Regime Change

Upon taking office Wednesday, Joe Biden moved to immediately reverse, undo, and otherwise rollback some of Donald Trump’s more controversial policies and initiatives.

The new president signed a multitude of executive orders right out of the gate. On the list of “corrections” was a halt to Trump’s infamous “Muslim ban,” which Biden’s national security adviser described as “nothing less than a stain on our nation, rooted in xenophobia and religious animus.”

So, say goodbye to that. And also to the notion of building a medieval wall on the border with Mexico. Funding for that will be cut off. Trump, you’re reminded, diverted money from places where it was needed to construct the barrier. Biden will now reevaluate how best to allocate those funds. (I suppose this means no alligator moat.)

Additionally, Biden will move to repeal Trump’s order aimed at punishing sanctuary cities, bolster DACA, revoke the Keystone XL pipeline, rejoin the Paris accord, pause student loan payments through September 30, extend moratoriums on evictions and foreclosures until the end of March (at least), demand mask-wearing on federal property, rejoin the World Health Organization, and close down the “1776 Commission,” a farcical (albeit unnerving) effort by Trump to literally rewrite history.

There’s more, but those are some of the highlights.

Trump was fond of saying he “inherited a mess” when he came into office. When pressed, he never identified precisely what he meant by that, but I think it’s entirely fair to say that Biden does, in fact, have a “mess” on his hands. Cleaning it up will be no easy task. Commenting on the economy, new National Economic Director Brian Deese said “we’re seeing too many Americans that are just barely keeping their heads above water.” Some of that is due to the pandemic, but it was a problem prior to COVID, and Biden will be under immense pressure from the Progressive wing of the party to address inequality of all sorts, starting with the economy.

Markets appeared somnolent — calmed, perhaps, by Janet Yellen, who breezed through her confirmation hearing on Tuesday.

“Markets are naturally not paying the slightest bit of attention to the fact that liberal democracy is apparently teetering, with only the slimmest of Democratic majorities in Congress to save it, and a Republican party that could either return to being Reaganite under Mitch McConnell (which does not offer much of an economic policy prescription: more corporate tax cuts, anyone?), or could instead become a fully Trumpian vehicle,” Rabobank’s Michael Every wrote Wednesday. His cadence was characteristically ominous.

McConnell appears to be leaning in the direction of banishing Trump from the party altogether, and Trump is said to be planning his own party, the “Patriots.”

Again, the very short-term ramifications for markets are minimal. “We move from Janet Yellen’s confirmation hearing to the new President’s inauguration, which is likely to see more ceremony and less cause for markets to move,” SocGen’s Kit Juckes remarked.

“There is minimal market relevance to the inauguration,” BMO’s Ian Lyngen and Ben Jeffery wrote Wednesday, noting that markets’ “prior indifference toward protests, riots, and demonstrations during the last 12 months implies rates and risk assets are content to look forward to a post-COVID reality.”

The question is what that reality will look like. I guess the point is that as long as it’s generally COVID-free, it will be conducive to the resurrection (not to be confused with insurrection) of economic activity, and that’s all that matters for assets.

Vaccine rollout is slower than expected, but it’s probably safe to say that markets knew, intuitively, the process wouldn’t be any semblance of easy. It’s a massive logistical challenge, so if a delayed timeframe ends up being the only hiccup — well, we should be so lucky.

“We’ve yet to hear any revisions to calls for the inoculation goals of late-summer for the majority of the US population,” BMO’s US rates team went on to say Wednesday, adding that “Yellen’s testimony and push for greater fiscal stimulus may ultimately prove to be this week’s most relevant development for US rates; even if her advocacy for more deficit funded bailouts was little surprise given her stance while Fed Chair.”

All of this sounds somewhat — I don’t know — “boring” considering what Americans have become accustomed to over the past four years.

But lest we should forget: That’s the whole point. While Progressives (and I have a Progressive streak) would like to see real change, for real people, right now, given the extent to which American society is quite clearly at a breaking point with the myriad inequities, dysfunctional government, and institutional failures that have contributed to the fraying of the country’s socioeconomic fabric, there’s a very good argument for the notion that an interlude of stasis is both necessary and desirable, as long as marginal progress is made towards ameliorating inequality.


