#EP59 Stimulus 2.0 breakdown, US debt balloons, more GOP lawmakers back Electoral College & more!

Sree Iyer: Good morning, namaskar and welcome to episode 59 of daily global insights with Sri and Sree. SridharJi Chityalaji, namaskar and welcome to PGurus channel.

Sridhar Chityala:  Namaskar and good morning. Very happy good morning to you all and your paycheck could increase from $600 to $2,000 very soon.

Sree Iyer: Yes, and we did have a bit of a role to play in it, for instance for all our viewers perhaps, SridharJi was the first one to decode the exact details of how that 900 billion stimulus 2.0 was going to be spent. Low and behold, we found some very very interesting stuff and we’re going to start off with the stimulus 2.0 breakdown. SridharJi, I am putting up the first pie chart that shows the stimulus breakdown of 900 billion, sir, please go ahead.

Sridhar Chityala:  Got it, thank you. Well, I think that it was not a fairly simple exercise to pull numbers from various different line items and there were a lot of smudges around. Anyway, if we break it down, for the top post program is that payroll Protection Program (PPP) program, which has got 325 billion dollars, allocated; I think which a right number is. Then you have the second major item that one needs to look at is the 286 billion dollars, which is translated into $600 direct payments, that also includes the unemployment insurance extension of $300 per week and  $600 children allowance. So, therefore I think those two programs are consistent with what we have been saying.

Then, they throw in what we call as the rental moratorium assistance program, 25 million dollars, people don’t want to get thrown out. So, Rental supplement is given till January 31^st, they may extend that further depending on the situation, that’s 25 billion dollars.

13 billion dollars goes to what we call Food Aid, which is supplementary nutritional assistance program called Snap, which is used is given by the US FDA for people, who really need the support, especially the needy. 82 billion dollars has been, one of the grosses of the 2 trillion dollars for the first stimulus was the much more money was needed with social distancing and all the kinds of assistance in an aid that needs to happen, so 82 billion dollars has been allocated to education.

Then, 45 billion dollars is allocated to transportation which includes the MTA, in implementing the social distancing program also, I think within this 15 billion dollars is for the airline industry to bring 30,000 people basically payroll support, so, when the market kind of takes off, the people are employed and they come away from the Carlos, that’s one of the most pivotal Industries within the US.

Then 69 billion dollars is given for what you call as public health and that effectively includes things such as vaccines, testing and mass immunization program. Low and behold when you add all these numbers up as you pick up these numbers from various different sources, you come to something like 845 million dollars. So, then the question comes up from a balancing point of view where is this 900 million dollars the final composition comprises off? They call it as the weird stuff, some Publications has called in some weird stuff. They give some arbitrary numbers. But, when you had the arithmetic 55 billion dollars is allocated to this weird stuff program out of the 900 billion dollars that include things such as Smithsonian Center, John F Kennedy Center for arts, that includes 700 million for Sudan, 1.2. Dollars to Egypt, 25 million dollars to Pakistan and you know a range of overseas support programs. And another program that has not been accounted for this I’m told that there’s some something any number between 600 to 900 dollars for these 12 million illegal immigrants who are sitting here, somehow that number has been also snuck in this is one of the things that was contested, they should be included. Then, they said 9 million people, who are below the poverty line, unemployed needs some assistance, so, some money needs to be given. So, when you look at this 55 billion dollars, I mean we kind of said this number is roughly equal to 5% of just over 5% or 6% of the 900  billion dollars to allocate to your program, which is not the core,

