THE CORONA SPRING
No Stimulus for the Weary: The US is Now Sitting on an Inflation Time Bomb
The White House budget office doesn't know if the $2.2 Trillion-dollar
stimulus package and Trump's $1,200 stimulus checks might cause an
inflationary spiral. But many economists have no doubt it will.
by Raul Diego
May 12th, 2020
By Raul Diego
The consequences of the $2.2 trillion stimulus package are being ignored,
even by the White House budget office that put it together, admitting that
the package had "come together so quickly," that they had no time "to do the
customary modeling of its fiscal impact." What does appear to have consensus
in financial circles is that after this is over central banks will
effectively own the governments of the world, including the United States.
When it is all said and done, President Trump's stimulus checks will carry
an inflationary cost many multiples more than their original $1,200 value in
the pre-coronavirus economic reality, a reality that probably won't become
apparent until after the election in November. By then the checks will have
served their purpose as a political move, not an economic one. When
understood from the vantage point of what is in store for the American
working classes as we emerge from this red light on main street, Trump's
checks will only add fuel to the inflationary fire just ahead, according to
Neal Kimberley, a macroeconomics analyst for the South China Morning Post.
Quoth the Raven
@QTRResearch
There is an inflationary cost to the Fed printing ~$50,000 per citizen in
stimulus.
If you have only received $1,200 you should be asking why you are bearing
the inflationary cost for another $48,800 you never got.
Instead of a bailout you're paying a hidden tax. Speak up.
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An economic realignment is unfolding in the wake of the shutdowns prescribed
by pandemic response protocols. The coordinated effort to restrict
individual participation in the economy spans the globe but is an inherently
local matter. While corporations around the world "ride it out" by hoarding
their government bailout money in the bond market, regular working people
are bearing the brunt of the risk and facing a brave new world on the other
side of the COVID Spring, where the distance between them and the richest
0.01 percent will have grown light years further than the recommended six
feet.
Shocks to demand elicit certain reactions from the market, whereas shocks to
the supply-side call on others. It is exceedingly rare for an economy to
suffer shocks on both ends simultaneously, as is occurring at this very
moment when both consumers and suppliers are in stasis.
While governments slash interest rates to keep their borrowing costs low,
the unprecedented flood of new money is accumulating in the hands of the
wealthiest and most powerful people and corporations, who have parked all of
it in bond instruments like a horse at the gate of the Kentucky Derby. As
soon as the trumpet is blown and the economy restarts itself, those same
trillions of dollars will come rushing out and cause massive inflation,
which will only be exacerbated by low-interest rates. In other words, we're
sitting on a time bomb, and it is counting down the last seconds.
Expanding the debt pool
The same will hold true for recipients the SBA CARE Act loans, which has
expanded the availability of government debt beyond traditional for-profit
businesses and brought faith-based organizations into the public money
sweepstakes.
Beginning in 2001, when Geroge W. Bush first proposed a Faith-based and
Community Initiative as part of his Presidential Management Agenda, the
gradual inclusion of non-profits like churches and synagogues, but also a
myriad other religious organization, into direct government assistance
programs has continued unabated and the increasingly blurred line between
church and state all but vanished once Trump's Treasury department issued an
"Interim Final Rule" for the CARES Act, making payroll protection loans
accessible to faith-based organizations.
To put the $2.2 trillion CARES Act in perspective, the bill allocated a
paltry 10 percent of the total ($250 billion) for direct individual
assistance in a pie that was divided into hundreds of millions of
recipients. $500 billion was allotted to SBA-related loans and the rest, or
$1.7 trillion, went directly into the pockets of a comparatively minuscule
portion of the population.
From a macroeconomic perspective, the CARES Act only spread the government's
insurmountable debt further out into the economy, which is already more than
"twice what it was before the Great Recession" and is set to increase
exponentially in the relatively near future.
Sooner or Later
The dynamics put in play by the COVID Spring mirrors the conditions that led
to the 2008 financial crash and its aftermath, in that a giant ball of
financial poison had been festering behind the scenes and then metastasized
around the world, ruining anyone in close proximity to a toxic derivative
and no access to the FED window.
The toxic asset right now is the piles and piles of U.S. dollars and
dollar-denominated assets and instruments saturating the global economy,
which is tied to a nation - the U.S. - on a completely unsustainable
economic path.
The degree to which inflation hits us is still a matter of debate among
economists but many are expecting it will happen sooner or later. They
concede that it is not out of the realm of possibility that "persistent"
inflation is on the horizon. "We think the trade war has set this very real
possibility in motion," advised RBC economists to their clients. "Covid-19,"
they continued, "is likely just pushing it further upfield."
Ultimately, the pressures of a hopelessly indebted nation populated by a
hopelessly indebted citizenry who are being told interacting directly with
each other is dangerous sets us up for an Orwellian nightmare that no amount
of Trump checks can justify.
