Government entitlements and subsidies invariably cost more than politicians advertise. Take the ObamaCare premium tax credits, which Democrats during the pandemic turned into a de facto public option for health insurance.
President Biden took a victory lap last week after the Health and Human Services Department reported that a record 21.3 million Americans had signed up for coverage on the ObamaCare exchanges. That’s nearly five million more than last year and nearly double as many as in 2020. “It’s no accident,” the President tooted. He’s right, but not in a good way.
The March 2021 American Rescue Plan Act sweetened the premium tax credits to make insurance on the exchanges free or nearly free for many middle-class Americans for two years. The Inflation Reduction Act extended the bigger subsidies through 2025, while his Administration rewrote ObamaCare rules to enable more families to qualify.
Because the enhanced subsidies make the plans cheaper than employer coverage, many more Americans are signing up on the ObamaCare exchanges. The pandemic Medicaid expansion also ended last spring, enabling states to remove people who no longer qualify. HHS says many who left Medicaid signed up for ObamaCare plans.
Recall that Democrats claimed that extending the sweetened subsidies for three years would cost a mere $64 billion. But a conservative back-of-the-envelope calculation based on enrollment and the average tax credit indicates that the subsidy boost this year alone will cost some $70 billion—meaning it could end up costing three times what the politicians claimed.
When the government creates an open-ended subsidy, more people than predicted always show up to the buffet. The pandemic Medicaid expansion cost more than six times the original $50 billion estimate. The Covid-era Employee Retention Credit was initially estimated to cost $55 billion, but the final price tag may be upward of $470 billion as tens of thousands of businesses continue to claim it.
The truth is that you can’t trust Congress’s budget estimates. The bipartisan tax deal now moving through the House to boost the child tax credit and renew some business tax breaks is estimated to cost $78 billion. The smart money will take the over.
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And on we go… more people dependent on government programs, more price distortion in private markets, ongoing ‘projected cost’ blowouts, ballooning federal budget deficits.
Washington Democrats (and Republicans) have America on track for credit market chaos.
There is currently one plan (and only one plan) on the table with the power to: 1) Revive free-market efficiencies and economic viability in the U.S. healthcare system; 2) Restore order and stability to credit markets, and; 3) Get America back on track for federal budget surpluses, sound money, and financial security for millions of hard-working, tax-paying U.S. citizens.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
Washington Democrats and Republicans are driving America headlong into a full-blown debasement of the U.S. Dollar – and an inevitable conversion to a Central Bank Digital Currency (CBDC) system.
Congress added $7.5 trillion to the debt over the last 2 years, according to The Heritage Foundation report. This comprehensive report exposes the historic spending spree from both parties in Congress, March 2020 – December 2022, has added a massive $7.464 trillion to the national debt (not counting accrued interest costs). Source: Fox News, Sep 21, 2023.
Congress’ latest spending package, approved by the GOP-led House of Representatives, covers six appropriation bills totaling $460 billion.
It also includes over 6,600 earmarks at a cost of $12.7 billion dollars.
The GOP-led House of Representatives on Wednesday passed a 1,050-page spending package that includes nearly $13 billion of earmarks, commonly referred to as “pork barrel” spending.
The bill passed 339-85 with more Democrats voting in favor of it than Republicans. In total, 207 Democrats and 132 Republicans voted yes.
There are earmarks in the legislation sponsored by members of the Democrat and Republican parties. The spending package contains six appropriations bills totaling about $460 billion.
The first spending deadline in the temporary spending bill Congress passed last week is Friday, March 8. The appropriations bills in the new spending package would last for the rest of fiscal year 2024.
“One Republican Senator gets 8 earmarks in the omnibus today. No one voted to add these and no one gets to vote to take these out. We have gone backwards 14 years, to before the 2010 Tea Party wave,” Rep. Thomas Massie, R-K.Y., said in a post on X, formerly Twitter, referring to Sen. Lindsey Graham, R-S.C. “The swamp is back to buying Republican votes for the omnibus with earmarks.”
Sen. Rick Scott, R-Fla., wrote on his X account that the spending package is “packed with 6,600+ earmarks totaling $12.7 BILLION DOLLARS.”
“Skyrocketing inflation. Massive debt. But Washington keeps spending your money on stupid pet projects. NO MORE EARMARKS,” he wrote.
Sen. Rand Paul, R-K.Y., said it’s “disappointing that Republicans are going along with Democrats” in moving forward with the spending bill that has hundreds of earmarks.
“This is a real step backwards, and I will oppose it with every fiber of my being,” Paul said.
Sen. Mike Lee, R-Utah, said there was “no way any mortal could actually vet all of the earmarks in the 48-hour time period they’ve given us so far.”
“Earmarks are the corrupt currency of Congress. No self-respecting Republican should touch them,” he wrote.