This is the stimulus that means the US is borrowing money to run a stimulus program. We have already borrowed 2 trillion dollars and we’re going again to borrow it. By the way, 2 trillion dollars over and about the 1 trillion dollars, we are already provisioned to balance the budget as part of the budget program. So, we found this number to be quite astonishing. So, therefore you know, we started to as you rightly said, hey, you know, this doesn’t add up, you know, these numbers doesn’t kind of add up 55 billion dollars. If you want to give it to the people who deserve, the most deserved which are the people below the poverty line. The number is 9 million you take that number, it is actually 6,000 dollars per person. If you assume all 9 million people are going to receive the benefit and the taxpayer only receives $600. So, therefore something is not right in be adding these numbers. When the guy who has paid taxes receive$ 600, when the guy who has not paid taxes, you know, but who deserves some attention require 6,000 something needs to add up. I think it’s certainly got the attention and I’m sure the whole kind of ecosystem the media flared up and now Mr Trump is demanding, you know that the budget he will not sign off. The number has to go from six hundred dollars to two thousand dollars. Three people first stood up and said we agree and we support it and you can guess who they are Bernie Sanders, Nancy Pelosi, Chuck Schumer and AOC Alexandria Ocasio-Cortez.

So, they basically said yes, we support this $2,000. Now, what would that do? They have to cut some of these numbers so, to Mr Trump calls it these are unwarranted supplementary numbers. We are going I’m not going to sign off on this, he still has time to 28^th  and I think they may go back to the House and Senate today and get this done. So, we have as we promised, we have broken down these numbers which is not trivial but, we have done that. And so, now we can show even the total stimulus of 3 trillion dollars by adding all these various numbers and say, you know, what was injected into the economy.

Sree Iyer: Well, a logically thinking person would think that the 55 billion is going to undergo some serious introspection and perhaps all those promised amounts will not make it, that’s how I would look at it because I can’t see how other things can be touched but, they can also increase it from 900 billion to 1.1 trillion, I mean we are borrowing against the future who’s going to stop us from doing that. Anyway, I’m just a bit cynical here. I don’t think that other countries deserve stimulus that is earmarked for America and it also is important to understand like you said sir that 85% of the government revenues, come revenues come from personal income taxes and corporate payroll income taxes. This is where the bulk of the revenue for the government is coming and that is where they need to look to, to try and make up the shortfall. With your permission, Shall I go to the next slide sir about the bellowing deficit?

Sridhar Chityala:  Yes, fantastic. So, I think that we started the year around, you know somewhere close to 23 trillion dollars. Now, when you add this 1 + 2 + 3 trillion dollars, we are now catching 27 trillion dollars by way of the deficit 27 trillion dollars. Fortunately the contraction in GDP is expected to be only – 2.4 % as opposed to 6 % as was envisaged, this is on a 21.45 trillion or 21.5 trillion economy as we finished in 2019. So, therefore when you put this in context we are now looking at a deficit chart somewhere close to 130% of GDP. Now translate this into the cost of funds because interest line item of one of the 4-5 top-line items in the expenses is the interest cost. Now, fortunately, the debt was rebalanced with 0% interest rates, with the interest rates flipped from 2.25% in 2019 to 0% as we entered, to 2020 and that 0% is predictably expected to continue past 2021 into 2022. Now, why I’m saying that is that you cannot have on a 4 trillion dollar, right now it is about 8% of 2019, I don’t know, whether you can see it in the chart 8% is 327 million dollars roughly.

Sree Iyer:  sir, I’m going to that screen. Now, I have put it up there.

