The Cost of Federal Government Inaction

Those who do not remember the past are condemned to repeat it. – George Santayana

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Q2 2020 hedge fund letters, conferences and more

When President Franklin Roosevelt took office during the depths of the Great Depression, he knew that the times called for extremely drastic action. During a period of just one hundred days, he shepherded through Congress a massive government spending program which created jobs for millions of the unemployed.

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Four years later, when our economic recovery still had a long way to go, Roosevelt reverted to that old-time-balance-the-budget-religion, and our economy quickly tanked again. Indeed, only the massive federal spending brought on by the outbreak of the Second World War finally brought us out of the depression.

So, what have we learned fromthat experience? Apparently, not enough! While we might  believe that massive federal government spending can spark an economic recovery, we have still not fully grasped the need to keep our foot on the economic accelerator.

Just look at the game that is being played by the president and both parties in Congress. After the allocation of trillions of dollars during late winter and early spring, both President Trump and Congressional Republicans then just sat back and waited. They wanted to see how things played out before committing to spend any more money.

The Failure Of Economic Stimulus Package

House Democrats did pass a $3.4 trillion economic stimulus package in May, hoping the Republican majority in the Senate would at least consider it. But nothing happened until the last few weeks. After futile negotiations between the Democratic leaders of the House and Senate and a couple of emissaries of the president, no deal was reached. So the Republican Senate tried to pass the so-called “Skinny Bill” calling for just a few hundred billion in new stimulus spending. Even that effort failed.

By now two things have become increasingly apparent. First, the trillions of dollars in economic stimulus spending already spent have not only enabled tens of millions of American families to stay financially afloat, but that spending even fostered an incipient economic recovery. But now, that recovery is beginning to sputter.

Think about it! No more $1,200 Coronavirus economic stimulus checks. No more $600 weekly unemployment benefit supplements. States and municipalities across the nation may soon be laying off millions of essential employees. So while the president and Congress fiddle, America burns.

Is this deja-vu all over again?

Haven’t we learned anything from President Roosevelt’s actions during the Great Depression? Are we willing to allow the current deep recession to sink into another depression?