Goldman: Total Democratic Control of Washington Will Improve Economic Growth

The party’s dominance will permit a third round of federal stimulus this winter, lifting 2021 GDP to 6.4% growth, the firm says, as it brightens its forecast.

The twin victories of Democrats in the Georgia Senate contests this week, which gave the party control of both congressional houses, should lift 2021’s economic growth, according to Goldman Sachs economists.

Goldman is now projecting gross domestic product (GDP) growth of 6.4% this year, up from 5.9% before. That should compel unemployment to drop to 4.8% at the end of 2021 and 3.9% at the end of 2023, the firm’s economists declared in a research note. The latest jobless report is 6.7%.

The reasons for the investment firm’s sunnier view on the economy: 1) Realization that Democratic dominance in Washington boosts odds of a third federal relief package in the near future. And: 2) That the economy might need the fiscal aid, given the new, more transmittable strain of COVID-19 arriving on US shores and the slow roll-out of vaccinations.

At the same time, Goldman contended that while the Biden administration would now be able to raise taxes, the increase would be modest—the prospect of a whopper tax expansion under the Dems has been worrying the financial community.

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The tax hike, kicking in next year, would amount to about 0.25% of GDP, the report said. “The tax and spending increases should net out as modestly positive for GDP,” it stated. Other analysts have explained that narrow Democratic margins in both houses would constrain the party from passing more onerous tax increases.

Democratic President-elect Joe Biden has expressed his desire for another round of pandemic relief, on top of the two that have passed already. But Republican Mitch McConnell, who had been the Senate majority leader, has been a skeptic about further aid. In the new Congress, though, he now will lead the minority. (Technically, there’s a 50-50 split, with Vice President Kamala Harris breaking the tie for her party).

The new money, amounting to some $750 billion, should pass Congress between mid-February and mid-March, wrote the Goldman team of economists, led by chief Jan Hatzius. The fresh stimulus, they said, should boost disposable personal income, as did the one enacted last spring.

The new Goldman prediction is well above consensus estimates of about 3.9%. Wall Street economists are growing more optimistic lately, though. Bank of America improved its GDP outlook for 2021 to 6%, from 5%. Morgan Stanley just upped its projection for the year to 5.6%. Other, non-Wall Street prognosticators have been less sanguine. The International Monetary Fund, for instance, has forecast a mere 3.1% rise this year. The US-based Conference Board, a notable research group, is looking for an only slightly better showing, 3.6%.

Previously, the stock market had seemed happy about the prospect of divided government, with the presidency and the House of Representatives in Democratic hands, and the Senate continuing under GOP control. But things have changed recently: The S&P 500 climbed 0.71% on Wednesday and 1.48% on Thursday, following news of the Democratic sweep in Georgia.

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Tags: Coronavirus, COVID-19, Democrats, GDP, Georgia Senate contests, Goldman Sachs, House, Joe Biden, Senate, tax hikes

The US Securities and Exchange Commission (SEC) has accused the 23-year-old founder of an investment management firm of defrauding investors in the company’s flagship cryptocurrency trading fund by lying about the fund’s strategy, assets, and financial condition.

The regulator filed an emergency action and obtained an order imposing an asset freeze against Virgil Capital LLC and its affiliated companies in connection with an alleged securities fraud relating to its Virgil Sigma Fund. The SEC alleges the fraud was led by Stefan Qin, an Australian citizen and part-time resident of New York, who owns and controls Virgil Capital and its affiliated companies.

The Sigma Fund is a limited partnership pooled investment fund that claims to use a proprietary arbitrage trading strategy that continually scans for price differences between cryptocurrency markets. Montgomery Technologies, Virgil Capital’s parent company, stated in a March SEC filing that $92.4 million was held in the Sigma Fund. And as of May, according to the Sigma Fund’s records, there were approximately 110 investors in the Sigma Fund, nearly half of whom were from the US, with account balances ranging from $100,000 to $16 million.

The SEC said a marketing brochure for the Sigma Fund from September 2019 listed monthly performance figures from August 2016 through August 2019 and claimed cumulative returns of 2,811% over that time period, compared with 1,500% for Bitcoin over the same time period. Qin also allegedly claimed the fund held millions of dollars worth of digital assets at 39 trading platforms, but in reality it held no assets at those platforms, and the purported platform account balances were fabricated.

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According to the SEC’s complaint, while Qin misled investors into believing their money was being used for cryptocurrency trading, he allegedly used investment proceeds for personal purposes or for undisclosed high-risk investments. And when investors in the Sigma Fund sought to redeem their shares in July, Qin began employing a “series of artifices and deceptions,” the SEC said.

Qin allegedly first told certain investors who wanted to redeem investments from the Sigma Fund that he would directly transfer their investments to another fund, called the VQR Fund, in lieu of a redemption. Qin described these as “in-kind” transfers. However, the in-kind transfers never materialized, according to the SEC, which said the investors began contacting an investor relations employee from the VQR Fund to confirm their investments, but no money was received by the VQR Fund for the purported transfers.

Qin then told investors and the investor relations employee that the transfers would occur as bank transfers of fiat currency, but the redemptions still had not been satisfied. The SEC’s complaint also alleges that Qin is actively attempting to misappropriate assets from the VQR Fund and to raise new investments in the Sigma Fund.

“This emergency action is an important step to protect investor assets and prevent further harm,” Kristina Littman, chief of the SEC Enforcement Division’s Cyber Unit, said in a statement. “Qin allegedly made false promises to lure investors and then continued his deception to conceal his misuse of investor funds.”

The SEC’s complaint, filed in the Southern District of New York (SDNY), charges Qin and the entities he controls with violations of the antifraud provisions of the federal securities laws. The regulator is seeking permanent injunctions, including conduct-based injunctions, disgorgement with prejudgment interest, and civil penalties.