Today the Federal Reserve will conclude their 2 day FOMC meeting. It is certain that rates will not increase, but everybody is looking for clues about the new framework of how the Federal Reserve plans to manage higher inflation rates to balance out the previous years of lower inflation rates and how they plan to update their statement when providing forward guidance. With rates remaining low and a lack of fiscal stimulus because Congress is unable to agree on additional stimulus, the Federal Reserve may need to step in with additional monetary stimulus. With all this QE money coming into the system, how much of it goes to the real economy, versus staying within the financial system?
The PPP was intended to help businesses lock in loans to keep afloat through this crisis, but many corporations that did not need the funds participated and many smaller corporations were shut out of the process. The Federal Reserve injected money into bond ETFs that allowed many corporations to refinance their existing high interest bonds and pay back the money they borrowed from credit facilities at the onset of the pandemic. Most of the money that comes from Quantitative Easing goes back into the financial system and only a small percentage makes it to the Main Street economy. This is visible when you look at the rapid recovery and new heights the S&P500 and Nasdaq reached last month.
As much as the Federal Reserve wants to get the money to regular Americans, they only have the power to lend and not to spend. Without the proper facilities to borrow that money and redirect it to ordinary Americans, they need to rely on the U.S. government to borrow the money through Treasuries or through companies like Blackrock to use this money to purchase Corporate Bond ETFs and High Yield Bond ETFs. Again, these bond purchases goes back into the financial system and supports equity prices instead of reaching ordinary Americans and creates jobs for the unemployed.
I would like to suggest that the Trump Administration and US Secretary of the Treasury Mnuchin issue Technology Bonds. Similar to War Bonds, which were issued to fund wars of the past, these Technology Bonds will be used to fund America’s technological powers. They would allow the government to absorb a lot of this newly issued QE money from the Federal Reserve and spend it on making America stronger technologically. The funds can be used to create government funded research and startup incubators in different fields such as AI, Machine Learning, Robotics, Cloud, Automation, 3D Printing, Quantum Computing and Data Analytics. The funds can be used to teach and train the currently unemployed in current and new technologies by offering on-the-job training and paid internships in these government facilities or provide incentives for the technology industry to hire and train these unemployed workers who do not have a background in technology.
By directing where this money goes, the government can shape the tech sector and make America more competitive in technology in the world. Recently, the largest tech giants, namely Apple, Facebook, Google, and Amazon, have had anti-trust suits brought against them and their CEOs had to answer questions before Congress about their anticompetitive behaviors. If the government were to create technologies and help fund new competition while retraining the workforce with a focus on technology, it would be a win-win. Instead of trying to limit the abilities of the tech giants by tying their hands, why not throw competitors at them and fund new technologies that will strengthen America’s position as a technology powerhouse.
When we look at China, they are spending and investing heavily in their tech industry. We may be the current leader in technology, but not by far. By creating government funded R&D facilities to create and harness new technologies, training the current non-tech workforce from being users of technology to creators of technology, and adding new competition in the tech sector, we will make America a stronger competitor in the world and equip our workforce with the tools needed to be productive citizens in this new era of the digital economy.
I understand the argument that the government is not the best allocator of capital and that money should go to private industry or the financial system/stock market will allocate the money most efficiently, but I don’t think that it is mutually exclusive. If you think of ARPANET, the predecessor of the internet, you would see that because the internet was created in the U.S., all the talent was located in the U.S., and students all around the world were coming to the U.S. to learn the technology that was created here. We already can see money going into technology just by watching the NASDAQ index, but most of that money is going into these large cap tech companies. Why not direct it to American citizens who have been left out during this digital transformation of our economy and teach them the skills they need to be competitive participants of the new tech era and increase the high skilled tech labor pool. It will benefit the tech sector and our economy overall.