the US is eating its fast food.

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