Lee said Senate lawmakers can still request that their earmarks be stripped from the bill…
Sen. John Thune, R-S.D., has reportedly sponsored many earmarks in the spending package. Thune is running to replace Senate GOP Leader Mitch McConnell, R-K.Y., who is stepping down from his leadership role in November.
Lee called on Thune to request removal of the earmarks from the spending package. Thune’s office was not available for comment before press time.
Rep. Bob Good, R-Va., chairman of the House Freedom Caucus, argued that Congress “should not be giving $12.7 billion to Congressional pork projects when we are $34 trillion in debt.”…
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The Main Street America Republican plan to save America:
The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens. It is a comprehensive plan with long-term economic and social benefits for citizens and government.
The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
In 2019, the Fed cut interest rates and restarted QE despite a healthy economy. Today, inflation is higher than the Fed’s target, economic growth is above historical trends, and financial markets display complacency and exuberance. Yet, the Fed is talking about cutting rates and reducing QT. The only rationale for them in such an environment must be a concern with potential liquidity problems, as the declining balances in the Fed’s Reverse Repurchase Program (RRP) suggest.
…Total debt is growing much faster than the economy’s collective income. To facilitate such a divergence and try to avoid liquidity problems, the Fed has increasingly employed lower interest rates and balance sheet machinations (QE). Numerous bank and investor bailouts have also helped.
As the country becomes more leveraged, the Fed’s importance will increase.
What is the RRP? – A repurchase agreement, better known as a repo, is a loan collateralized by a security. The Fed’s RRP is a loan in which the Fed borrows money from primary dealers, banks, money market funds, and government-sponsored enterprises. The term of the loan is one day.
The program provides money market investors with a place to invest overnight funds….
Think of RRP as money market supply offered to help balance the supply-demand curve for overnight funds.
During the pandemic, the Fed bought about $5 trillion of Treasury and mortgage bonds from Wall Street. As a result, a massive amount of liquidity was injected into the financial system. Since banks did not use all the liquidity to make loans or buy longer-term assets, financial institutions had excess liquidity that needed to be invested in the money markets. The result was downward pressure on short-term yields.
The Fed raised its Fed Funds overnight rate to help combat inflation. But, with the excess funds sloshing around the market, hitting their target rate would prove difficult. RRP allowed the Fed to meet its target.
The Current Status Of RRP – At its peak, the RRP facility reached $2.5 trillion. Since then, it has decreased steadily. Currently, it is half a trillion dollars and will likely fall to near zero in the coming months. Essentially, the market is absorbing excess liquidity. Over the last year, excess liquidity has been needed by the Treasury to fund its swiftly growing debt and to help the market absorb the bonds coming off the Fed’s balance sheet via QT.
Excess Liquidity Is Vanishing – It’s difficult to experience liquidity problems when liquidity is abundant. The extreme actions of the Fed in 2020 and 2021 made it much easier for the banking system, financial markets, and economy to handle much higher interest rates and $95 billion a month of QT.
However, excess liquidity is diminishing rapidly.
So, what type of problems occur when the excess liquidity is gone? For starters, banks will still have to use their reserves to help the Treasury issue debt and absorb the Fed’s balance sheet decline. Such actions will force liquidity to migrate from other parts of the financial system to the Fed and Treasury. Without RRP to draw funds from, banks will have to tighten lending standards for consumer and corporate loans. Further, they may likely pull back on margin debt offered to speculative investors.
The cost of higher interest rates and QT will likely be felt at this point.
Revisiting 2019 – In 2019, Treasury-backed repo interest rates between banks and other investors were trading well above uncollateralized Fed Funds. Such a circumstance didn’t make sense.
As a hypothetical example, JP Morgan was lending Bank of America money overnight at 5.50% with no security (collateral) despite a hedge fund willing to borrow at 5.75% fully secured with Treasury bonds. Yes, Bank of America has a better credit rating and lower default risk, but the hedge fund is pledging risk-free collateral. While small, the odds of JP Morgan losing money in this example are greater for the Bank of America loan than the hedge fund repo trade.
At the time, the Fed was raising rates and reducing their balance sheet for the prior year and a half. Liquidity was becoming a big problem. There was no RRP to draw liquidity from to offset QT. Simply, liquidity was lacking.
To combat the liquidity shortage, the Fed added liquidity by reducing the Fed Funds rate and re-engaging in QE. It’s important to remind you that they took these actions while the economy was in good shape and broader financial markets showed little to worry about.
The graph below highlights when the Fed quickly reversed course.
2019 is very relevant because similar problems may arise as the excess liquidity from the pandemic finally exits the system.
The Fed Is Prepping For Liquidity Problems – The Fed appears to be aware of potential liquidity shortfalls. Over the last month, they have started discussing reducing their monthly amounts of QT. A formal announcement could come as early as the March 20th FOMC meeting.
