Taps Coogan – May 15th, 2021

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Jeffery Gundlach, the founder of DoubleLine Capital and one of the largest fund managers in the world, recently spoke with Yahoo Finance in a wide ranging interview about rising inflation, welfare and universal basic income, Bitcoin, and more.

Of particular note, Mr. Gundlach warns that he is starting to wonder whether stimulus checks are going to become a permanent expansion of welfare in the US, noting:

“We’ve had incredible amount of free money, fiscal stimulus. Last month there was another round of checks and I don’t think a lot of people are aware that about a third of last month’s disposable income was given by the government… There are a lot of distortions going on… We have this strange thing of eight million job openings and everywhere you go business people are saying ‘I can’t fill them. No one will take them.’ And it was obvious when they started these money giveaways that there was going to be an issue because right away everyone noticed that a certain fraction that was not trivial of people were making more money sitting at home watching Netflix than they are at work and they didn’t want to go back. I think one of the dangers that we’ve opened the door to is that these stimulus checks, it’s starting to feel like they might not go away. It seems like there’s always more of them… Right now in New York and California a lot of people are getting $57,000 a year tax free by not working…”

Everyone is appropriately focused on the inflationary impact of runaway deficit spending and helicopter money. But with 30% of personal spending now coming from government transfers, perhaps the scarier question is what happens if the free money giveaway ends? 

As we’ve been arguing for years, the irony of the Fed’s crusade for higher inflation is that, while trying to get higher inflation and failing is great for markets, banks, the federal government and the Fed, succeeding without first deleveraging the economy will be an absolute nightmare for just about everyone.