There was more than a little irony in US stocks extending gains midway through Wednesday’s cash session on a deserted Wall Street after Bernie Sanders dropped out of the race for the White House, leaving the Democratic nomination to Joe Biden.
Although you can expect this nuance to be totally lost on the vast majority of market participants, the tragedy (if that’s what you want to call it) is that most of the bear market rallies in stocks over the course of the coronavirus-inspired tumult have been attributable to central bank action or, more often, hopes for multi-trillion dollar government spending bills.
As it turns out, everyone is a “Democratic socialist” when a complete shutdown of the economy pushes small businesses to the brink of failure, forces a hodgepodge of industries to ponder overnight insolvency and prompts 10 million people to file for unemployment benefits in the space of just two weeks.
Suddenly, nobody is talking about how to “pay for” $2 trillion stimulus packages.
Nobody is particularly interested in how to “offset” nearly half a trillion in no-strings-attached loans to small- and medium-sized enterprises.
And the usual cacophony of budget hawks screeching about the purported impossibility of “spending money we don’t have” went mostly silent as thousands of Americans breathed their last breath through ventilators (assuming they were lucky enough to have one in death amid a national shortage).
Surveys conducted by NFIB last month showed that just half of small employers expressed confidence in their ability to survive for more than two months in the current environment.
NFIB Chief Economist William Dunkelberg had a simple message on Tuesday: “It is vital that these businesses have access to federal funds that are made available through the CARES Act to keep the doors open on Main Street”.
Sanders called the decision to suspend his campaign “painful”, and said he’ll stay on the ballot and continue to collect delegates.
Biden was gracious – sort of. “Join us”, the former vice president said, in a message aimed at Bernie’s disciples. “I’ll be reaching out to you. You will be heard by me”.
Donald Trump, meanwhile, was elated at the opportunity to gloat, lampoon Democrats and perpetuate conspiracy theories, all in one tweet.
“Bernie Sanders is OUT!”, Trump shrieked, into the digital void, where nearly 80 million people follow his every shrill, ad hoc musing.
“Thank you to Elizabeth Warren. If not for her, Bernie would have won almost every state on Super Tuesday!”, he went on to exclaim, before declaring that “this ended just like the Democrats & the DNC wanted, same as the Crooked Hillary fiasco”. (Clinton is still “in it”, according to betting markets, by the way.)
Trump’s message: “The Bernie people should come to the Republican Party, TRADE!”
There will be no acknowledgement by market participants (let alone by business luminaries) that America can always fund social spending to alleviate suffering and bolster lower- and middle-income families in the very same way the country is “funding” the virus relief bill – namely by not funding it.
Sure, the deficit will balloon and Steve Mnuchin will unleash a deluge of supply to “fund” the three existing packages and a fourth which, if Trump has his way, will total $2 trillion and focus on infrastructure. But hopefully, Americans have learned something about the way money actually works over the course of this crisis.
“Congress always has the power to pass legislation that sends only one set of instructions to the Fed. That’s what it is doing now”, Stephanie Kelton wrote last month, adding that “no one is trying to ‘pay for’ a $2 trillion spending package to help cushion the economic blow to our economy”.
She went on to note that there’s no reason this kind of unfunded (i.e., lacking offsets) spending needs to be confined to situations in which the world is trying to fend off a viral apocalypse.
“We could have easily [implemented Sen. Sanders’s proposal to cancel $81 billion in medical debt] without offsets”, she said, noting that “cancelling medical debt allows those folks to spend that money on other things”.
The US economy runs on consumer spending. We’ve been reminded of that in dramatic fashion over the past 30 days. As I’ve repeatedly pointed out, it is entirely possible that if you remove the twin albatrosses of student debt and healthcare premiums from the necks of those with the highest marginal propensity to consume, the medium- and long-run impact would be a sizable net boost to the economy.
So, if it’s “growth, growth, growth” (to quote Larry Kudlow and every other supply-side sock puppet since Reagan) you’re looking for, debt forgiveness is one way to achieve it.
Sadly, even Sanders didn’t seem to fully appreciate the veracity (and profundity) of the economic theories espoused by his own chief economic advisor.
“Throughout the primary debates, Democrats missed a huge opportunity to talk with people about what it means to ‘pay for’ your spending proposals”, Kelton said, just two weeks ago. “We had enough fiscal space to do some of the things Democratic presidential candidates were proposing, but we didn’t admit it”.
But don’t worry, Joe Biden and Donald Trump will explain it to you during the general election debates which, if things keep going like they’re going, will be conducted with no audience, and both candidates wearing hazmat suits.
Oh, well. At least stocks will probably be higher thanks to trillions of dollars in stimulus money we purportedly “didn’t have” last month, but suddenly have now – dollars which are already showing up in small business accounts and will soon be in mail boxes across the country.