Broker Check

No More Lockdowns

November 03, 2020

As the US opened up, real GDP rebounded sharply in the third quarter, growing at a 33.1% annual rate. However, real GDP is still down 2.9% from a year ago and the economy got a huge boost from spending by the federal government, which borrowed from the future in order to allow people to spend today.

The federal government spent $6.55 trillion in the Fiscal Year ending September 30, 2020, up 47.3% from FY2019. In total, the federal government spent 31.2% of GDP, the highest share since 1945. In the final year of World War II, national defense spending was 36.6% of GDP, while all other spending combined was only 4.4%. This past year, military spending was 3.5% of GDP, all other spending combined was 27.7%.

Some of this money was spent directly “fighting” the virus – ventilators, PPE, field hospitals, payments to hospitals for COVID-19 patients but most was used to support small business and workers during the pandemic. To put this in perspective, non-defense spending in 2020, as a share of GDP. was 40% larger than its previous peak of 19.8% of GDP back in 2009.

This can’t continue. Although the current debt of the US government is manageable, and would be even more so if we locked in low interest rates by issuing longer-term debt securities, that doesn’t mean we can indefinitely run annual budget deficits of more than $3 trillion, like we did last year.

Super-high spending during World War II was a price America decided to pay in order to preserve civilization and the American way of life. Now we’re spending massive amounts so we can keep businesses shut to try to fight a virus.

Certainly, some measures need to be taken to secure the most vulnerable, like the elderly, or people with underlying health problems. But we also need to come to grips with the fact that shutdowns cause long-term harm. We all know the physical and mental health problems that business and school closures have on people. These are real. What is talked about less is the fact that the kind of government spending we are seeing can have long-term consequences for the economy and our ability to deal with future problems. This is compounded by the fact that our government wants another $1 - 3 trillion in spending to address continuing economic problems.

A vaccine may come along that helps us deal with COVID- 19 (and we hope it does), but that vaccine will only help with onevirus, not all of them. At least by winning WWII we stopped anyone from trying to take over the world.

If another virus comes along, will we do the same thing shutdown the economy, print money and spend again?

We certainly hope not. The debt and money printing the US has done can only be absorbed by economic growth in the years to come. After WWII, the US economy expanded rapidly, partly because it was less damaged by war, which allowed us to reduce the debt burden as a share of GDP. This time is different. We can’t lockdown again.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-2 / 9:00 am ISM Index Oct 55.8 56.2 59.3 55.4

9:00 am Construction Spending Sep +1.0% +0.7% +0.3% +1.4%

11-3 / 9:00 am Factory Orders Sep +1.0% +0.5% +0.7%

afternoon Total Car/Truck Sales Oct 16.5 Mil 16.0 Mil 16.3 Mil

afternoon Domestic Car/Truck Sales Oct 12.5 Mil 12.5 Mil 12.8 Mil

11-4 / 7:30 am Int’l Trade Balance – Sep -$63.9 Bil -$63.9 Bil -$67.1 Bil

9:00 am ISM Non Mfg Index Oct 57.5 57.6 57.8

11-5 / 7:30 am Initial Claims - Oct 31 735K 730K 751K

7:30 am Q3 Non-Farm Productivity +5.0% +7.6% +10.1%

7:30 am Q3 Unit Labor Costs -10.0% -13.6% +9.0%

11-6 / 7:30 am Non-Farm Payrolls Oct 600K 600K 661K

7:30 am Private Payrolls Oct 700K 700K 877K

7:30 am Manufacturing Payrolls Oct 53K 35K 66K

7:30 am Unemployment Rate Oct 7.7% 7.6% 7.9%

7:30 am Average Hourly Earnings Oct +0.2% +0.2% +0.1%

7:30 am Average Weekly Hours Oct 34.7 34.6 34.7

2:00 pm Consumer CreditOct $8.3 Bil $5.0 Bil -$7.2 Bil

Consensus forecasts come from Bloomberg. This report was prepared by First Trust Advisors L.P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security

Infinity Wealth Advisors, LLC is not owned or controlled by World Equity Group, Inc.

World Equity Group, Inc. does not accept buy, sell or cancel orders by e-mail, or any instructions by e-mail that would require your signature. Information contained in this communication is not considered an official record of your account and does not supersede normal trade confirmations or statements. Any information provided has been prepared from sources believed to be reliable but is not guaranteed, does not represent all available data necessary for making decisions and is for informational purposes only. This e-mail may be privileged and/or confidential, and the sender does not waive any related rights and obligations. Any distribution, use or copying of this e-mail or the information it contains by other than an intended recipient is unauthorized. If you receive this e-mail in error, please advise me by return e-mail or otherwise immediately.

To Access This Link Online: