Fiscal impacts of the OBBBA

[mostlylong]

@WendyBG

All government spending (whether helicopter money or tax cuts) counts as fiscal stimulus. As investors we need to determine whether the money will go into the hands of consumers (in which case it will cause consumer price inflation) and/ or into the hands of investors (in which case it will cause asset price inflation).

I think this is a great two sentence summary on consumer vs asset inflation. Can help explain appetite for crypto, as just one example.

I’ve been trying to understand asset inflation and low interest rates and low CPI inflation since 2008. Because, except for covid inflation which has now run off, I think we are still in this pattern.

And remember, advances in AI, robotics and automation all fall into the asset bucket, and these are deflationary.

Here was an attempt at understanding it:

@mostlylong

• most of G goes to upper classes, several things happen: The other classes have little extra to spend, so inflation stays low, the upper classes have way more money than they spend, so they have a lot of savings, which goes into demand for assets and keeps asset valuations high (and interest rates low-ish).
• Most of the flows from R (interest on bonds) and D (deficit spending) flow to the upper classes (D flows via G), which just gets recycled into assets (because most is saved, not spent).