Knock-on effects of Biden's $1.9 Trillion Pandemic Relief?

Great Debates
61

It will overheat the economy, possibly causing an increase in inflation. And once the money is spent, the interest cost and crowding out of other capital will cause a permanent reduction in economic growth, just as the first stimulus did. Even the authors of the first stimulus agreed that once the stimulus period was over, economic growth would revert to a lower point than if there had been no stimulus.

Can I remind everyone that money cannot just be printed or borrowed with impugnity? If interest rates are 1%, America’s debt-servicing costs go up $19 billion per year just from this. That’s almost the annual cost of NASA. And if interest rates go back to historical levels, Debt around the world will be unsustainable.

Betting that historically low interest rates will continue into the distant future is a reckless policy. And if rates do go up, the American deficit will be the single largest brake on investment and growth, unless they tax the rich to pay for it - then the tax will be the largest brake on growth, followed by the debt.

Inflation is already starting to rise. The quantity of money is at record highs due to many rounds of QE, and the only reason we don’t have inflation now is that velocity of money has dropped off a cliff, and money supply is quantity times velocity. If all that money starts moving, inflation will tick up. If it does, the massive debt the world is carrying will put enormous pressure on central banks to NOT raise interest rates to combat it. That would lead to more money printing to fund deficits, since people won’t buy five year T-bills at 0% interest when the underlying economy is inflating and the value of the dollar dropping.

Spending 1.9 trillion on ‘stimulus’ to correct low economic growth caused by artificial restrictions is insane. It’s a recipe for massive malinvestment. The bill should have been a quarter of the size and targeted only at emergency relief, instead of a slush fund of payoffs to connected organizations.

As it is, the money that has already been pumped into the economy has created a massive asset bubble, which is due to crash some time in the future. Adding another 1.9 trillion of money into this situation is irresponsible.

I expect we’re headed down the ‘Modern Monetary Theory’ path, a crank economic philosophy that almost no one in economics thinks is reasonable. If inflation hits, the response will be rax increases to slow the economy once interest rates are off the table. If they do that, say hello to stagflation. Loose money and high taxes are a terrible combination.

62

Which one is the “first stimulus” (there’s been four) and cite please that the authors agreed the bill would hurt economic output?

Also, what’s with you and Modern Monetary Theory? That’s the second time I’ve seen you boogie-man MMT recently, and I’ve not seen the media or politicians or anyone flogging it. I mean, MMT has been around for, what, 1/2 a century, more?

63

Again, no one is paying for this by printing money.

And the GOP had no problem borrowing like crazy for four years.

64

No matter what happens there will be large tax increases on the high income groups.

Which is long past overdue.

And will have enormous bipartisan support.*

And will be beneficial to everyone in the long run.

*Well, not in the Republican half of Congress, but among real people.

65

It’s nice to see conservatives suddenly expressing an interest in deficit spending again.

66

Not like we didn’t predict this.

67

Go find a time when I wasn’t complaining about deficit spending. I have been completely consistent on this whether it be a Republican, Democrat, Liberal or Conservative government.

The deficit is like droppjng pebbles in a giant mound of debt. Eventually, that mound is going to collapse, and each pebble makes it more likely that the next one will do it. But paradoxically, every time we drop another pebble and the mound doesn’t collapse we take it as increasing evidence that deficits don’t matter.

When debt increases at a rate slower than GDP growth, it is sustainable and shrinks in real terms so long as GDP goes up by more than the interest. When you have GDP growth of 2%, and you are borrowing 10% of your economy, you are slowly impoverishing yourself. And maybe not so slowly if it leads to a financial crash or high inflation.

The 10 year treasury bill has gone up 104 basis points in 10 months. After the 1.9 trillion ‘stimulus’, total U.S debt will be around 23 trillion dollars. If it had to be financed with those T-bills, the 104 basis point increase represents an additional 230 billion dollars PER YEAR in debt servicing costs. If interest rates were to go back to the historical average, the debt will bankrupt the government. At 4% interest, the debt would cost 920 billion per year in interest charges. That’s about $200 billion more than the entire U.S. military budget.

And it’s not just the U.S. government. Cheap money and ‘stimulus’ logic has encouraged heavy borrowing by states, municipalities and businesses. Any significant rise in interest rates will cause a massive shock and probably a major crisis.It’s reckless and stupid to rely on interest rates remaining at a level they’ve never really been at before in history.