Such discussions and planning occur even though inflation is still above target, the economy is growing faster than the trend, and the stock market is near record highs. Under those circumstances, one would think the Fed would maintain its tight monetary policy.
The Fed is aware that large institutional investors have to sell assets to reduce leverage if there isn’t sufficient liquidity. Such collective actions could significantly weigh on financial asset prices and, ultimately, the economy.
To wit, consider a recent article by the New York Fed. In The Financial Stability Outlook, author Anna Kovner states the following: “Achieving a strong U.S. economy and stable prices is paramount, and remaining aware of the impact of policy choices on the financial system is a key ingredient to maintaining the ability to execute policy.To close with the snow metaphor I began with, if there is a blizzard in March, we will be prepared to dig out quickly, plow the streets, and get back to work.“
March is not just a random date. March is when the RRP program is expected to fall to near zero!
Will The Fed Know When Liquidity Is No Longer “Ample”?
No magic number or calculation tells the Fed when excess liquidity is gone. Furthermore, they will only know when liquidity becomes insufficient after the money markets have reacted negatively.
Dallas Fed President Lorie Logan recently made that clear. Per a speech she gave on March 1, 2024: “The challenge today is knowing how far to go in normalizing the balance sheet. In 2019, the FOMC decided that it would operate in the long run with a version of the floor system where reserves are “ample.” The word “ample” suggests comfortably but efficiently meeting banks’ demand. As I’ve argued elsewhere, the Friedman rule provides a guide to the efficient supply of reserves in the ample-reserves regime.Banks’ opportunity cost of holding reserves should be approximately equal to the central bank’s cost of supplying reserves.“
Further, she notes: “So, I don’t think we can identify the ample level in advance. We’ll need to feel our way to it by observing money market spreads and volatility.“
Summary – Excessive amounts of debt support our economy and asset valuations. Therefore, the Fed has no choice but to keep the liquidity pumps flowing to support the leverage.
As in 2019, the Fed will likely take stimulative policy actions to provide liquidity despite an economic and inflation environment where policy should remain tight.
Keep a close eye on the excess liquidity gauge RRP and be aware of irregular activity in the money markets.
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The Leviticus 25 Plan provides an powerful new channel that retargets liquidity flows to effectively solve America’s looming liquidity crisis – and restore economic liberty for millions of American families.
The Plan will: 1) Eliminate massive amounts of public and private debt; 2) Support corporate credit markets; 3) Restore order in Treasury auctions / reduce interest rates; 4) Set America back on course for long-term economic strength and stability.
“He who will not apply new remedies must expect new evils.” – Sir Francis Bacon
The Leviticus 25 Plan is a dynamic economic initiative providing direct liquidity benefits for American families, while at the same time scaling back the role of government in managing and controlling the affairs of citizens. It is a comprehensive plan with long-term economic and social benefits for citizens and government.
The inspiration for this plan is based upon Biblical principles set forth in the Book of Leviticus, principles tendering direct economic liberties to the people.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
Congress is once again spinning its budget wheels, America is sinking ever deeper into its self-made cavernous debt hole, and the economy continues on in a sour skid.
It is time to think outside-the-box. It is time for a comprehensive new strategy….
ZeroHedge, Feb 29, 2024 – Update (1748ET): Congressional leaders have reached an agreement to avert a government shutdown this week. Under the deal, six full bills will be extended which will cover the departments of Agriculture, Justice, Commerce, Energy, Interior, Transportation and Housing and Urban Development through March 8, while the remaining six annual funding bills covering the departments of Labor and Health and Human Services, the Pentagon and other offices will be covered through March 22.
ZeroHedge, Feb 29, 2024 – …not exactly election-winning headlines.
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Imagine a dynamic economic plan that grants U.S. citizens the same direct credit extensions that the Fed provided the Wall Street financial markets during the credit crisis of 2008-2010 and again in COVID downturn of 2021-2022.
Imagine millions of American families paying off trillions of dollars in mortgage debt, consumer debt, auto loans, student loan debt – and banks being suddenly ‘reliquified.’
And then imagine the U.S. banking sector looking for a place to earn a return as they wait patiently for loan demand (from now credit-worthy borrowers) to rebuild… over time.
Finally, imagine banks bidding on the highest form of AAA rated paper in the credit markets, U.S. Treasury bills and bonds and high-grade paper in the corporate bond market…
And then watch interest rates come back down. Watch the economy shift back into a long-term growth cycle, American families regain financial security, strength under-girds the U.S. Dollar.
Imagine an economic plan that generates $112.6 billion budget surpluses 2025-2029, and pays for itself entirely over a 10-15 year period.
The Leviticus 25 Plan – An Economic Acceleration Plan for America
