£1.4trillion Biden bazooka set to unleash global growth
. . . but future generations will have to pick up the bill
Faced with the most difficult economic circumstances since the Great depression of the 1930s, america is doing what it does best. It has fired up the big guns.
In defiance of fiscal conservatives, congress yesterday gave its approval to the third and largest stimulus package since the pandemic swept across the 50 states of the union this time last year.
The first President Biden stimulus, largely negotiated by Treasury Secretary Janet Yellen, is worth a cool £1.4 trillion.
It comes in addition to the Trump tax-and-spend spree of £1.2trillion in March 2020, and a further £660bn in december.
What is fascinating about the US response is that it draws heavily on two very different economic traditions. Britain’s John Maynard Keynes argued in his classic work The General Theory Of employment, Interest and Money that when private sector demand falls off a cliff, as it did when the US economy was largely shutdown at the start of the pandemic, government must step into the vacuum through massive public support.
But in a free market twist to this, both Biden and his much-disparaged predecessor donald Trump opted to make the consumer the main driver of demand by showering money on citizens through oneoff cheques. This is a version of the ‘helicopter money’ advocated by the apostle of monetarism, Milton Friedman. The lessons of the early 1930s have been learnt, when successive Republican presidents sought to deal with collapsing US and global demand by tightening belts, raising interest rates instead of cutting them to the bone, and keeping a tight rein on spending.
Sometime in the next week or so, citizens in the US earning up to £54,000 a year (or £108,000 for a married couple) will find cheques for just over £1,000 popping through their letter boxes.
a signed cheque sends a cheery political message directly from the White House, but is also evidence that US banking still has a great deal to learn from the online revolution in Britain.
In addition to the cash handouts to adults, the Biden deal rains money on kids, through a one-year doubling of the tax credit for children, schools, vaccine distribution and struggling state and local governments.
Moreover, if Biden is as good as his word, his next move will be to introduce a £720bn infrastructure plan designed to update the nation’s bridges, rails and roads, many of which are in dilapidated condition.
The invasion of covid-19 this time last year had a shocking impact on US jobs, with an astonishing 22m shed between February and april 2020.
This compares with 8.7m jobs lost between 2008-10 at the peak of the financial crisis. It took more than six years to claw back the jobs in the Obama years.
In the pandemic, the monumental scale of the fiscal boost has seen the jobs market power back with 13m jobs restored.
YeLLeN is predicting that with the latest package, together with the Federal Reserve’s promise to maintain easy money, the labour market should return to pre-covid levels by 2022. america has been among the hardest hit in sheer numbers by the virus, which closed schools, placed restrictions on businesses and left 500,000 dead.
Throughout, there has been a huge effort by many states to keep as much open as possible.
In high-tech and music-mad austin, Texas, where my own son and daughter-in-law live and work, bars, craft breweries and eating out are regarded as consumer freedoms which should never be curtailed!
all the indications are that output across the US is ready to take off like a rocket.
economic forecasters rapidly are updating their predictions. The current consensus is that output will expand by 5.95pc between the fourth quarter of 2020 and the fourth quarter of this year.
a new analysis by the Parisbased Oecd suggests that providing interest rates are unchanged, the new package is worth 3.8pc to US output in its first year.
Helpfully, the biggest beneficiary among the US’s richest trading partners should be Britain, which is set for a 0.6pc uplift, underlining why the UK’s trading relationship with america is among the most important that we have.
The decision of successive US administrations to go for growth is not a free lunch.
It was approved by Senate Republicans through gritted teeth, fearful of the impact on the US’s public finances.
The additional £3.5trillion of pandemic spending and tax breaks raises the US national debt to £16trillion which, as in Britain, represents 100pc of output – the highest level since the spending splurge on bolstering defences and weapons production in the Second World War.
The US enjoys the extreme privilege of not having to worry immediately about how this Rocky Mountain of debt is financed. as the custodian of the world’s main reserve currency, the dollar, it is able simply to print more to pay the bills.
and for the moment, the keeper of the purse Jay Powell, chairman of the Federal Reserve, has made it clear that he is willing to keep the presses running.
The concern for the financial markets is that the combination of an extremely loose budget policy together with easy money will trigger a new era of inflation.
