Biden has already been in touch with experts such as Fauci to discuss another possible lockdown once he takes office. The economic damage that will result from another lockdown when the economy is already suffering is irreversible. In addition to Biden’s aggressive approach in dealing with the biggest public health crisis this century, he also plans to roll back the tax cuts under Trump and increase tax rates for the wealthy. The tax rate Biden is proposing is a whopping 28% on individuals and corporations earning more than $400,000 a year. This move to levy higher taxes, however, depends on the January runoff elections in Georgia as a Republican-controlled senate is essentially a graveyard for Democratic legislation. While this could be seen as a win for those who fear what this new presidency will bring, it could also present challenges as we’ve seen during this pandemic. One of the most striking examples of a split government that is unwilling to bend to the other is the stimulus bill that has been in limbo for months. In October, the House finally passed a second stimulus bill which was then blocked by the Senate. Without another stimulus bill and unemployment numbers still at historical highs, spending power will decrease, more businesses will go under, and unemployment rates will continue to rise. However, if runoff elections in January work in favor of the Democrats, another problem arises: whether corporations and high earners will move operations abroad to avoid increased taxes. In a 50-50 senate Democrats are likely to have more success in passing relief packages like the CARES Act that included an additional $600 a week to unemployment benefits. Whichever way the senate is balanced after January, there will be severe economic consequences since we won’t have the funds or the economic stability we had pre-pandemic to support either possibility.
Some frightening factors to consider that scream disaster for your retirement savings:
- Unemployment is well above 30 million
- Record-breaking bankruptcy claims from both small and large businesses
- Over 5.3 million households missed their mortgage payment while many renters fall behind on rent.
- $6 Trillion in stimulus money was printed and spent resulting in a national debt surge to $27 Trillion.
- The U.S. dollar on its last leg, thanks to politicians and the Federal Reserve.
- The Federal Reserve lowered interest rates to 0% and has more than doubled its balance sheet from $3 Trillion to $6.2 Trillion in less than 2 months.
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There are some investment moves you can make to secure your financial future in either scenario. In scenario 1, where Republicans win the Senate majority, the stock market will crash as unemployment rises without much relief for individuals. In this situation, precious metals will see the same boost we’ve seen these last few months since gold tends to move in the opposite direction. Every day since the beginning of the pandemic, the government’s solution has been to print more money, inflation is confirmed by officials to be in our future. Brainard, a member of the U.S. Federal Reserve’s Board of Governors states inflation is inevitable at this point.
“While inflation may temporarily rise to or above 2% on a 12-month basis next year when the March and April price readings fall out of the 12-month calculation, my baseline forecast for inflation over the medium term is for it to remain short of 2% over the next few years,” Brainard said. A 2% increase is the minimum and will most likely be closer to 8%.
Some of Biden’s proposed policies don’t include inflation as a factor though it is expected and inevitable. Biden’s plan to increase payroll taxes on individuals that make more than $400,000 a year annually to pay for enhanced benefits for certain groups, for example, is not indexed for inflation. This means every year more and more taxpayers will feel the effects of this payroll tax.
Precious metals have historically served as a protective hedge against inflation and will continue to do so as our economy experiences unprecedented circumstances. In addition to this, Biden’s environmental plan emphasizes investment into tech and electric vehicle companies such as Tesla. Electric vehicles use two types of precious metals, gold and silver. As production with these materials goes up, so does demand, as well as the prices. During uncertain times, precious metals are starting to look more and more like the safety net we need, but it is important for individuals to invest before prices get too high.