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Covid-19 related spend


SharperDingaan
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Covid-19 has been with us for a while now, and we have a better picture of the spend to date on the various stimulus programs. As well as a murky insight into a number of grey elephants that hadn't initially been considered. The economic 'story' is "Yes, it is serious - but it is a temporary blip; that we will recover from once the economy is back up".

 

All canadian municipalities are required to balance their budget every year, with any shortfall charged to the taxbase the following year. Toronto, recently forecast a current year Covid-19 related shortfall of 1.65B, and a property tax-hike of 35% if it weren't addressed - late last week, the Federal Government agreed to fund part of it. Every single municipality in Canada has the same issue, and will seek similar relief. The same Grey Rhino is present in the US.

 

Most project annual Covid-19 spend to exceed the annual spend levels of WWII. During WWII, both the Allies/Axis financed their war efforts via patriotic domestic war-bonds - long/no maturities, and very low rates. The US financed Vietnam by removal of gold backed notes, and the USD as the worlds reserve currency.

 

For a Canada, it is hard to imagine an eventual total Covid-19 recovery bill, of much under 2-3T - net of multiple years of wage subsidies, industry bailouts, mega-project stimulus, and social spend on skills retooling. Canada will come out modernized, and a lot stronger for it - but it's a nation building multi-year project - NOT a 1-2 year project.

 

At 10x Canada's size - the total US bill is roughly 20-30T+. The EU will have something similar.

I would like to hear how US based COBF members, would expect a financing of this size to play out - as it has never been done before. My own view is that ultimately, this it is going to require new arrangements, similar to what occurred in the years immediately following the end of WWII.

And NONE OF THIS is priced into the market yet.

SD

 

 

 

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I would like to hear how US based COBF members, would expect a financing of this size to play out

 

Per the US Treasury Daily Statements, since the first of March this year thru July 16th (basically 4-1/2 months), the US Treasury has spent $1.68t MORE than it has taken in in taxes, fees, etc.

 

However, also, since the first of March, the US Treasury has issued $2.93t in bonds and bills.

 

As of July 16th, the US Treasury has $1.8t on deposit in its account at the Federal Reserve.  In theory, the US Treasury could spend this down to zero without issuing another bond or bill.

 

I don't think its gonna be a problem.

 

Now, states and cities are in a world of hurt and, (unlike, the Federal government which spends and issues debt in a sovereign currency that it controls) have to balance their budgets eventually, somehow.  That's where the big problems will be - and I think we'll see a few states getting in big trouble.

 

wabuffo

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Wabuffo, I don't think it's as simple as you portray it. The Feds will have to take over a majority of the shortfall from the state and local level otherwise the US will be in a world of hurt economically.

 

This is probably one of the biggest economic pain points and they will fuck it up because of the politics around it. By fuck it up I mean they will eventually pick up the tab, but not before they cause a good deal of economic damage by tossing the football around. Along Churchill's adage that America always does the right thing but only after trying everything else.

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The purpose of the Covid spend is to get the economy back on its feet. Most people cannot continue to live where they are if their property taxes go up 50% in one year, and more the year after. They have to move - and their forced mass selling into into a buyers market, will drops MV's, which will drop LOC maximums, contracting credit and strangling recovery.

 

Recovery isn't going to happen, if the municipalities or states are bankrupt.

Ultimately - the issue is the size of the cumulative debt (muni, state, fed) across all 52 states, and how it gets serviced. If the economic pie is shrinking (or no longer growing), there are hard choices.

 

SD

 

 

 

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