The $0 infrastructure bill
Surprise, surprise. Politicians made a mistake. It’s ok. Everyone makes mistakes. But when it comes to money, I keep count.
This week the White House tweeted the cost of the Build Back Better Agenda is $0. Yes, zero.
Please tell me how a $3.5 trillion infrastructure bill will cost nothing. I’ll wait…
Well let me break down their theory. The ‘Agenda’ wont add to the deficit and wont cost anything to anyone making less than $400k. How? It will be fully paid for by big corporations and the very wealthy.
So the government plans to tax the high income producers $3.5 trillion and then spend $3.5 trillion on a poor infrastructure plan. The cost of the Build Back Better Agenda is not $0.
Taxing the rich is not the solution.
America has a spending problem.
How can we address the country’s spending problem? By cutting costs aggressively and improving our tax revenue. Taxing the rich is a finite solution. It is not sustainable. We need a consumption tax; or a value-added tax (VAT). America is a consumer driven economy so we need to tax spending.
And the more I think about infrastructure, the more we need to devote the entire budget to transportation. The private sector can focus on telecom and technology. The government needs to invest trillions in shipping, trains, planes, bridges and roads.
The global supply chain shortage is a good example. Shipping is a serious problem today.
Let’s break down a few of the underlying issues. First, shipping unions are holding up the country. The Shipping Port of Long Beach, California has a record number of 100 container ships waiting to enter the port. President Biden has ordered the Port to remain open 24/7.
But that’s not the only issue. The Shipping Port can’t get employees to work double shifts for two reasons: overtime is expensive and blue collar workers don’t want to work. We’ll get to the unemployment issues in a minute.
Remember, higher wages result in higher costs which results in more inflation.
Inflation will eat into your investment returns
Again, inflation is not transitory. Long term inflation is real. Businesses and consumers are experiencing it. Shelves are empty and short term costs are rising [shipping container costs have 5x in one year!].
I suspect the biggest driver for long term inflation will be wages. How? Well every retail business is having a tough time hiring employees. You cannot hire anyone at minimum wage today. Employees aren’t showing up. They are day trading, have unemployment claims, stimulus checks and other sources of income.
This is a real time test of universal basic income. And proof that it doesn’t work.
Plus we have massive government spending. If the U.S. doesn’t have a payback plan, rising interest rates on our nation’s deficit will erode the U.S. dollar’s purchasing power in the future.
This is why investors are hedging with cryptocurrencies like Bitcoin and Ethereum. Which hit all-time highs with the new Bitcoin ETF released this week.
Government backed currencies are dependent on politicians. And only if they make good economic decisions. But between you and me, they wont. Why? The incentives will never be aligned.
So what can you do? Buy crypto, buy hard assets, buy commodities. Buy into the inflation trade.