The political struggle and its effects on the markets. What is the problem?

Biden’s gigantic and controversial infrastructure plan has stalled in Congress (USA). Polarization has turned the political arena into a battlefield. In an environment more divided than ever, the details of such a grand scheme have faded into the background. Everything seems to indicate that the most important thing in the plan is the total number and source of funding. â ???? Tax the richâ ???? is the cry of the left. That sounds more like resentment than tax policy. a ??????????????????????????? is the cry of the right. But that comes from a conservative dogma that doesn’t listen to arguments. What are the markets saying?

This economic recovery was dominated by monetary stimuli. The pandemic led to a drop in demand. What caused a deflationary crisis. As stores closed, revenues plummeted and prices fell. And occupation with them. The solution was government intervention in the form of injections of liquidity. The US Federal Reserve (FED) pushed interest rates through the floor and began a frenzy of buying T-bonds and corporate bonds. At this point the stock markets began to rise. It could be said that it was the beginning of a K-shaped recovery, a euphemism to simply say that the recovery was grossly uneven. The big winners were the big capitals.

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The political struggle and its effects on the markets.  What is the problem?
The political struggle and its effects on the markets. What is the problem?

Conservatives criticize the Fed for its excesses. But they are enjoying the benefits of a rising market without much of a problem. The same thing happened in the world of cryptocurrencies. The FED has come under fire, but the rise in Bitcoin’s price is being celebrated with a lot of roar. It’s like criticizing the rain but celebrating the harvest. This season the markets have seen a boom. However, we cannot say the same about the standing citizen economy. The pandemic is very severe for many. Lots of unemployment. Lots of health problems. We’re talking about the fact that in the supposed K-shaped recreation, the working class ate the green mangoes and the cherries were set aside for the big capitals.

Why is there so much imbalance? We cannot say that stimuli are the problem. That would be absurd. Without these impulses we would still find ourselves in a terrible crisis. If a bird does not fly because of a broken wing, the solution is to not immobilize the healthy wing. The solution, obviously, is to heal the broken wing. In other words, the imbalances in the recovery are a clear result of the imbalances between fiscal and monetary policy. In other words, the government left all of the work to the Fed. The conservative side limits the budget, but allows the deficit. Or rather, they talk like conservatives but spend like progressives. Which creates a huge mess at the fiscal level.

What was missing in the crisis was a more coherent fiscal policy. In this way, the fiscal and monetary aspects could encourage a more egalitarian recovery. Biden recognized this failure of the previous government and developed his infrastructure plan. The plan as such is not bad, but even the best plan can result in disaster. Here is the detail. Both the right and the left always go to extremes. Some sin by want. And the others sin in excess. A good plan needs to be applied to the right extent. Conservatives and their dogmas. The progressives and their resentments. What is needed is common sense and sanity.

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