Sridhar Chityala: 8 % roughly of the 4.4 trillion dollars provisioned expenses for 2019, that’s incurred expenses 4.4 trillion. So, therefore 8% roughly is equal to 327 billion. Now, mind you this is at a much lower kind of deficit which is around 23 trillion, now you add 27 trillion to get even at 1.2. You’re talking a very significant jump in that number at 1.2%. The treasury rates are expected to be 10-year bonds is expected to be 1.25% by end of next year. So, this thing average cost of servicing the deficit is 3.2% of the GDP that is a direct correlation to what is the cost of funds on 10 Years and 30 years treasury bonds. This is the money that treasuring pays to the industry or to the buyers of the US dollar debt. We don’t want this 327 running out of control and running to 25% of your next expense line and just if you take this to about 3% and if your debt is around 30 trillion and or even if your debt is around 27 trillion, 3% is about 810 billion dollars, which means effectively you are going to be in a tremendous amount of difficulty and you will only be borrowing more because the revenue if you see the revenue number which comes from taxes mostly from taxes. It is actually not climbing at the same rate. The only way you can manage the US budget is to see whether you can cut the discretionary expenses. Now, this interest cost is a discretionary expense, mandatory expenses you can cut which is social security, Medicare and some of the like veteran affairs, pensions, etc. Those programs you cannot cut and that’s close to 60% of the budget of the US. So, this is the challenge that these deficits face and everybody who was gung-ho about it that you’re going to add another 3-4 trillion dollars of spend, we have already added 3 trillion dollars this year and our expenses are going to go from 6.5 trillion to close to 7.5 trillion on a 3.4 billion dollars of expense which means 4 trillion dollars of deficit to the total debt. So this is magnification.

Sree Iyer: Yes, Sir. So, for the common person couple of questions that immediately spring up and of our viewers asking these questions. Rajeshekar I am going to ask your question for you. So when the US is essentially diluting its currency, that’s how everybody looks at it. How come other currencies are not appreciating against that and what are the inflationary costs of this additional money going through the system.

Sridhar Chityala: I think this is a great question. As far as the other currencies are concerned, say everybody is in a deficit situation because of Covid, a few days ago, we had mentioned, that we have 1.8 trillion dollars of EU and this is not within State (it is EU) where the budget was passed off or signed off. So everybody is in a deficit situation right now. Only Japan and China are in a surplus situation, but most of the budgets are in a deficit situation. So there’s a harmonization of rebalancing effect that is going on as the US begins to pile on its kind of debt, US currency is the base currency. So it doesn’t do any manipulation the markets determine, it can go on printing notes as it is the question, but of course, it has the point about the inflationary trend is well, most of the people or the inflation we predicted is 1.2% in 2020 as we finished and the projected inflation for 2021 is around 1.7 or 1.8%. We had given those that shot as well in yesterday’s discussion I think if I remember. So the inflation target is 2% to 2.2% in a normalized economy. Now here we have an economy which is running on steroids, right effectively. The government is borrowing and giving them money because there is no industrial activity, the businesses are shut and therefore the inflation comes in when you have debt but when you also have spiralling income then you a significant kind of demand to put that extra cash to work. So, therefore, there is that demand Supply equilibrium. Here, the demand itself is being induced through a government-based program that comprises of 325 billion dollars into the small scale or the payroll Protection Program and 286 billion dollars that’s roughly into the hands of the consumer or a taxpayer and unemployed people. So that is why you are not seeing any inflationary trend. Is there an inflationary Trend? They are not seeing inflationary Trends as yet in you know till about 2022 or 2023. Two more factors that one needs to consider is energy is a big consumer, you look at the crude prices they are in the 45-47 bank. So, therefore, people who are filling up they don’t see this, so they can use the disposable income very effectively; the second I think we talked about this two days ago, the mortgages and Rental. These are the two other big drivers, mortgage rates are at historical lows just on a year-to-year basis we are about 1.1% down in the 30-year mortgage rates.  I’m not talking about 15 years; the 30-year mortgage rate is around 2.5 per cent and even coming down. So there’s a lot of refinancing activity that’s going on the market. So they’re creating some amount of disposable cash, which otherwise was going into the kind of the mortgages. Of course, it put pressures on the banking stocks. That’s a different discussion. So the story is that you see that so that’s one Driver, so that’s key are creating additional cash. And the second is you don’t see the jump in the energy prices. Of course, you don’t see and many of these things you do see some amount of inflation in the food, right but food belongs to non-core; food and energy belong to the non-core not to the core because they are driven by market and there is they’re highly unpredictability and volatility. That’s why when you discount these two you are your core inflation still remains at 1.2 Percent.

