Sree Iyer: Namaskar and welcome to episode 114 of Daily Global Insights. I am your host Sree Iyer joining me is Sridhar Chityalaji. Today is March 9th 2021. Sridharji, I am going to quickly read all the main points and then we can go into the details. Namaskar and welcome to you, sir.
Sridhar Chityala: Namaskar and good morning to everybody on this, you know little bit of a cloudy day. But, there are bright prospects in store for all the American citizens as the House sits down to pass the covid-19 relief bill 3 and everybody will be getting a $1,400 check by end of the month.
Sree Iyer: And the main point for today’s news items. Arizona border Chief wants illegal immigration on track to surpass the total of the past three years combined. There’s a surge. In fact, there has been a video circulating of the border being open and 1500 people walking across. There is a fair amount of churning going on in Arizona and Texas. A quarter of the migrants dumped in the Texas border have covid-19.
12 States sue Biden Administration over the climate executive order signed on January 27th.
Major oil shipping port in the Kingdom of Saudi Arabia Ras Tamura was attacked by an unmanned drone. However, the damage has been minimal.
And the new verbiage old line items. What is in the 1.9 trillion stimulus package? Sridharji and I will be breaking it down for you.
And now the main points Trump’s last petition was rejected by the Supreme Court of the United States without giving any reason. Why did they not even bother to give any reason sir?
Sridhar Chityala: I think basically this has been the consistent position that has been taken by the Supreme Court. The elections are over. It’s not something that can be overturned. It’s null and void and let’s move on.
Sree Iyer: In immigration issues, the Arizona border Chief wants illegal immigration on track to surpass the past three years combined. So this is one of those things where the Democrats are sort of, you know, they started this out and now suddenly there seems to be some sort of deer caught in the headlights syndrome. What are your thoughts, sir?
Sridhar Chityala: Well, my thoughts are its like two parallel lines that are never going to meet. So we have on ground issues and realities, which is being faced in Texas, Arizona probably parts of California and other areas around the South. And then, they are confronting it on the ground, the Texas and Arizona Border States are facing the brunt of the problems ranging from security issues to health issues on the covid front. Plus some very unpleasant circumstances in the Rio Grande area, where people have seen people have been drowned, you know women children Etc. So what you are witnessing is you’re witnessing on the ground this massive kind of surge and problems dealing with it. Then, you have the Biden Administration which says look we got to reunite all the people and we got to kind of move this thing along; maybe we should add additional tents to house the children. The children should be given a priority Etc.
And Biden administration is facing criticism within its own party from the progressive which is to say, some people call it as child retention centres, the other call it has the child shelters. There’s been criticism around how these children are being treated or looked after or being attended to. So, we have a mounting crisis in the border, which somehow the White House Administration has refused. Even more notable Department of Homeland Security was basically briefed to say okay, you know be careful in terms of how you advocate these issues and you don’t want too much PR. On the contrary between Sunday and Monday Department of Homeland Security here has issued a notification which is to say we need volunteers because we have a major problem mounting on the border.
Sree Iyer: Well, representative Crenshaw had visited the Texas border and he calls a situation unstable. Now, this whole initiative was put forth by progressives in the Democratic Party, perhaps these people should also be first lining up for signing up for doing the voluntary service. And then basically what I’m saying is put your mouth where your money is or put your money where your mouth is.
The White House is now calling on the Texas governor to accept federal funds for covid testing of illegal immigrants. Have we gone crazy here or what? A quarter of these illegal immigrants have covid-19 positive and Texas now has even taken away the face mask. So, what exactly is going on? I am really concerned sir.