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8 thoughts on “Regime Change

  1. Dear H, I was reading a conservative letter writer and his ‘solution’ to solve inequality was to raise interest rates (as even a modest absolute number, say, 2.5% real IR would crater equity valuations, highly leveraged zombies etc that normal people aren’t really exposed to).

    I’m obviously with you on the whole “it ain’t a good idea to burn down everything in order to be able to rebuild a nice economy” but I was wondering if you had other arguments.

    I, for one, would want to see more “QE for the people”/helicopter money where the Fed largesse is distributed to normal people but I also think that it would make sense to raise rates afterwards and raise taxes on the richest (inasmuch as we can do within the corrupt political system of the USA) in order to ‘cure’ the economy.

    This is only one sentence when there are tons of things that would go in a general overhaul. But still. Interested in your take as to what the “solution(s)” might look like.

    1. Think about what you’re saying.

      You’re saying that according to this unnamed “conservative letter writer,” solving inequality is as simple as hiking fed funds 400 basis points, deliberately crashing the stock market, and intentionally forcing a wave of bankruptcies among over-leveraged companies (which, by virtue of being companies, have employees) during the middle of a recession, when 10 million people are out of work and 3,500 people are dying every, single day from viral pneumonia.

      And your question is: Do I have any other suggestions?

      I do, in fact, have some other suggestions.

      But let’s start with this one: Stop reading that person’s “letter.”

  2. Mr H everybody should read everything. Birth of humor.
    National Review is almost as funny as the National Lampoon. Huffpost is another good one.
    NY Post is a side spitter.
    You ain’t exactly a desert.
    I have great hopes that Georgia turns into “Soap”

  3. While I agree that perhaps a break from the activities of the last four years is probably a good idea, such a “stasis” might well offer the nation states with whom we compete a nice opportunity to further advance at our expense.

  4. My suggestion to solve inequality is to start allocating money to help people. It sounds simplistic and it is. But at bottom that is what moves the needle. Whether you are talking about tax cuts/grants for the struggling, health care, housing aid, education, public health, unemployment insurance, worker training….. the list is long. This is all about fiscal policy and rebuilding and reimagining a safety net. People need to take risks, but failure when you take risks should not be catastrophic.

  5. Republicans are 100% behind the wealthy that supply them the funds they need to hold their jobs. They will fight tooth and nail to keep the unequal distribution of wealth in this country just as it is. I see one way forward; the business community needs to step up. They are the only ones who can change Republican minds. Gridlock on addressing change is what will hold this country back. China is gaining on us while the Senate works 3 days a week. Imagine a war where the generals refuse to talk about strategy, let alone even come to work.

  6. I understand the desire for stasis, given the breakneck insanity of the past several years, and I do expect it will be the dominant wind in Washington and amidst the ‘nobility’ at large. It is a comforting notion to them, wrapped cozy in wealth and their belief in myths like American exceptionalism. One of the tragic flaws of American exceptionalism of course is that it blinds people to really learn from (non-American) history. And the nobility remains almost entirely immune to the pain that could disabuse them of these myths. They are also immune to accountability. The problem with all of this of course is that stasis is what got us to this point in the first place, an empirical conclusion that the nobility has yet to take responsibility for. The ‘serfs’ across the political spectrum have clearly had enough. Breaking points have been reached and surpassed. Tens of millions of small businesses, built up over lifetimes, have been destroyed. People are opting out in different ways, becoming radicalized, or otherwise moving toward various forms of anarchism. So reversion to the mean is, simply put, not going to work any longer. What is needed is not amelioration, but some real leadership. The kind of which has not been seen in this country for at least a half a century. They have got to come clean. Own up to things. Propose structural solutions. We’ll see if they are up to the task.

    1. For reference, according to the number of small businesses open is down 30% from January 2020. There were 30 million small businesses in the US. Small businesses also used to employ roughly 50% of the workforce. Also, good to keep this all in mind when reading fund manager surveys and their consensus around reflation.

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