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Omicron fear and inflation angst panic US markets

NEW YORK – The Fed, the US Senate and the Omicron strain of Covid-19 were too much for the S&P 500 Index, which fell by nearly 4% on Monday at mid-session from last Thursday’s intraday peak.

The Fed is tapering purchases of Treasuries after a US$5 trillion post-Covid binge, the Senate balked at Biden’s $1.75 trillion fiscal stimulus and Omicron threatens yet another wave of lockdowns. 

These three ill omens are facets of the same problem – the government pays people more money to sit at home than they ever earned at work, and the central bank prints money to finance it.

Prices soar and corporations jack up their margins but people keep spending because they fear that money will be worthless in the future. It has to stop some time, either because the politicians balk at more handouts, or the central bank fears the consequences of more money-printing, or because people stop spending, or all of the above at once.