Sridhar Chityala: I think just not yourself. I think the entire southern states are concerned. It’s from Detain and Deport to Detain and Retain policy. And this detains and retention policy is now giving way to Detain, Retain and Release policy. So, Detain Retain and Release implies that people don’t have the capacity to test all these people they’re getting released and then, suddenly people are realizing that there’s a significant number of them with covid-19 issues because they have all been hunkered down in the tents and bunkers on the other side of the border and the message that is coming out is, look, you’re not welcome, but, if you make it, we will not throw you out. So, therefore you will stay if you can make it. So everybody is saying, you know, we’re going to make our way and attempt ourselves to see whether we can cross the border that is why you have these drowning and deaths and other things that people are noticing in the Arizona border and even in the Texas border. So, the story here is that there is a wrong message that is going out and many of these people are having Biden t-shirts, which is to say you are welcome, with the Biden t-shirt banner you are welcome. So I think the message is not clear or the message is not strong and the policy enforcement has been taken out. And now the policy enforcement is around Retain.
Sree Iyer: 12 states have sued the Biden Administration over the climate executive order signed on January 27th citing that it will impact Agricultural and manufacturing jobs. The Keystone Pipeline cancellation Joe Biden’s pause on any new leases for oil and gas development on federal lands and offshore has hurt many people in many states. And in the administration the Biden Administration official some had roles in probes and surveillance of the Trump campaign this is something that is breaking out new. Senator Ted Cruz has put a hold on Biden’s CIA pick Burns to pressure the administration over the Nord Stream 2, Sir, can you expand on this a little bit?
Sridhar Chityala: Well, I think that there is these pipe sanctions, you have sanctions on Iran. There are sanctions imposed on Russia during that Crimea issue, if you recall there’s a bunch of sanctions when they had the occupation and they had that unwarranted war with Ukraine and a bunch of sanctions were issued. So, one of the sanctions that were done was this Nord Stream pipeline, which is a gas pipe that goes into Europe near Germany. It is conceivable that Angela Merkel seems to have done some negotiations and some kind of softening of the stand by Russia to accommodate this to meet the energy needs of the European Union. But, however, the European Union is one of the signatories to this ban. So, it seems like that whether the Democrats would impose that specific ban is the question and what kind of monitoring is going to be done to accommodate that is something that has been raised and there are no answers from the incoming CIA Chief, who has been nominated not confirmed as yet, this is William Burns, who was the deputy secretary of state in the previous Obama-Biden administration.
Sree Iyer: In other confirmations, Senator Marco Rubio of Florida has placed some objections on Wendy Sherman’s nomination. Wendy Sherman is supposed to be the deputy secretary of state for her role in Iran negotiations and the abortion rights movement. Likewise, the Attorney General Merrick Garland’s nomination, Tom Cotton and others have asked questions of him on gun control immigration and the death penalty. So, at least three of the nominees are going through some headwinds right now.
Sridhar Chityala: Well, I think most of the nominations except the initial like Lloyd Austin there was some controversy around whether you know, somebody should be called from retirement, but he went through. Barring Janet Yellen, Lloyd Austin and a couple of other people most of the nominations are going through a lot of questioning and delays around, for example, Linda Thomas-Greenfield, you know, the United Nations Ambassador also went through the issue and Gina who is the commerce secretary went through from Connecticut. So, what’s happened is the key position, which is namely the CIA, The Department of Justice without Department of Justice has no enforcement, this Merrick Garland thing is stuck.
Now, what we are finding is that this is where this Wendy Sherman Nomination is getting delayed is a lot of people who are in the state department or the junior officials are all people who have bought up the disastrous Iran deal that was struck. So the questions are being raised whether it is the same team that is coming together. And what is going to be the change in kind of policy as far as Iran is concerned? Is it going to be a softening of the stand or is it going to be a tougher stand to make sure that Iran is compliant? Based on what they are doing with the West Asia Abrahamic policies as well as the stand that has been taken by Biden on Israel with regard to Iran is not auguring well, which is why there’s a number of questions that are being raised in these hearings. We will cover National Security tomorrow in terms of the policy, will also cover some of the foreign policies issues tomorrow, and you will see similar issues prop-up.
Sree Iyer: In foreign policy, Iran renegotiation attempts with no compliance on Nuclear Safeguards. The Kingdom of Saudi Arabia policy and shunning of Mohammed Bin Salman could be a danger to the Abrahamic accords and Israel has stated its own policy on Iran and the embassy has issues that seem to be plaguing the relationship with Israel also. So, Middle East, right now the Biden of administration, I don’t know why there seems to have been a mess created out of nothing and we have to wait and see what plays out? All this to appease one country, Iran. That’s what it looks to me, sir. You can tell me if I’m thinking wrong.
