Nobody Asked Me, But...
The Year of the Tiger; Happy 2/2/22; Manchin and the Hive
Markets are not all knowing, and they definitely are not efficient, but they are extraordinary platforms for conveying a consensus view of the future. While you and I can disagree with the market view, and markets can be wrong, it behooves us all to at least try and understand the message that it delivers. — Aswath Damodaran
The Echo Chamber of the News
The plethora of media platforms disguises a remarkable uniformity of opinion. This ugly unanimity is strikingly evident in the attempt to make Sen. Joe Manchin appear like a backwater rube incapable of understanding economic questions. A dozen stories spread out over a period of weeks have asserted that “an economist” says Manchin is wrong for being concerned that the Biden spendathon will cause inflation.
Strangely, these pieces all rest on a demonstrably false premise: nowhere did Sen. Manchin make that claim.
Here is what he has actually said in public releases:
Manchin statement, Dec. 14, 2021: “Defaulting on our debt while we continue to face the COVID-19 pandemic, historically high and rising levels of inflation and numerous uncertainties would have devastating impacts on American workers and the economy. That is why I voted to keep the United States from defaulting on our debt and wreaking havoc on our economy. And let’s be clear, reaching the debt limit is the result of spending previously authorized under both Republican and Democratic control. Make no mistake, we must get our fiscal house in order, and I am committed to making sure we are not spending beyond our means. We have a responsibility to avoid this economic disaster for every American and West Virginian, and I am relieved that Congress could come to an agreement to keep us from the first ever United States default.”
Manchin Statement, Dec. 19, 2021: “As the Omicron variant spreads throughout communities across the country, we are seeing COVID-19 cases rise at rates we have not seen since the height of this pandemic. We are also facing increasing geopolitical uncertainty as tensions rise with both Russia and China. Our ability to quickly and effectively respond to these pending threats would be drastically hindered by our rising debt.”
His concern is that it’s not a great situation to be $29 trillion in debt in an environment of increasing global risk and persistent inflation. It’s a bad thing to be loaded with debt when you might have to deal with another COVID lockdown or, G-d forbid, war.
Inflation is already here. I’m sure Manchin doesn’t want it to last, but he’s been very clear what he’s concerned about: the country’s ability to pay its bills.
The question is not whether inflation will result from what the progressives would call a little bitty $1.7 trillion (let’s call it, the “alleged” $1.7 trillion, since a Congressional Budget Office analysis put at more like $5.4 trillion. That is a discussion for academics counting angels on a pinhead.
Nor is it a question that can evaluated out of context. And yet, here is the party line, presented in lockstep:
Boy, somebody has been working the phones.
The real news is that Manchin used the D word: DEFAULT. Those who were in the market in August 2011 will recall the sturm und drang when Standard & Poor’s downgraded the U.S. debt by a notch. A decade passed, and on Sept. 30, 2021, during the debate on the debt ceiling, S&P warned that it would cut the U.S. debt to “D” in the event of a default.
Even to mention the word is a stupendously dramatic gesture. It’s like bringing Hulk Hogan to your Garden Club luncheon.
When foreign dictators say no devaluation of their currency is in store, the wise have learned to reach into their pockets and start counting their silver.
No bell rang when the U.S. started to trash the dollar, and nobody will ever announce a devaluation. As the world’s reserve currency, we don’t have to tell the truth. But you can see the results with your own eyes — at the gas pump, at the grocery, in the price of Bitcoin.
See what you look at. Listen to what you hear. Think what you think. Feel what you feel. Do your own homework.