We believe there will be multiple fiscal stimulus rounds. When one considers the stalled economy, negligible Real GDP growth and high unemployment, it would seem that this $2 Trillion stimulus round under discussion won’t be sufficient to satisfy the narrative that Government needs to do more. When one factors in runaway entitlements (table below), it seems to us that the U.S. will run a fiscal deficit in perpetuity regardless of any new stimulus rounds. Thus, further monetary expansion and dollar dilution is likely to ensue. Good news for equities, bad news for the real economy.
The table below includes data from the CBO. Entitlement growth far outpaces GDP growth. The three main Entitlement buckets include:
- Social Security: 5.3% average growth 2020-2030;
- Health Care Programs: 6.2% average growth 2020-2030;
- Income Security Programs: 17.0% average growth 2020-2030. Further, we believe that the CBO’s Unemployment Compensation estimates are low (the row highlighted in yellow) given the weak economy and adoption of advanced automation.