Hi, I'm Linda Duessel, Senior Equity Strategist at Federated Hermes.
Why do you believe it's important to watch the dollar? Is it because we're essentially living Modern Monetary Theory?
We all suffered a pandemic that was dramatic, and we shut down our economy forcefully to give ourselves the worst economic recession since the Great Depression. And thankfully, our leadership and government, our central bankers and our administration, did exactly the opposite of what they did at the time of the Great Depression where they made many mistakes. Instead, our Washington DC, our leadership, gave us stimulus and big time stimulus. All around the world, in fact. It's made a lot of people nervous, printing money from out of nowhere. But it was the wise thing to do to bridge us through that time when we were all shut down. And up until the most recent 1.9 trillion dollars of stimulus, our government and our central bankers had promised or spent together about 50% of the size of the GDP of our country. Which is in and around what they had done around the world. If not China, which actually spent far less. And happily, were having a very strong economic recovery, not just here in the US but all around the world. So here we are, having printed and spent trillions and trillions of dollars, now the 1.9 trillion. After which time now two more proposals, for infrastructure and so-called family bill up to another 4 trillion dollars. This type of money is unprecedented. And as we all know the definition of what is infrastructure, has changed a bit as well in this proposal. So what we may now be looking at is an actual policy path.
That is what they call Modern Monetary Theory, which suggests that you don't need to issue bonds, you have zero percent interest rates. The idea behind Modern Monetary Theory is that everyone who wants a job can have one, there is a job guarantee. And it is the government, it is our leadership in government who decides how much money to push out into the system or to take back in the form of less spending and taxes. At this point in time, the promises plus what is now suggested to come down the pike, are 70% of the size of the GDP of our country. The only country around the world, who has a higher figure is Japan at 74% at the moment. And they are a much smaller economy, excuse me. Now, can you imagine, if we in the United States are issuing trillions more in debt in the name of stimulus where the rest of the world says, actually, we're recovering very nicely. What this could do is really harm the value of the US dollar. And those that are the worried about an inflation concern I would argue, in the longer term we need to worry about the inflation that may come from weakening the value of our US dollar by just printing too many trillions of dollars. One day, we must pay that piper.
Disclosure: Views are as of May 14, 2021 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. Gross Domestic Product (GDP) is a broad measure of the economy that measures the retail value of goods and services produced in a country. Past performance is no guarantee of future results. 21-40244 (5/21) Federated Equity Management Company of Pennsylvania