The Association of Mature American Citizens (Amac), published in January an article entitled The Biden Legacy: Nearly a Trillion in Improper Payments by Rachel Greszler who wrote that, “The fiscal year 2024 data are in, and they show that the Biden administration has overseen a record $926 billion in improper and unknown federal payments since 2021.
That is 38 percent more than the Trump administration’s $673 billion total over four years, and it’s only 4 percent less than the Obama administration’s $962 billion total over eight years. Moreover, all of these figures are underestimates as they only account for about 68 programs out of the more than 2,000 that the federal government operates. The Biden administration’s $926 billion total translates to more than $7,000 for every household in America.”
MF: How could this be possible??? Because spending other people’s money encourages waste and carelessness and because unlike in the corporate sector, in government there is no accountability. Incompetence gets promoted.
Rachel Greszler further observes: “And yet improper payments are only a symptom of the disease of excessive government spending. The federal government spent $3.8 trillion on transfer payments last year. That’s $29,000 per household. Since 2005, transfer payments and improper payments have grown twice as fast as the economy.”
MF: I hope my readers will understand the difference between private sector employees and bureaucrats. Take my case. Before starting my own business in 1990, I worked for twenty years, first as an employee (salesman) and then as a managing director responsible for two brokerage offices in Hong Kong and Singapore. My principal objective was always to generate a profit because whether as an employee or as a manager, your employment was always safe as long as you were able to generate a profit. Therefore, I always watched carefully how much I would spend and how much came in in terms of revenues. As long as the revenues exceeded the expenditures, I considered myself to have some value to the company and thought that my position was safe. The same was also very much the case once I had my own business. Revenues had to exceed expenditures. But this most definitely is not the case for the government. In recent years most western governments spent vastly more than they collected in taxes, and to fill the fiscal gap they borrowed money, which certainly contributed to the recent inflationary pressures.
On another note, a recent essay by Ryan McMaken (@ryanmcmaken) who is executive editor at the Mises Institute, caught my attention (www.mises.org). Under the title, Money Supply Growth Accelerates and Hits a 27-Month High, McMaken writes: “Money-supply growth rose year-over-year in November for the fourth month in a row, the first time this has happened since the four months ending in October of 2022. [I need to remind my readers that the US stock market also bottomed out on October 14, 2022] The current trend in money-supply growth suggests a significant and continued turnaround from more than a year of historically large contractions in the money supply that occurred throughout much of 2023 and 2024. As of November, the money supply appears to be entering a new and accelerating growth period.
Moreover, the Fed’s return to dovish policy strongly suggests that the Fed has no plans to unwind the trillions of dollars it added to the economy over the past five years. In spite of last year’s sizable drops in total money supply, the trend in money-supply totals remains well above what existed during the twenty-year period from 1989 to 2009. To return to this trend, the money supply would have to drop another $3 trillion or so - or 15 percent - down to a total below $15 trillion. Moreover, as of November, total money supply was still up more than 35 percent (or about $5 trillion) since January 2020.
Money supply changes and CPI rarely follow a linear or one-to-one relationship, but with the Fed returning to a policy of easy money, after adding trillions of dollars to the money supply in just a few years, we can expect this to fuel further increases to both asset price inflation and consumer price inflation in coming years” (emphasis added in each instance).
Let us also briefly consider the views of DoubleLine Capital's chief investment officer and founder Jeff Gundlach who recently discussed the economy and markets in a webcast to clients. The “bond king” told the audience that, “The Fed looks like Mr. Magoo, driving around, bumping into things.” While the Fed succeeded in bringing down inflation, it's been reacting too much to short-term data and not being strategic over the last five years. He warned that, “In 40 years we haven't had a recession that didn't include the long bond yield declining. Don't count on that now. This time is different. We have left the bus. We're in a new environment.”
MF: I am more constructive about bonds. Sentiment is so negative that a rebound in bond quotations should be expected.
I also believe that Xavier Milei’s reforms in Argentina have been successful (some stocks are up five times in 2024) and could motivate reforms in other Latin American countries such as Chile, Brazil, and especially Colombia where stocks seem to have bottomed out. Among others, we hold positions in ADRs of Bancolombia (CIB), Grupo Aval (AVAL), Ecopetrol (EC), Bank of Chile (BCH), Petrobras (PBR), Braskem (BAK), Itau Unibanco (ITUB), and Banco Bradesco (BBD).
I do not want to convey the impression that I am bullish about asset markets. I have concerns about financial, and geopolitical issues particularly relating to hostilities in the Middle East. Several of my well-informed friends believe that an Israel/US attack on Iran is imminent. As a result, volatility is likely to increase.
In the current environment, I continue to believe that physical precious metals should be a reasonably safe investment. My favorite for 2025 is platinum.
My readers should not forget that the vulnerable sectors within the market are those for which capital gain expectations are extremely high whereas the biggest gains arise from sectors that are neglected, overlooked or viewed negatively.
I am enclosing with this report The Bitcoin Capitalist Letter by my friend Mark E. Jeftovic (markjr@easydns.com), and entitled Bitcoin is ripping while the miners are tripping.
With kind regards
Yours sincerely
Marc Faber
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