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A SAD STATE OF AFFAIRS

Regular readers know that I do not wade into politics in my writing, only when politics directly flows into the economy and market action. Two things are currently happening now that have serious economic implications. First, the budget put forth by the Biden administration is a jaw dropping $7,300,000,000,000. Yes, that is $7.3 trillion; I wanted to type all the zeroes for emphasis. This budget essentially takes “emergency spending” from COVID-19 and makes this level of spending permanent. The budget is not financed in the current receipts received by the Treasury so we will either have to add to the debt or we will see a massive tax increase.

In an exercise that only Bernie Sanders could love, I calculated the assets of the wealthiest 100 Americans as published by Forbes for data in 2023. These well-heeled folks were worth an estimated $3.049 trillion. Even if you confiscated all of their wealth, in 2024, they would cover only 42% of the Government’s budget. I am not sure what we do in 2025! I know that this crude analysis does not consider tax payments to the government. My purpose was to point out that for all of the talk on the wealthy paying their fair share, our 100 wealthiest could not fund the U.S. Government for six months if their entire net worth were confiscated. We need to get control of spending and the deficit or interest rates will never decline.

The second current issue is the $110 billion in taxes being levied against domestic energy producers. The Biden administration is extremely focused on moving to green energy and electric vehicles. Forgetting that our power grid cannot withstand charging all of those vehicles and the expense of replacing America’s fleet, this tax increase will be regressive for the people at the lowest levels on the economic ladder. Whether you put twenty gallons in your Bentley or Buick, people only demand the amount of fuel needed, and that cost for fuel demand really only increased slightly for the wealthy. If gas is $1 more per gallon and someone used twenty gallons per week, that $1,040 impact is felt a lot more by someone making $40,000 versus $400,000. There should be a basic economics class for our elected officials, although I am not sure many would be interested in actually knowing how the economy functions.

The stock market was ebullient for the second day in a row given the reading investors are taking from the Fed’s announcement on interest rates. The larger problem, for the moment, is that we are doing little to consider the profligate spending from Washington, and this can have long lasting implications for the economy, asset prices, and the ability for the U.S. to be a dominant country.

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