Our ‘leaders’ are flying us into an economic coffin corner.

68

If only the Republicans we’re talking about here were equally consistent!

69

No shit. Trump’s taxs cuts were terrible and should be repealed immediately but cranking out more spending on top of his stupidity just makes things worse.

70

I know how this game works. The libs are stupid for passing bills that are actually needed because the cons already threw all the money away. But give them a chance and the cons will throw it all away again. It’s never the time to take care of the vast majority of the people in this country but it’s always time to give away more money to the rich and powerful.

71

It sure seems to be the way its working. It’s OK we’re playing hot potato with the economy eventually someone will end up with it and get burned or it will fall to the ground and explode. Easily what I worry about most for my kids.

72

The funds are kicked back and forth between the Fed and the banks, who then use them to generate activity in the private sector. The key question behind things like Fed-generated stimulus (as opposed to checks from the Treasury into bank accounts) is what compels banks to put money into the hands of people who really, really need it.

Banks can loan money of course, and perhaps the government can stipulate or somehow encourage lending to people who could really use the money to get a leg up, like small businesses and first-time homeowners. But that’s not without some risks, as any of us who were alive in 2007 and 1987 remember all too well.

I agree with JT that there’s probably not a lot of inflationary pressure right now, but I’m a little more cautious in saying that there’s absolutely nothing but upside. I think there’s a lot of good in the stimulus overall; I’d rather see more direct cash-in-account payments than money going to banks, who then decide how they want to jack up their stock prices.

73

This is now Consumer Side economics. So the consumers can afford to spend money and the supply side can make a profit from sales instead of corporate welfare.

74

Did you make similar points here when the GOP did their huge Covid relief plan? Got a link?

Same with all the others attacking this stimulus for similar reasons- these reasons sound a great deal like what the GOP said when they voted en-mass against helping Americans. However, not a single Republican I know of raised all these doubts and concerns about their stimulus plan. Hmmm. :thinking: :face_with_raised_eyebrow:

75

If the last stimuluses are any indicator, consumers are - wisely, I think - putting the money in a safe place first before getting swaggy.

https://www.nber.org/digest/oct20/most-stimulus-payments-were-saved-or-applied-debt#:~:text=Survey%20data%20on%20household%20behavior,durables%20like%20cars%20or%20appliances.

76

Then you’ll hopefully agree that tax increases are in order, particularly for those who can afford to pay it.

77

Interestingly, that is exactly what the rich do with their welfare payments.

78

Yup, we need a massive tax increase (60% increase) along with huge cuts to the federal budget on the order of 20% to get us close to a balanced budget. Then we’ll need a bit more to actually pay back the debt.

79

And that is why they are not “job creators.” Jobs are not income or revenue-elastic; they’re elastic relative to the need for more people to handle production, distribution, and services that companies need in order to keep up with consumer demand for their goods and services. If companies can produce the same revenue or better with fewer employees, they will, or they’ll die trying. But working class types like me still need income - my needs don’t disappear even if demand for my labor does.

80

Taking the 30,000 AU view, we’re a speck of dust floating around a flaming balloon and we’ve somehow created a mental trap where the speck of dust owes the speck of dust nearly $300 trillion.

And I think about that and I’m kinda suspicious that our understanding of economics and distributed prosperity is nowhere near as developed as we like to believe it is, that economics is as lacking as alchemy was in transmuting metals into gold. The alchemists knew, somehow, that lead and gold were related and one could be turned into the other, they just didn’t know that you needed an exploding star to do so.

And today. We know that it’s possible to create an economically just society, we just try to do it with the same tools and understanding of that 14th century alchemist. I mean, I’m sorry, but much of economics is almost akin to scholasticism in nature, where you start with the assumptions and build the arguments to support it. The tools we have created are largely mental creations, and if they’re flawed… like a situation where a speck of dust owes itself $300 trillion… then perhaps we should refine them and not just bind ourselves to the outcomes of our badly designed tools.

Yeah. $23 trillion. 7.9% of the global total. Of what exactly, if not a debt born solely of sentience and not reality?

https://www.bloomberg.com/news/articles/2021-02-17/global-debt-hits-all-time-high-as-pandemic-boosts-spending-need