Search This Blog

Thursday, January 28, 2021

The Achilles' heels in Biden's policies.

I would like to highlight some Achilles' heels in Biden's political propaganda.

First and foremost, Biden has increased the minimum wage from $7.50/hr to $15/hr.  This will put an extra burden on business owners by increasing their operating costs and reducing their competitiveness.  Therefore, the business owners will expedite whatever automation they can and adopt as much AI as possible to remain competitive.  In the end, this minimum wage policy will reduce the employers' desire to hire more employees for their business expansions and make hiring the last resort.

The "Buy American" policy will also reduce US competitiveness and hinder its exports because made-in-america (MIA) products are usually more expensive.  Furthermore, this policy will be deemed as a protectionism act which will contravene the WTO rule.  I believe the EU will be the first to protest against this policy as this is akin to Trump's "America First" policy.  The EU will be less inclined to invest in the US because priority will have to be given to the US first. Consequently, this will impact the US FDI negatively.

Biden is trying to get his $1.9T stimulus package passed in congress.  This huge stimulus aid puts huge debt stress on the US.  Yellen has to find monies to fund the previous $0.9T and the recent $1.9T stimulus packages.  How is the US going to fund all these?

Basically, the US has 3 options.
1. Raise US interest rates to attract capital inflows
2. Sell Treasuries
3. Raise corporate taxes

Is Yellen able to raise US interest rates?  It is unlikely because the US FED wants to maintain a low-interest rate policy until 2023 to boost the US economy.

Yellen has been touting the sale of 50-year treasuries but the responses have been underwhelming.  Moreover, the US has lost its biggest buyer (China) because of the US-China trade war.  The EU is also not keen to buy US treasuries because it has indicated that it will reduce its reliance on USD.

Therefore, the US has to rely on its cash-rich ally (Saudi).  I believe the US will coerce Saudi to buy more US treasuries.  Poor Saudi!

Biden is thinking of raising the corporate tax from 21% to 28%.  How will this impact US businesses?

This policy will force US companies to keep their operations offshore and raise debts in the US for their business operations and dividend payouts.  Then, the US companies will do arbitrage profiteering by repatriating their overseas profits back to the US to repay their US debts to take advantage of the low US interest rates and weak USD.  How is this going to be helpful for the US?

In conclusion, Biden will exsanguinate the US with his policies and China can overtake the US by 2028.

No comments: