Government Spending & Stimulus Package
Sean Brazney: Hello! My name is Sean Brazney, Sales Director for Monex Deposit Company. I’m here today with Jeffrey Christian, Managing Partner and Founder of CPM Group. CPM Group is the author of our, Better Future with Precious Metals report. They also put together our quarterly and annual reports for gold, silver, platinum and palladium. It’s really great to have you here with us today Jeffrey.
Jeffrey Christian: It’s good to be with you Sean. I hope everything is fine on the west coast.
Sean Brazney: So far, it is the West Coast though, so give us another day or so. Thanks again for your time. I wanted to kind of get into some of the spending by the government, stimulus package through Congress. You know, we were talking about back in June of 2019, when we were involved in quantitative tightening and the balance sheet from the Fed was going from about $4.5 trillion. We got down to about $4 trillion or close to it over about a year and a half, before they did an about face and went the other direction. Now, we’re coming into the pandemic and stimulus packages, and another new one coming through Congress. I’m just wondering if you could kind of take us through a brief timeline of that and give us a good solid number as to where we are in the Fed balance sheet and what we can look forward to here with this stimulus package out of Congress.
Jeffrey Christian: The Fed balance sheet, as of yesterday…or last week, was about $8.44 trillion or $8.45 trillion dollars and yes, that’s more than double what it was at the beginning of 2020. So, the Fed has thrown an enormous amount of cash into the economy during the pandemic and the economic lockdown. I always want to stress, it was the economic lockdown that has caused all these economic issues, not so much from the pandemic. I mean the pandemic has an economic consequence, but the policies that have been pursued with the economic lockdown are really what’s been behind it. So, we’ve seen a doubling of the Feds balance sheet as it’s taken on a lot of bonds and pumped a lot of money into the economy to stanch the bleeding during the recession and that basically continues. Then you have a separate issue, which is the fiscal policies and the fiscal spending by the government, by the Administration and Congress.
Sean Brazney: Those numbers seem hard to fathom in just a two-year time frame in doubling what took us almost 10 years to build. Another thing coming out of China is the Evergrande, looks like maybe the second largest property developer there out of China was facing a potential default, and a lot of news coming out…it’s hard to rely on the news coming out of China I know, but it brings up the talk of more bailouts and maybe there’s some exposure to the banks through that. Any kind of intel you can give us on that?
Jeffrey Christian: Yeah, well, it’s a little bit unclear right now, today as we’re speaking on the 22nd of September, there’s news out of China that the government has stepped in and there’s a massive bailout and yes there are going to be losses for the bond holders and all. So, I think that that crisis may be being contained. Now, there are several things that I would say. We’ve talked a lot, CPM Group, recently over the last several months about the difference between fearing an economic collapse and fearing and expecting the kinds of global financial crises, national financial crises, deep recessions and economic and financial problems that actually we have seen repeatedly over the last several decades, if not the last several centuries. My take on Evergrande is a two-fold. One is that, what it is… is it’s like those kinds of crises that we’ve seen before. People have compared it to Lehman. I think it’s probably about as big to China as Lehman was to the United States in 2008, but if you look at it, the crisis that the Lehman collapse precipitated and the crises that previous banks and investment bank problems have precipitated were resolved. They caused economic pain. They caused economic investors to lose a lot of money, but ultimately, they were resolved and the financial system did not collapse. I think that you look at Evergrande in China and you look at things that we expect to happen in the United States over the next four or five years and that’s the outcome that seems most reasonable to expect. I doubt that any of these things will collapse the global financial system that’s been in place for 500 years, but they definitely interrupt economic growth and cost financial losses. I think that Evergrande is to China one of those things. It’s interesting to see how rapidly and forcefully the Chinese government appears to be handling that. I think that’s the difference between a managed economy that’s run by a communist government and a non-managed economy that’s run by a democracy that is plagued by, I would say ineptitude and very deep divisions over the last 20-25 years. So, I think Evergrande may already be behind us, I’m not quite sure, but I think it’s emblematic of things that we’ve seen in the past and things to expect in the future.
Sean Brazney: I’ll always appreciate your opinion on that. I do hope it’s past and not any more shocks to the system unnecessarily the downside.