Chat with us, powered by LiveChat

Let's Give $200,000 Relief Checks - Why Not?!

Benefit Programs
Print Friendly, PDF & Email

EDITOR NOTE: As the article claims, perhaps with a shade of comic sarcasm, it’s always Christmas in Washington. So, is the Federal Reserve like Santa Claus, or is it a kind of reverse Robin Hood--as in "give to the rich and take from the poor"? On that last note, a major criticism with regard to money printing is that it benefits those who are able to access it first, namely banks, corporations, and the wealthy. Once that money circulates across the general population, it’s like a massive multi-course meal that’s either gotten cold, stale, or absent of all the good stuff (which has been eaten). But now we have direct payments to citizens--meaning we can all benefit right away. How does it work? And IF it works, what’s the big deal with limiting the stimulus to $600 or $2,000? Biden says that it’s just the beginning, as a fiscal appetizer, so why not give us $200,000 per citizen? After all, money is no longer backed by gold and silver, right? Print more, as Washington does by issuing Treasury debt that’s gobbled up by the Fed (after printing more money, of course). As you'll read below, disaster awaits those who dare cross this line.

It is always Christmas in Washington. This particular holiday season, politicians raced to the bottom of the fiscally incoherent barrel. What started as a $600 direct payment all of a sudden became $2,000 as the spenders yell out, “look at how good I am!” They would have us believe their benevolence is bestowing upon us much needed relief. Some might even call it stimulus.

In the end, the $600 payments prevailed, but president-elect Biden has already said the $600 checks are merely a “down payment” on future stimulus. 

Of course, direct payments are not fiscal stimulus. If they were, why stop at $600 or $2,000? Why not send out $60,000 or $200,000 checks?

The answer is rather simple: If the federal government can stimulate the economy by making direct payments to citizens, then there would be no reason to limit those payments to $600, or $2,000. It is similar to the lack of logic in limiting the minimum wage to only $15. The absence of rationality tends to not prevent Washington from fiscal malfeasance. After all, if there existed some multiplier greater than one by which government spending could increase GDP, then it would be insane to not increase government spending ad infinitum. They have certainly tried their best to make this faux stimulus work.

What does that attempt even look like? Sadly, it is a vicious cycle. The federal government makes direct payments totaling, say, $500 billion. Where does that money come from? The Treasury issues bonds to raise the $500 billion from the markets. With $28 trillion in debt, how come rates aren’t rising? The Federal Reserve purchases bonds from the market to keep supply down. Where does the Federal Reserve get the money? It prints it. Then where is the inflation? Take a look at the financial markets. Then where is the stimulus?

That’s just it – there is no stimulus. Tragically, many in Washington believe that there is, and so the vicious cycle persists. Perhaps more nefariously, many in Washington do not care about the vicious cycle, or if there is any actual stimulus. The direct payments are simply a transfer of wealth from some group of people who will eventually pay that debt back in taxes to whatever chosen group the government decides to be the recipient. Of course, the irony is that much of the wealth transfer is from future generations (those in whose name the gargantuan debt is incurred) to the holders of the financial assets that are inflated. Along the way, the direct payment recipients receive a temporary high.

Making matters worse, people are indeed suffering and there are numerous ways in which the government can actually help. First and foremost, it can allow the economy to reopen now. That would address a bulk of the government induced slowdown. It is bad enough that haphazard government policy causes massive economic damage. Even worse is when the government exacerbates the problem with an incorrect policy measure that lathers on more spending and debt. While an attempt could be made to calculate an actual amount of economic loss from pre-pandemic times, it is nearly impossible to price the myriad unseen costs of educational loss, drug abuse, and depression. Will a $600 or $2,000 check begin to compensate for that?

In general, though, there is a way for government to implement actual fiscal stimulus: cut taxes. Job creation only comes from economic growth. And the only way in which government can stimulate economic growth is by cutting taxes. Tax cuts, empirically and logically, facilitate economic growth and job creation. A direct payment is simply the whim of the government, to be doled out in the amount and timing of their choosing. It allows for little planning or future certainty. A tax cut, on the other hand, provides lasting, durable, and actual relief.

There is a spectrum of reasons why neither of these sensical solutions are being implemented. Similarly there are a variety of reasons why the politicians are pushing the direct payments. Some are well intentioned, some are political, some are rooted in socialistic tendencies, some are rooted in lack of understanding of basic economics.

Regardless, it is a basic question that everyone should be asking. What will this actually do for the economy? How long will a struggling family last on printed dollars that do not facilitate actual job creation? And if it actually works: Why not $200,000?

Originally posted on FEE

Bank Failure Scenario Kit - sm2



  • This field is for validation purposes and should be left unchanged.

All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

Precious Metals and Currency Data Powered by nFusion Solutions