Forecasters suggest that consumer prices could be rising by as much as 2.48pc by the end of this year, requiring the Federal Reserve to stop the party by taking away the punch bowl.
The inflation cloud has already caused the interest yield on the 10-year US Treasury bond to rise above 1.5pc in what has been called a bond market ‘tantrum’. But the risks of higher interest rates for heavily-borrowed nations are very real. covid-19 is a crisis like none other in our lifetimes and has required a Herculean response to preserve US prosperity. The bills will fall on the generations to come.
ThE last time Marks & Spencer proposed knocking down its flagship store at Marble Arch on London’s Oxford Street in 2004 was the beginning of the end for the management team of Roger holmes and Luc Vandevelde.
As the shares sank, the M&S old guard took to the barricades. Philip Green launched his bid and Stuart Rose and City veteran Paul Myners were drafted in to see off the Arcadia and BhS tycoon.
Rose, an M&S veteran, ditched the holmes plan and went on to restore the firm’s reputation by taking profits back up to £1bn.
Marble Arch has long been part of M&S’s corporate vanity. Executives, including founding family members and the late, great Richard Greenbury, would check trade by popping down the road from the company’s headquarters on Baker Street and patrol the counters. I remember how excited Greenbury was when well-tailored Brooks Brothers blazers for women, brought in from the US during M&S’s period of ownership, sold well in spite of being highly priced.
It is a symbol of changing times that the latest M&S plan to demolish its Marble Arch store, shrink the retail footprint and create offices and leisure facilities barely caused a ripple. As much as Marble Arch is valued, one wouldn’t expect to see a parade of disgruntled shopper-shareholders protesting.
Covid-19 has speeded up change in shopping at such pace it is hard to keep up.
With the notable exception of no-frills stores group Primark, which is owned by Associated British Foods, growth is largely being generated online and the biggest stores repurposed.
More will be heard today when John Lewis unfurls its latest plans. Eight or so large stores are set to be axed, in addition to those already closed.
There is going to be a push into convenience stores, closer to the customer, and some Waitrose shops will open John Lewis boutiques. There will be much more in the way of click and collect.
The battle for brands is also heating up. M&S has acquired Jaeger and Next is getting closer to upmarket UK fashion group Reiss. It has snapped up a 25pc stake owned by US private equity group Warburg Pincus and has an option to buy more. The prize is to bring Reiss clothing to Next’s Total Platform online operation.
Next chief executive Simon Wolfson snaffled five former Debenhams beauty operations earlier this year, but dropped out of the race for Topshop, which fell to Asos.
When non-essential retail does finally escape the pandemic, brand ownerships and high streets are going to look very different.
The final shape will partly depend on the reshaping of business rates and progress on digital taxes, both of which were dodged by Rishi Sunak in last week’s Budget. Retailers are being required to take critical decisions in an unacceptable tax vacuum.
Shadow boxing
ThE odds on a rescue for all or parts of London invoice finance group Greensill look to be diminishing.
In spite of boasts about its own whizzbang tech platforms, it turns out that much of this was outsourced to US tech group Taulia, which is switching its allegiance to
JP Morgan Chase. It will now service former Greensill clients including Astrazeneca. In effect, the carcass to be picked by Apollo Global, the most likely buyer, is looking thinner by the day.
It is shocking that a shadow bank, which reaches into so many corners of the financial system, was allowed to grow in London handling billions of dollars of factoring contracts without UK regulators paying any attention.
The fallout for Credit Suisse, Softbank and now, it is reported, insurer Tokio Marine, becomes more toxic by the day. This is even before we consider the baleful impact on steel production at Liberty and jobs.
Greensill is not formally regulated by the Bank of England. But for the sake of the City’s reputation it needs to show leadership in unravelling the mess.
Dog-eats-dog
ONE of the delights of visiting a US baseball or basketball stadium is tucking into a pure beef hebrew National hot dog.
This great American brand, around since 1905, is up for sale by its Chicago owner Conagra Brands and could end up in the hands of Brazilian meat processor JBS SA.
Time for the Committee on Foreign Investment in the US to intervene as a matter of heritage urgency.