Time magazine reports that according to a respectable poll, on 5 March President Biden’s approval rating was 61%, compared to 41% logged by Trump at the same point in the presidency, thanks to the $1.9 trillion American Rescue Plan Biden muscled through Congress — without a single Republican vote.
For choosing Biden, each American will get a $1,400 pay check. The $300 weekly unemployment insurance and child tax credit will be expanded, a very welcome lifeline to American families. Biden further promised that he would spend another $2.3 trillion to upgrade America’s wobbly infrastructure. American cannot let China China garner all the kudos for building gleaming, world-class infrastructure all over its country.
But with record-breaking fiscal deficits, how is American going to finance such ambitious spending programs? The Bipartisan Policy Center’s Deficit Tracker estimates that the US’ fiscal deficit had grown to $1 trillion even before Covid. In 2021, it stands at $1.047 trillion. Since Covid, global leaders have already spent $20 trillion to shore up their economies. More money will be printed as political leaders trip over each other to spend their way out of recession.
An immediate result of the excess liquidity is the rapid ratcheting up of the yield of 10-year US Treasury to about 1.7%, and the price inflation of virtually all asset classes, from equities to bitcoin to the sudden explosion of interest in SPACs. Politicians have no need to worry about the risks runaway inflation holds for the future, so long as they can continue to win elections.
Note that Biden is not getting any Republican support for his grand rescue plan. The Republicans are acting like self-styled “democrats” in Hong Kong’s legislature who used to veto every major proposal from government. They not only vetoed Beijing’s plan for electing the Chief Executive of Hong Kong by universal suffrage in 2015; they also voted against all four tranches of the Hong Kong Government’s anti-epidemic fund, which provided much needed relief for hard-hit sectors. Like the Republicans, they could not allow whoever was in power to score points.
The “pan dems” were also the people who kept urging the government to dip into its fiscal and even foreign exchange reserves and share its hoards of hard-earned cash with the people. “HK$20,000 per person!” “Forget About the Reserves!” — many have chanted, and they were popular.
Fortunately, because of the Currency Board system which Hong Kong has adopted since 1983, the Hong Kong dollar is officially linked to the US dollar at the rate of HK$7.8 to US$1. That means Hong Kong must have sufficient US$-denominated reserves to back its monetary base, and cannot print money or spend with abandon. That does not make our Financial Secretary very popular, but he steers Hong Kong’s economy with a safe pair of hands. By contrast, global leaders are spending and printing money recklessly, to savage their broken economies and to prop up their popularity. As central banks keep pumping cash into the economy, thinking people cannot help wonder — when will the bubble burst? How will it be different this time round? Can the world avoid edging toward another financial disaster?