Sree Iyer: Sir, let’s take a quick look at the federal spending and revenues chart. This is a slight three in our slide deck where we are looking at the budget deficits. Do you want to add anything beyond what we’ve already done that because it looks all the way up to 2030 if you look at the projections, so the deficits are going to be running for another 10 years in the US economy?

Sridhar Chityala: The US economy will be running in deficits for at least while very clear.

Let’s assume today president-elect is Mr Biden next four years we are going to have to spend, spend, spend; So, there’s going to be the deficit. Okay, next four years. So we are going from 2020 to 2024 you add more deficit so you have more costs right? So that means you have inflated your expenses. We talked about it, we assumed that the interest rates will continue to remain sluggish. So the story is, then when you forecast it out for the next four or five years, we know this is the debate, toggle between the Republicans and so Republicans say to create employment, to sustain employment, to create economic activity, you must give more money into the hands of the consumer, more money into the hands of ultra-rich people who can put the capital to create new business opportunities. Now, which is one of the reasons why Taiwan Semiconductor Corporation is coming into the United States and creating 600 specific jobs. So they bring capital and so on because you can’t create jobs using the government whereas, on the contrary, the Democratic policy is just to say ‘Hey, we can’t just go on adding expenses, we need to offset the income. So let us cut, a state duty, let us cut the top ceiling, let us add more taxes beyond a specific ceiling if you are above 500,000. It’s not that the percentage of the population is very significant. The Republican argument is it is non-material in terms of what you can extract because there’s a 0.05% of the population or the tax universe is in that specific segment. So, under those circumstances, the observation that you made is we will be running this for the next kind of ten years and that’s what the chart projects and that chart has been recalibrated post-pandemic situation or a pandemic situation, which originated in March.

Now, we are seeing the second wave of covid here. So the question is are we going to finish 1st quarter, 2nd quarter and if that further dips if it extends beyond the first and second quarters well, you going to require more stimulus because you are saying shutdowns is the only solution.

Sree Iyer: Yes, indeed and let’s take a look at the covid situation across the world. The WHO whatever little Integrity it has, now says that the new strain 117, B117 is not a major health alarm. So we also saw some small moves, France has opened its borders with the UK for those people who are travelling without covid symptoms. So, how do you see this thing play out, sir?

Sridhar Chityala: I think there is, talking to some of the people, I told you I spent some time with doctors especially around this what they call SARS COV 2 VUI 202012/1 or another technical name that you had given. They say that it has originated in the southeast of England and nearly accounts for 60% of the new stuff in London. They say that this virus is, WHO was not aware how this particular strain has emerged. They don’t know how it has come. One of the things that they say is, it may be because this virus finds itself fit to live and spread in humans. So in other words, it has a mutation theory which seems to work very well in human. This is what you call, this virus seems to be some kind of self-learning mechanism it mutates faster, the numbers that they, apparently they first detected it somewhere in July last year, July to September last year in Britain and they’ve been tracking it. It mutates faster and the mutation rate is 1.1 to 1.3% faster relative to the normal strain and in India, they say is a different strain, in Asia, they have a different strain. Now there are three or four different strains. Though the WHO has stated it is not more dangerous but because it’s structure is still under study they don’t know whether the vaccine needs to be modified. That’s number one point.

Number two is, there is also a concern whether the vaccine that is supposed to create antibodies and build the immunity, whether this mutation can penetrate through that specific medium or the antibody system. That’s one thing that has raised concern. The second the treatments that people like Mr Biden went through, what are they called? What is it? There’s a specific name that has been given to that, the plasma transplantation that occurred. They don’t know it’s called monoclonal. They don’t know whether that monoclonal is still valid because the research is still on. So there’s more uncertainty around this specific vaccine or decoding of this strain based on what seems to have been originated in England. There’s also another theory that this is not just it, it seems it’s already left London, it is already into the United States and other places, probably surface a bit later. So this is one reason why that many countries either have insulated Britain, like Japan, Korea, India.

