The Fed would have us believe “There’s nothing to see here,” (to quote Frank Drebin), as it relates to inflation.

• Consumer spending funded by government debt is of inferior quality as compared to spending funded by increased production. In January Americans spent their debt-funded government checks that were mailed out at the end of December. Thus, while Retail & Food Services Sales were up 5.3% for the month of January (government data does not allow one to tease out unit growth from price increases), the Labor Participation rate was down modestly from December and remains well below the levels of the 2009-2010 Financial Crisis.
• Handouts are inferior to production. Universal Basic Income is here in the form of government “stimulus” checks and may be coming in the form of child tax credits, yet many incorrectly believe that the U.S. Economy is strong.
• Debt-driven U.S. Economy. We expect the U.S. trade deficit with China to increase from 2020’s level given the Biden Administration’s dovish approach to China.
  • Further, we expect the fiscal deficit to grow given the promised $1.9 trillion of government printing plus what we believe will be another $1-2 trillion in government printing to fund green infrastructure projects in 2H 2021 or early 2022.
  • The Federal Debt may exceed 180% of GDP (an outrageously high figure) well before the CBO’s 2050 estimate given the current rate of government spending and money printing.
• Debt-funded price inflation persists. Look no further than home prices, lumber prices, gas prices, equities and speculative instruments such as Bitcoin.
• Long rates reflect uncertainty. “Boomtimes” enabled by record debt levels are unsustainable in the the face of record low labor participation. This uncertainty is reflected in long rates with the 30-year rate up 12% month-to-date.

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