- Massive $1.9 Tr. American rescue plan to affect markets
- Yellen takes over at US Treasury, what to expect
- More spending initiatives to come
- How all this is positive for gold and silver prices
The Biden Administration’s policies are positive for gold and silver prices. The $1.9 trillion – American Rescue Plan released on January 14 is just the beginning of spending initiatives. The plan is chocked full of both direct spending initiatives to combat the negative economic effects of the coronavirus, but also has sprinklings of campaign promise initiatives the administration will focus on getting passed.
An overview of the proposed American Rescue Plan:
$1 trillion in direct aid to families including: a $1400 per-person check to most Americans; provide rental, food, childcare, healthcare, and utility assistance; expand paid leave and extend the unemployment benefit through September and increase it to an extra $400 per-week supplement; and expanded financial assistance to university students.
$450 billion for communities and improved IT infrastructure: $350 billion of this is earmarked to support to first responders and other essential workers; the remining $90 billion is made up of initiatives which include small business grants; and support for tribal governments and transit agencies. $10 billion for improved federal information technology, with the majority of this is an initiative to launch a major new IT and cybersecurity shared services.
$400 billion for national vaccination plan and school reopening: this includes expanded coronavirus testing and expedited national vaccination roll-out plan, and funds to help schools with safe reopening.
In additional to the initiatives the Biden plan proposes raising the minimum wage to $15 per hour, which is one of Biden’s main campaign policies. In fact, taking a moment to look back at Biden’s campaign policies the American Rescue Plan touches on many of them, such as “universal paid sick days and 12 weeks of paid family and medical leave”, free public university tuition for families that earn less than $125,000, increased national health care coverage (through both reversing Trump’s cuts to the Affordable Care Act and lowering the eligible age from 65 to 60 for Medicare coverage. The common denominator for all initiatives is more federal spending and support for individuals.
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It goes without saying that the Administration’s cabinet nominees will support these initiatives – the focus being on incoming US Treasury Secretary Janet Yellen. In her confirmation hearing on Tuesday, she told lawmakers…
“…without further action we face a longer more painful recession now and longer-term scarring with the economy later … neither the president-elect nor I proposed this relief package for an appreciation for the countries debt burden but right now with interest rates at historic lows the smartest thing we can do is act big …”
Dr. Yellen went on to tell lawmakers that…
“people worry about a K-shaped recovery but well before Covid-19 infected a single American we were living in a K-shaped economy, one where wealth built upon wealth while working families fell further and further behind, this is especially true for people of colour, at the Fed I became accustom to the institution’s dual mandate to promote stable prices and maximum employment, as Treasury Secretary I think there will be a dual mission too, helping Americans endure the final months of this pandemic keeping people safe while getting them back to work that is our first task, but then there is the longer term project, we have to rebuild our economy so that it creates more prosperity for more people and ensures that American workers can compete in an increasingly competitive global economy … It will be my core focus … to focus on American workers living in cities and rural areas and to make sure that we have a competitive economy that offers good jobs and good wages …“
Dr. Yellen is known as a Keynesian economist, meaning that governments should increase spending to support the economy during times of economic downturns, which is very evident in her testimony. The other topic very evident, is her work as a labour economist has focused on wage gaps and policies to reduce income inequality – a topic Biden also spoke about often on the campaign trail.
I will be focused day one on providing support to America’s workers and to small businesses, putting into effect as quickly and efficiently as I can, the relief in the bill that was recently passed, and then over time working for a second package that I think we need to get through these dark times … but over time I look forward to working with President Biden and his team to build back better and to address many of the challenges that have faced America and had an adverse impact on America’s workers and small businesses. We need to invest in our infrastructure, we need to invest in R&D, we need to invest in training and workforce development, so that we have an economy that is productive and competitive so that workers and families can thrive.”
So, how is all this positive for gold and silver prices?
The $1.9 trillion American Relief Plan is only the first of many spending initiatives. Others will follow to further support lower-income households, small businesses, and university students; remember Biden’s campaign policy of free public university tuition for families that earn less than $125,000. Increased spending on infrastructure and R&D is also in the cards.
Low US government borrowing costs are essential in order for the US government to service the massive debt burden. This is where the Federal Reserve comes in, to not only keep short-term interest rates low, but to also help keep longer-term interest rates low. The Fed can achieve this through some sort of yield curve control scheme. The Fed’s own forecast is for real short-term interest rates to decline to minus 1.62% in 2023. A key factor for gold and silver prices is the US dollar. The Administration’s policies will put downward pressure on the dollar. Although, Dr. Yellen said that the
“The value of the U.S. dollar and other currencies should be determined by markets. Markets adjust to reflect variations in economic performance and generally facilitate adjustments in the global economy … United States doesn’t seek a weaker currency to gain a competitive advantage …”, However, she went on to say, “We should oppose attempts by other countries to do so.”
Specifically, she pointed out that the US needs to address the issue in respect to China…
“we need to take on China’s abusive, unfair and illegal practices, China is undercutting American companies by dumping products, erecting trade barriers, and giving illegal subsidies to corporations, it has been stealing intellectual property and engaging in practices that give it an unfair technological advantage, including forced technology transfers. And these practices including China’s low labor and environmental standards are practices that we are prepared to use the full array and tools to address.”
A lower US dollar will also be a huge step in the US reducing its massive trade deficit, which reached a new record in November 2020, the latest month data is available.
NEWS and COMMENTARY
GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)
20-Jan-21 1854.60 1856.60 1354.23 1360.70 1530.42 1536.15
19-Jan-21 1843.10 1834.70 1353.20 1347.59 1519.82 1512.89
18-Jan-21 1852.40 1858.85 1354.85 1362.17 1521.56 1527.97
15-Jan-21 1853.85 1839.00 1357.57 1352.40 1527.20 1519.93
14-Jan-21 1840.25 1841.75 1347.62 1349.82 1513.05 1519.63
13-Jan-21 1852.40 1858.85 1354.85 1362.17 1521.56 1527.97
12-Jan-21 1861.85 1841.25 1369.58 1353.87 1531.93 1515.35
11-Jan-21 1847.80 1847.25 1369.59 1371.58 1520.19 1521.21
08-Jan-21 1891.30 1862.90 1391.81 1371.28 1545.19 1521.06
07-Jan-21 1911.05 1920.10 1406.34 1415.11 1559.23 1566.03
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