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Immediately after the introduction of the US$1.9 trillion anti-epidemic economic stimulus bill, the US government has been brewing a new economic stimulus plan without stopping.
Previously, Wall Street analysts had estimated the US government’s new stimulus plan to range from 2 trillion to 4 trillion US dollars. The latest reports show that the US government’s planned amount may be as high as 3 trillion US dollars.
With the introduction of the US$1.9 trillion stimulus plan, investors’ expectations for inflation in the United States have been rising, which has triggered significant turbulence in the global market in the past few months. As new stimulus plans emerge, how should the global market look at it?
On Monday, Bloomberg quoted people familiar with the matter as saying that US President Biden’s advisers are preparing a fiscal stimulus of up to 3 trillion U.S. dollars, aimed at boosting the economy, cutting carbon emissions, and narrowing the gap between the rich and the poor. The infrastructure plan also includes education, improving the quality of the workforce, and coping with climate change.
Most of them will be invested in improving infrastructure, clean energy allocation, and developing “future high-growth industries” such as 5G telecommunications.
According to the report, infrastructure and climate change are key parts, and new details show that the US government is considering investing about US$400 billion in green projects. In terms of infrastructure, nearly $1 trillion has been invested in the construction of roads and bridges, railways, ports, electric vehicle charging stations, improvements to the power grid and other power industry facilities.
Unlike the anti-epidemic stimulus plan, the latest long-term economic development plan will involve tax increases. The report quoted people familiar with the matter as saying that the increase in corporate tax and the tax rate for the wealthy will be the core content.
The above report also stated that Biden’s advisers are expected to submit a plan to him this week, suggesting that he split the economic agenda into separate legislative bills, rather than trying to get Congress to pass a set of plans.
When will it pass?
Earlier media reports stated that Democrats in the White House and the U.S. Congress are already drawing up strategies that may be announced this month, but the legislation may not end until August. However, judging from the history of legislation in the US Congress, such speculation may be too optimistic.
Wang Han, chief macro analyst at Industrial Securities, stated in a report this month that according to the U.S. Constitution, in addition to impeachment, removal of members of Congress, constitutional amendments, overthrow of the president’s veto, etc., most U.S. bills only need to be complied with in U.S. Congress. The principle of “simple majority” approval means that it can be passed as long as more than half of the members of Congress agree.
However, since the Senate does not limit the time for discussion, members can prevent voting by extending their speech time indefinitely, and only three-fifths of the agreement (60 votes) can terminate the debate. This system is called “discussion obstruction” (Filibuster). In recent years, the number of the use of deliberation in Congress has increased, and the number of use of deliberation in the previous Congress has reached more than 300.
The “reconciliation” (reconciliation) can effectively circumvent the obstacles to the discussion, limit the time for debates in the Senate to 20 hours, and only require a simple majority to pass the bill. From the point of view of the process, the process of the reconciliation procedure is not complicated. Therefore, Wang Han believes that the use of the reconciliation procedure through the infrastructure plan may be the best solution for the Biden administration.
Judging from the results of the 1.9 trillion fiscal stimulus vote just passed, the “reconciliation process” has also played an important role. In the Senate vote, all Democrats passed, but all Republicans opposed. The fiscal stimulus bill relies on the simple majority principle of the “reconciliation procedure” to smoothly legislate.
Wang Han also mentioned that based on historical experience, the United States can use the reconciliation process at most once in each fiscal year. Considering that the 1.9 trillion stimulus bill is to enable the “reconciliation process” in the fiscal year 2021 budget resolution, the basic establishment method wants to be reconciled. To enable the “Reconciliation Procedure”, it will be necessary to wait until the US fiscal year 2022 (October 1, 2021) at the earliest.
In summary, Wang Han believes:
Taking into account the current “blue sweep” situation of the Biden administration, it is very likely that the Biden administration will propose an infrastructure plan as soon as possible if it wants to maximize its political demands before the 2022 Congressional general election. Therefore, if it tries to advance the infrastructure plan through the reconciliation process, the Biden administration may submit the infrastructure plan to Congress as early as October this year.
What does it mean for the market?
JPMorgan Chase stated in a report earlier this month that the new US stimulus package is huge. Biden mentioned $2 trillion in the campaign, while some of the Democratic Senate mentioned the amount as high as $4 trillion. .
JPMorgan Chase believes that the more Biden is inclined to use the “reconciliation process,” the larger the amount of the final plan will be. If he tends to pass the plan by gaining support from both parties, then the amount will be smaller. “On minor legislative matters, he might do this (seeking bipartisan support), but in the landmark events of his tenure, he obviously won’t.”
JPMorgan Chase said that the total amount of the new infrastructure program seems to be very high, but because it covers up to 10 years, the annual amount is relatively small compared to the stimulus plan passed by the United States in the past year. US$200-400 billion is only equivalent to 1%-2% of the US GDP.
However, it is worth noting that JPMorgan Chase mentioned that when the new stimulus measures are implemented, the US economy is almost certainly close to full employment. The situation at that time may be similar to the federal spending measures adopted by the United States in early 2018.
So what does this mean? JPMorgan Chase believes that this may not be a good thing. The adoption of this measure in early 2018 was a month after Trump’s tax cuts were passed, and the Fed also accelerated the pace of interest rate hikes in the same year.
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