The $250 Billion Spending Bill Portends More Money Printing & Low Rates
The $250 billion Semiconductor Spending Bill (United States Innovation and Competition Act), means the Fed will be printing money, expanding its balance sheet and maintaining low interest rates in order to keep the gravy train running while the fiscal deficit expands and public debt outstanding grows. This is a recipe for more inflation, not less should the bill pass.
$76 billion would be allocated to the Semiconductor industry in the form of grants ($52 billion) and tax credits ($24 billion).
$20 billion would be allocated to a new Directorate for Technology.
The National Institute of Standards and Technology would be allocated approximately $10 billion.
The Commerce Department would be allocated approximately $11 billion to create regional Technology hubs.
With this type of large spending program it would be difficult for the Federal Reserve to floor the accelerator in terms of making the interest rate hikes required to fight inflation. This bill would add $250 billion of new debt to the $30 trillion the Federal Government has outstanding. The interest payments on the public debt will become punitive if the Fed allows interest rates to climb to where they need to be to effectively fight inflation. The fight against inflation and this Administration’s addiction to fiscal deficit spending are in direct conflict.
This bill if enacted into law will not create the same level of inflation as the trillions of dollars in stimulus checks mailed to Americans did, yet it will cause inflation. This $250 billion spending program will require that the U.S. Treasury issue $250 billion worth of Treasuries which will be purchased primarily by the Fed, thereby growing the money supply and the Fed’s balance sheet. It is not as though we have cash reserves to pay for this spending program. Over the first nine months of fiscal 2022 the Federal Government has run a deficit of $514 billion. It is about to get worse if this bill passes.