Dow Up 5%+: Covid-19 Cure or Biden? Gold Tanks

Pfizer announced this AM that the Covid-19 vaccine being developed by Pfizer Inc. and BioNTech SE prevented more than 90% of infections in a study of tens of thousands of volunteers, the most encouraging scientific advance so far in the battle against the coronavirus.

Eight months into the worst pandemic in a century, the preliminary results pave the way for the companies to seek an emergency-use authorization from regulators if further research shows the shot is also safe.

US Treasuries? The 10-year Treasury Note rose 10.8 basis points.

Gold?

For commodities, gold is down 4.52% while silver is down 6.46%.

A possible cure to the infection caused by Covid or a career bureaucrat that has been in DC for 47 years with little to show for it? I’ll go for the Covid cure!

Government Spending And Debt: The Fallacy Of Modern Monetary Theory (Gold Rises With Investor Fears Of Insane Gov’t Spending And Debt)

Politicians and economists are seemingly all on board with Modern Monetary Theory. MMT translates to “American has the world’s biggest printing press and they can print as much currency as the want.” The logic is that if Japan can do it, the USA can do it.”

Government debt as a percent of GDP was under 40% until the Reagan Administration tried outspending the Soviet Union eventually leading to its collapse. But the growth of government debt to GDP abated briefly under Clinton when House Speaker Gingrich refused to go along with Clinton’s spending fantasies, so Clinton paid off some of the long-term debt outstanding. But as soon as Gingrich was outed as House Speaker and Bush I got us in a war with Iraq, government debt growth resumed at a modest pace (around 60% public debt as a % of GDP). Then came the housing bubble burst and the ensuing financial crisis and bank bailout that saw public debt to GDP rise from 62.7% in Q3 2007 to 100.45% in Q4 2012.

Politicians figured out that the voters don’t care or are too uninformed. Starting in 2000 you can see the concern of investors about out-of-control government spending and debt issuance. Gold rose from $270 per ounce in 2001 to almost $2,000 per ounce today.

Here is an interesting article from Reason Magazine on Biden’s spending and regulation wishes.

Biden is proposing $11 trillion in brand-new spending over the next decade. Among his biggest-ticket items are $1.4 trillion to expand Obamacare; $2 trillion for his version of the Green New Deal; $1 trillion in new Social Security and Supplemental Security Income spending; and 1.5 trillion more dollars for preschool, K-12, and higher education. He has also signed on to a $3.3 trillion stimulus spending plan pushed by House and Senate Democrats. 

That all comes after nearly $7 trillion in federal spending this past year, up from a then-record $4.4 trillion in 2019. To pay for this new largess, Biden has laid out $3.6 trillion in tax hikes over the coming decade, resulting in what the Manhattan Institute’s Brian Riedl calls “the largest permanent tax increase since World War II.” But Biden’s spending plan, as laid out in his campaign, is so out of control that it would still manage to increase the national debt by about $5.6 trillion by 2030, according to the Committee for a Responsible Federal Budget.

Biden should sing a version of Sting’s “Fields of Gold” called “Rivers of Debt.”

Are we turning Japanese??

Paul Krugman and Other Mainstream Trade “Experts” Admit They Were Wrong About Globalization (It Hurt American Workers And MZM Money Velocity)

Paul Krugman, Nobel Laureate in international trade and New York Times op-ed snarker, has finally admitted what many of his already knew: globalization hurt middle class workers more than they thought it would.

Globalization has been a hot topic in business schools since the 1980s, particularly since Bill Clinton favored the North American Free Trade Agreement. NAFTA was opposed by Presidential candidate Ross Perot who argued:

We have got to stop sending jobs overseas. It’s pretty simple: If you’re paying $12, $13, $14 an hour for factory workers and you can move your factory south of the border, pay a dollar an hour for labor, … have no health care—that’s the most expensive single element in making a car—have no environmental controls, no pollution controls and no retirement, and you don’t care about anything but making money, there will be a giant sucking sound going south. … when [Mexico’s] jobs come up from a dollar an hour to six dollars an hour, and ours go down to six dollars an hour, and then it’s leveled again. But in the meantime, you’ve wrecked the country with these kinds of deal

In addition to losing middle-class jobs to Mexico and subsequent outsourcing of jobs to China, we have seen a perpetual decline in Money Velocity (GDP/Money Stock) since 1995.

The GINI ratio of US income inequality took a jump-up under Clinton and NAFTA. Although financialization contributed to income inequality as well.

Yes, globalization has helped suck jobs and wage growth out of the USA contributing to a decline in money velocity. So when snarky NY Times op-ed writer Paul Krugman admits that globalization is harmful to American workers (and money velocity), we better rethink what we are teaching in business schools.

Including over-reliance on The Federal Reserve to bail-out flawed Federal policies.