The only three countries which are now open to sending transport on either side is the United States, Australia, and France. They need France because a lot of food and medication comes from France and Belgium, so they need France to be open. Otherwise, Britain is in trouble. So France has agreed to open. Australia, US say that the existing quarantine programs are more than adequate to deal with the specific issue.

Sree Iyer: Just a quick clarification for our viewers if you do send questions on Superchat, we will try our best to answer them. However, the questions have to be topical, it has to be related to the topic that we are discussing that will help us to give you the answers fast. Let’s move on to what is happening around the world, sir. There is still a lot of activity going on around the world. Maybe you can walk us through quickly before we wind down today’s program.

Sridhar Chityala: So I think the most important activity is either Russians and Chinese 19 aircraft making their foray into the South Korean territory causing panic and alarm from the South Koreans to pull up. I think it’s either 12 or 14 Russian planes and 5 Chinese planes. And apparently, the Chinese said that it is an occasional drill that they are conducting in the South China Sea, so the South China Sea again has become a hotbed and the fact that the Chinese are playing with the Russians is a reflection of a gap that is prevalent in the Global Leadership with the US Elections, uncertainty around the US Elections. Usually, you’ll find that, it’s not that the Quad activity is silent, I’m sure they are monitoring and managing an actively tracking this system, but the fact that the Quad has not been mentioned, for example, President Biden has not talked about the Quad. He has talked about Aipac, transpacific, open skies, open borders etc. Whether that is sending a signal to the Chinese and the Russians to create a little bit of an issue that also coincides with what you had communicated to us yesterday, which is around the Russians delaying the S400 and being cheeky about it to India, the one that you talked about. So there is this gap that is prevalent that seems to be, people are playing around that specific gap and exerting subtle pressure. On the sidelines India and Vietnam around the same time, I think yesterday, they had a dialogue and they are talking about how to expand the footprint of the BrahMos missiles so that there is a much firmer deterrent, what happened in Korea will happen soon in Vietnam, because Vietnam is fast emerging in the definition of the Asian markets, is China. Industrialization, manufacturing, the first port of call when manufacturing ships from China. When manufacturing shifted from the world, the United States and other places, the first Port of Call was China. They said come here cheap labour this, that, everything is efficient, all those attributes on a smaller landmass is Vietnam. So, therefore, Vietnam is fearing that it needs to organize itself and the Indo-Vietnam relation is a classic example.

The third thing is that Wilbur Ross has further banned 19 organizations – drone companies, they are Semiconductor Manufacturing Corporation, their biotech company, their robotics, they feel many of these technologies are being either stolen or taken from here and being put to use for defence purposes, which is going to harm the world. So 19 more companies specifically named and targetted and they will be off the list and some of them are listed in the US, they will be off the listings as well. That’s the third.

Fourth is that Chad Wolf, who is the acting assistant secretary for the Department of Homeland Security, who we put it up in PGurus gave a very scathing remark about China and he indicated that this is a civilizational conflict between democracy and non-democratic principles. So what we are facing is the biggest threat that we face is this. So these four events, when you constantly peruse through you find that there is a fundamental issue that the world faces beyond covid and beyond employment and economy is around the security and that has been, every day we have incidents around the world. Creating and causing concern for people to look at how do we deal with this specific challenge? That’s global talking point money, jobs, economy, covid – how to combat and what is going to happen to our nation’s, on any one of the domains, it is not necessarily only when the US is facing big issues around the data, it is facing issues around the penetration into the education system, it is facing issues around the economic consequences, ballooning deficits and mean that you have to reduce the cost of the items. So how you’re going to do it without an offsetting import market is a big challenge. So I think this is the summary.

There is one more thing, which is very small, Israel government again collapsed. They will be back into the elections very soon. So this is in a tumultuous environment, Israel is important because a stable government in Israel is very critical for the whole West-Asian peace. That’s another flashpoint in the global theatre.

