Quarterly Update

Garrett R. D'Alessandro, Chief Executive Officer | Jan. 2021

Multiplication Through Addition – How the U.S. Treasury and Federal Bank Saved the Economy

The U.S. Federal Reserve and Treasury will have injected over $9 trillion in money or stimulus spending into the U.S. economy by the end of 2021.

The U.S. Federal Reserve and Treasury will have injected over $9 trillion in money or stimulus spending into the U.S. economy by the end of 2021. This quantum of money has never in modern history been pushed into any economy. The COVID-19 pandemic justifies this extreme monetary and fiscal thrust, but the consequences are difficult to fully comprehend. The near-term purpose and benefits are easier to measure; these actions saved the U.S. economy from depression.

To put this into perspective, this is enough money to ostensibly buy the entire economies of the United Kingdom, France, Spain and Italy. Or, if we prefer U.S. history, this is about 1,000 times the amount of the Louisiana Purchase, arguably the best investment in U.S. history, which cost in today’s dollars $342 million to France and about $8.5 billion to Native Americans, adding up to about $9 billion — compared with $9 trillion, not billion.

This $9 trillion benefitted the U.S. economy via workers and businesses.

Let’s focus on individuals, whose consumption represents 69% of total GDP.

Presently, there are 10 million unemployed and another 4 million who have left the labor force for many reasons. While unemployment remains high, it is 9 million recovered jobs below the April peak of 23 million, mainly due to the stimulus provided.

Had the U.S. Federal Reserve and Treasury not acted, 23 million unemployed individuals would otherwise lead to a deep recession.

Three charts tell us why we avoided a deep recession, perhaps unlike any in modern history. The cost of such a deep recession, it is argued, would be far in excess of the $9 trillion stimulus cost.

U.S. personal disposable income, which is ahead of otherwise normal levels and which represents increasing potential future spending:

And record household net worth, which has increased significantly over pre-pandemic levels:

These positive effects are well worth the cost, but there remain concerns as to how and when the millions of unemployed will return to work and how the stimulus will be paid for. These questions are to be answered over the long term. For now, the stimulus has created the foundation for a strong recovery from the pandemic-driven recession.

Key Points

The U.S. Federal Reserve and Treasury will have injected over $9 trillion in money or stimulus spending into the U.S. economy by the end of 2021.

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Alternative investments are speculative, entail substantial risks, offer limited or no liquidity and are not suitable for all investors. These investments have limited transparency to the funds’ investments and may involve leverage which magnifies both losses and gains, including the risk of loss of the entire investment. Alternative investments have varying, and lengthy lockup provisions.

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Index Definitions

Bloomberg Barclays Municipal Bond Index is a market-value-weighted index for the long-term tax-exempt bond market. To be included in the index, bonds must have a minimum credit rating of Baa. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least 1 year from their maturity date.

The Bloomberg Barclays Global High Yield Index is a multi-currency flagship measure of the global high yield debt market.

Indices are unmanaged and one cannot invest directly in an index.

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