House majority leader Pelosi’s pyrrhic victory passing the framework for a $3.5 Trillion Build Back Better Social Wish List tethered to the $1 Trillion bipartisan infrastructure Bill was touted as a victory for Democrats last week. However, it appears that Pelosi’s accomplishment is ephemeral, risking a major setback by promising passage of the smaller plan by October 1st even if the enormous ‘anything goes’ $3.5T Bill fails. Not only are the timetable odds difficult to have a compromise that can pass her Democrat House by the end of September, but the odds are lower that she clears the higher hurdle in the Senate where such lofty tax and spend social welfare is deemed a bridge too far. With surging wages, high inflation and parabolic debt expansion during an overheating economy, it will require political capital on Capitol Hill that doesn’t appear to exist. Passing Depression level economic rescue relief, that will require far more Labor, when we already have a 10 Million worker shortage in this country, can only be reality in a world where you get ‘money for nothing and debt for free’. Perhaps that is the political calculus, that taxes, inflation, debt and money creation should never have consequences.
The Stock and Bond markets have largely discounted modest tax hikes and minor new spending beyond the expected $1 Trillion from the bipartisan package in August. Stock investor risk may rise by October 1st if Democrats have to settle for just “$1 Trillion” in new fiscal spending and lower their odds of passing the massive $3.5 Trillion package. Should tax and spend mostly falter in Q4 it would lower growth and earnings forecasts for what is already estimated to be a steady decceleration of GDP growth during 2022. With Seasonal Lows in equity trends due in the late September to late October time frame, it will be interesting to see how the Tax and Spend odds on Capitol Hill coincide with seasonal downward pressure on stock prices. If there is a 5 to 15% correction it will be another opportunity to buy until we get closer to the end of the Government spending addiction and begin tapering the $120 Billion a month in Federal Reserve Bond buying.