Sridhar Chityala: Clearly, Iran seems to have had a profound influence in the policy reshape that is taking place in the Biden Administration. They’re going to spell out both the kingdom of KSA issue today, I think and they also going to talk about both the national security and the expansion of the foreign policy issues. So we’ll cover more in detail. But to your point, it is very clear that the anti-Abrahamic stand is the policy signed by President Clinton. The Israel position around, is the embassy going to stay in Jerusalem or is the embassy going to be relocated? And what is going to be the position on Iran in terms of are you going to make them compliant or you going to give them concessions? Or the prime questions and you can see even in Houthi the first they reverse the policy then, the Houthi attack occurred and the Houthi attack occurred not just on the US campus, where the US forces are and we a high commission is but Houthi rebels in concert with some of the other Iranian Rebels occurred not only in the Syrian side, which we covered, but, also has occurred in Saudi Arabia, they had 14 drones and eight missiles launched of which only one drone reach was shot down and fortunately, there was no damage to any of those petroleum forms. Only one form seemed to have been within the target of the Drone and that’s been put down. So, you can see now there’s a whole raft of issues that are propping up as you rightly point out. Everything seems to be the epicentre being Iran.
Sree Iyer: I’m going to quickly run through India related news and then we will go to the main topic of today, which is the stimulus. In India fiscal steps taken by the government has led to positive growth in Q3 and there is a slight uptick in growth of 0.4%.
Road asset monetization of the Modi government in the fifth toll operate transferred bundle comprising of about 160 kilometres the government has realised about 3362 crores.
Adani green energy subsidiary commissions a hundred-megawatt wind power plant in Kutch five months ahead of time.
ArcelorMittal which announced in the Orissa plant is to invest more than 50,000 crores in Gujarat.
And pentagon is uncertain of Afghanistan withdrawal as the deadline looms we talked about this yesterday, so you can go back and refer to that. Also on the topic of the Kingdom of Saudi Arabia and Mohammed Bin Salman, I had sat down and done an interview with Abhijit Iyer-Mitra on the evolution of this Kingdom of Saudi Arabia over the past few years what led MBS (Mohammed Bin Salman) to ascend the throne, sort of, he runs the things And what are the steps that the Kingdom of Saudi Arabia is taking to bring the country towards modernity. So it’s a very interesting conversation that will be airing in a day or two. Please do watch that.
Now, to the most important topic of today, which is the emerging data on what comprises the new stimulus 1.9 trillion and to start the ball rolling, I would like to bring your attention to the data that we presented to you prior to this 1.9 trillion. There was about 3.42 trillion worth of stimuli at four different tranches. We’re going to give you that to start our discussion. Here we go. So, here is what we’ve had thus far which is the first four sets with names Families First, CARES, PPPHCE, Response and Relief that totals 3.415 trillion. There is an error of about 5 billion here or there, sometimes you’ll see the number like 3.42. So this is just a setting, the context in terms of what has been happening. And what are the broad categories under which this money has been allocated for various segments such as small business support, unemployment benefits, recovery rebates, Health Care spending, state and local aid, tax relief and another spending?
