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I’m also a fan of Jim Rickards.

The Federal Reserve met last week and voted to keep interest rates unchanged. What a shock!

The Fed also gave an upbeat forecast of economic growth, predicting that the U.S. economy will grow 6.5% this year, its highest rate in nearly 40 years. Its December 2020 forecast projected 4.2% growth.

The Fed also expects that the economy could return to full employment next year and that inflation could hit 2.4% this year before declining again.

In effect, the central bank said they were willing to let the economy run “hot” and risk higher inflation in order to capture the benefits of stronger growth.

Zero rates are essentially a given as far as the eye can see. What about that growth forecast?

The Fed has one of the worst forecasting records of any financial institution in the world. My expectation is that growth is slowing now and will get worse as the year progresses.

I believe this will be especially true as the Biden administration policies of higher taxes, more regulation, and open borders that import cheap labor take effect.

Biden has also shut down new oil and gas exploration and wants to push a Green New Deal that will guarantee higher energy prices. Higher energy prices are a burden on the economy.

Many believed that the new $1.9 trillion COVID-relief bill recently signed by Joe Biden would be the last bailout law and end the deficit spending binge needed to pull the U.S. economy out of the pandemic-related slump. To those believers, we say, “Guess again.”

Democrats didn’t even wait for the ink to dry on Biden’s signature before beginning to plan a new deficit spending bacchanal, this time perhaps as much as $4 trillion. I’m not sure why it’s needed considering the most recent $1.9 trillion of deficit spending had little to do with COVID.

Only about $250 billion went for pandemic projects, such as vaccine production, vaccination centers, aid to hospitals, medical equipment and therapeutics.

The other $1.65 trillion went to earned-income credits (that no longer have to be “earned;” you get them for doing nothing), child-care credits, union pension fund bailouts, higher unemployment benefits, extended unemployment benefits, student loan relief, and all-purpose blue state bailouts for New York and California.

You can debate the merits of each one of these programs, but the fact remains that they are not directly related to COVID relief. They’re welfare programs, pure and simple.

The new bill being considered by Democrats will focus on climate change, legalization of illegal immigrants and infrastructure. Again, these programs have nothing to do with COVID-relief and everything to do with the longstanding wish list of political goodies.

The White House and Congress are apparently under the sway of Modern Monetary Theory (MMT), which says that deficits don’t matter, debt levels don’t matter, and there is no limit on Treasury borrowing or Fed money printing as long as there is slack in the labor market.

Most members of Congress have probably never heard of MMT until very recently (if at all), but they’re marching to the beat of the drum as sounded by Bernie Sanders and Alexandria Ocasio-Cortez.

The historic reason for not pushing the national debt to the absolute limit except in time of war was to make sure there was some slack in the bond market in case of war. You kept your borrowing capacity in check as a form of dry powder in case it was needed for an existential crisis.

MMT ignores this constraint and pushes debt to the limit leaving nothing in reserve. Let’s hope we don’t have a real war that may have to be funded under stretched conditions.

History says we may not be so lucky.

https://dailyreckoning.com/wrong-again/