Sree Iyer: Just a couple of things to compliment to what Sridharji said, I wrote an article yesterday on PGurus.com about how Russia having taken 40% of the down payment for the S400 is now delaying shipment up until 2021. On one side India has paid 40% money, they don’t get S400, on the other side China has already, I would say double-quotes “bought 6 S400s from Russia in 2014. Some of them are focused on Ladakh, they have placed them in Tibet. And these, they just adjusted against some of the loans that they gave to Russia. So very interesting dynamics at play there.

Now you look at the other side, the US just passed sanctions on Turkey for having bought S400. So India is now probably looking at a double whammy. On one side it faces sanctions from the United States on the other side the money that it has paid for, it is not going to get them on time, rather it is going to be delayed. So it is very clear now that Russia has become some sort of an another Chela, or I don’t know what the word in English is, of China, its just a small subsidiary kind of thing. That’s what the actions seem to indicate.

The other thing is, we will put the link to the Epoch Times article where we had the Homeland Security Assistant Secretary of State article about civilizational conflict. We will put that link also, thanks for joining us. We’ll be back tomorrow same time, the same set of issues, perhaps we will touch more on the US Elections. There’s one little thing that we forgot to mention maybe more GOP legislators whether it is Congress or Senate are now beginning to think of having an electoral decision being made in the houses because Supreme Court said you guys go and fix it yourself. Sir, if you could just mention a talk about that and then we can wind-up this program.

Sridhar Chityala: Well, I think that more and more senators and House Representatives are coming to the forefront to discuss the election issue. There seems to be some element of buoyancy notwithstanding the fact Biden has just announced the education secretary Alex Pedia, the replacement senator from California has been announced to come with Kamala Harris. So while Biden continues to assume that it’s business as usual on the house and the Senate side you have more and more chorus growing about the descent and discussing the integrity of the elections. Remember, we had mentioned that all you need is one house representative and one senate representative to bring the issue to the forefront remember also? There are two sets of electoral voters who have been sent from at least 5 battleground States to when the matter of numbers come up, should this discussion and debate escalate into a count, then those second set of electoral voters primarily from Republicans maybe getting counted on the opposite side relative to the way it was cast in the state legislatures. So this also explains the point that it is not the judicial and executive branch, which makes the decision. So the Supreme Court is saying by Constitution, it is the legislature, either you take it back to the state legislature or you bring it into the House and Senate you are the elected representatives you make the choice on behalf of the people. It is not the judiciaries job to intervene and decide the course of the election. So I think they have come to Trump and his team has come to the realization. I am sure Biden and his team are adequate, Chuck Schumer and Nancy Pelosi already fired the first salvos which is to say,  respect the franchise and respect the voice of the people, for God’s sake do not bring these to House and Senate for discussion and create precedence. This is what they have stated in their first Salvo. I don’t think that is going to happen because there is a tremendous number of people on the Republican side. The number is now close to about 130 to 140 between the house and the Senate that’s a significant number which wants to raise the issue. State legislators are also now looking at and saying ‘hey whether we need to do anything about it’.

Just to wrap up because since we are on this topic Dominion Eric Kumar one of the names mentioned is an employee of the Dominion systems. He has filed a defamation suit saying that his name has been mentioned because apparently in some conversation that was recorded and it was saying Eric Kumar and there seem to be only one Eric Kumar so he has filed a defamation suit against the publications and has filed a suit against the presidential legal team and Trump himself, which is around whether he was the whistleblower in the integrity of the Dominion systems. So there is not a dull moment and this is making its way towards January 6th crescendo. I think January 6th would be a very important day in terms of US History. We may have to go back to 1800s when the last time this event occurred and there was a drama, in the house and the senate in the selection of a president.

Sree Iyer: Thank you, sir. And that’s it for today folks. We will be back tomorrow bright and early at eight am – Pacific, 6:30 pm – Indians standard time. Namaskar. Thanks for watching and do subscribe to our channel.

Sridhar Chityala: Namaskar and Thank you so much. Have a wonderful day.