Now if we take a certain discipline, if you will, just let me, I am going to show the other slide which is the complete breakdown of the 1.9 trillion and in their infinite wisdom, the Democrats have decided that they will not use this nomenclature, but they will use different nomenclature to try and come up with what is in their 1.9 trillion package just to make it easy and interesting for people like us. Here we go. This is their minuscule print, it might be a little hard for you to read it, but I’m just going to go through the broad strokes, ways in means 923 billion and that include $1,400 per month per person stimulus checks, External Unemployment, expand Childcare, tracks, blah blah blah and then Oversight and Reform of 350 billion, Education and Labour of 290 million, Energy and Commerce of 122 billion, Transportation and Infrastructure of 90 billion, Financial Services of 71 billion, Small Businesses, 50 billion. So anyone who’s talking that they are going to get PPP loans, please there is no amount there. The last one was 290 billion and that vanished Into thin Air in a few hours of the window opening. So I’m very sceptical about that. And then there is Veterans Affairs 17 billion, agriculture 16 billion, I can go on the numbers are beginning to dwindle now. So now what I’m going to do with your permission, sir is I’m going to put up the comparison that we have tried to do, mapping of the new 1.9 trillion, which due to lack of a word I’m calling it Biden-1 because there’s a Biden-2 just coming down the pipeline. So I have the screen now, which is all of the previous ones captured plus the new 1.921 trillion. I hope you understand, you have the data in front of you. So take it away sir. Now you can start expressing what your observations are about this new 1.9 trillion. By the way, this data you will only find on PGurus. Nobody else has done it. I’m sure Fox, CNBC, everybody else will jump in and start doing this thing, but you heard it here first. Sir, over to you.
Sridhar Chityala: Thank you so much, Sree Iyerji. Here is my first observation as we look at this 1.9 trillion, which is the details of the 1.9 trillion before we get to the comparative or the total aggregate numbers rather than comparing anything. When you take a look at this 1.9 trillion, and if you are in Public Finance, I certainly do not come from Public Finance, I come from private markets and I come from the market side of the business. This is a classic expression of how you do not do detail breakup and accounting. I will just give you two examples. There is a category called Energy and Commerce. It would take a look at this Energy and Commerce you will find increased Public Health Workforce, fund vaccine distribution confidence and supply chain, allow states to expand Medicaid. So how can this be Energy and Commerce? This is Healthcare in the definition.
Now you go to Education and Labour. When you go to Education and Labour; provide support for childcare, I understand, provide funding for K-12 education. Then you have subsidized Cobra coverage for laid-off workers. Extend nutritional assistance that I can understand but when you take a look at subsidized Cobra coverage and provide support, increase the federal minimum wage to $15, $15 is not purely for people in the education segment. It should be in the Ways and Means. Then, when you go to Ways and Means, which also comprises subsidized Cobra coverage for the laid-off worker. So if we take a look at this subsidize Cobra coverage, you have 8 billion dollars in Ways and Means and you have 10 billion dollars in Education and Labour. So you will begin to find things of this ilk when you take a look at the financial services. It says basically, uses Defence Production Act to buy and distribute Medical Supplies. So there is a lot of hodge-podge that has been put together.
Now you go to the last items, Foreign Affairs -10 billion, Natural Resources – 1 billion, Science and Technology – 1 billion. So you have this whole swag of numbers that have been added up as almost like a stimulus that is required to almost beat the various constituencies. So this is a good example of running a stimulus, but a bad example of how you orchestrate these numbers. When I say a good example it means money is needed as Sree Iyerji pointed out especially in the small business administration, especially in those categories where people are going to be unemployed for a long-term, who needs support beyond August and September. In fact, the industry has come out and said the PPP program and the forbearance program should be extended until December 31st. So there should be a higher allocation than a mere $50 billion. Mind you, there are $350 billion of loans that are spending that was not availed that may be released. But that’s not PPP. That’s not forbearance. That is the augmented loan support which Steve Mnuchin was not prepared to distribute because there was no formal legislation passed as to how that should be distributed. So it’s almost like haste. There is unilateral and universal criticism among the Republicans of the way this thing has been orchestrated. Now, even markets are beginning to raise scepticism around this allocation of $1.9 trillion.
Now, let’s do the comparison which is the chart, not comparison but aggregation. So if you take the old 3.4 trillion, if you look into that chart you have you got very clear; small business support, unemployment benefits, unemployment benefits are basically targeted to those who get that $400 to $600. Recovery Rebates, this is the money that goes into paying out people who are that $400, $250 and now $1,400 checks. So that’s that. Healthcare spending, it is very clear Healthcare spending $420 billion was allocated towards the entire covid – vaccines, testing, enhanced distribution and the vaccination program. State and Local Aid is very clear, which is namely make some of the state and local governments or sick, notably in blue States and they need money, whether that should be a part up covid relief is questionable but let’s assume that is the case, you have $360 billion. Tax Relief, these are credits that are given like childcare credits, the tax credits for corporates, tax credits for small business corporations etc.
Then you have a whole swag of stuff which is called Other Spending. This is the one that relates to Transportation, Airline industry support, Infrastructure Etc. So those are some of the things that are laid out. So you have a fair amount of clarity as to how this was done in the CARES Act as well as in the R&R which is the Recovery and Relief act program. Now, you come to the Biden-1 formula. These numbers are what we have done using the best kind of assessment of reclassifying the numbers that have been hodge-podge into various categories. You will see small business receives minuscule support of 50 billion. You look at the unemployment benefits, because of a large chunk of the program, this is the ways and means of these $1400 plus the $600 that effectively makes it $668 billion. That is a big number because of that $1,400 check. Recovery Rebates is 143 billion. Now, health care if you see it’s 122, relatively small, notwithstanding the fact that is supposed to be the number one priority in this country. The second is State and Locally Aid. Look at the number 350 billion. So, totally when you add, $710 billion is going to be given to State and Local aid so that their balance sheets can be cleaned up and they can create the next mess. This was toughly opposed right throughout the entire stimulus program. The house stood on one leg to make sure that this is part of the program and this was given in three tranches in the first two stimulus programs but look at the third one. This is probably the second highest line item in the Biden-1 formula. Tax Relief is 290 which is expected given the size.
Then you have the Other Spending. When you look at the Other Spending, all of program 1 and 2 was 325. Biden-1 is just 298. There is massive money stuck. You can go into the details. The detailed one-page sheet is going to be put out and given. You can see it and you can draw your own conclusions.
So the next summary of all this is the stimulus is here and it is going to be massive. Over the next few days, we will also give as we did before, what is the consequence in terms of the 2021 budget. We gave 2019 and 2020. What is its consequence on the long-term debt, just this 1.9 trillion? There’s more to come. And then what is the consequence of it on the interest cost that it does to the balance sheet of the US government. This is the reason why the CBO projected that in 30 years total US debt will be $100 trillion. It is like a train wreck making its way towards the debt-burdened US economy.
Sree Iyer: Sir, for a layperson such as myself, this new classification of line items verbiage seems counterproductive to me. If I am a Democrat what I would like to do. I’m a democratic voter, for example, I’d like to tell my Republican voter friend that look whatever you have done, we have done better and use the same line items and say here we have done more, here we are. So that is how I would do it and yet the Democrats have taken a totally different route and essentially I have worked for hours and what happens is it prevents proper discussion of where the focus is? For example, one thing we have unearthed is that the PPP program is a total disaster in this case. 50 billion is peanuts. They know that 320 first time and a further 290 did not even scratch the surface. So this is something that is a non-starter and I can tell you from a practical point of view I think PGurus did not even get past the origin. They didn’t even accept our application for the second round of PPP stimulus. So, enough said.
So we are now at an end of today’s program. Sridharji, we are going to be again looking at this in some detail like he said about what it means to the deficits, how the United States is going to plan on how to control that. I don’t know if they are even thinking of that but it is our important duty here to show that it is fiscally responsible. For instance, you and I, are at home. We can only spend what we earn. Of course, you can use plastic but for that plastic also you have to pay, at some point you have to pay. So then there is a fiscal responsibility that needs to be there. That’s what made this country great. Anyway, I am going on a rant now. Sridharji, if you have anything to summarize this then we can call it a wrap, sir.
Sridhar Chityala: I think I’ll give a concluding statement. This is the beginning of a new Journey. And more to come.
Sree Iyer: Thank you very much and it is a pleasure having you today and hope viewers liked our presentation on stimulus. Please do subscribe to our Channel and donate to our cause. Also, join our membership as we are coming out with a more focused treatment on the tough subject in this covid pandemic. A lot of important discussions are not taking place. It is our duty and responsibility as people who can give you the real news that we are going to come up with such data. Thank you very much.