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February 18, 2021

Where Does the Untargeted Stimulus Relief Money Go?

Hint: Bitcoin is up 1350% since last March

BitcoinMost US stock market indices are also at record highs. Mass speculation is driving dizzying ups and downs in stocks like GameStop out of any correlation with the worth of the companies involved. There’s too much money sloshing around!

Relief for people put out of work by the virus or the lockdowns it caused is and was a very good thing. Extending unemployment because of the special circumstances made sense, although paying bonus unemployment has kept some people from rejoining the labor force.

Sending out checks to people who were not affected by the pandemic was a bad idea the first time around and is an even worse idea now. Many people who were able to switch to work from home are better off financially because they don’t have commuting expense. Most of us are spending less because we don’t eat out, travel for fun, or go to events. As you can see below, the US savings rate has sky-rocketed during the pandemic even though Americans are also paying down debt.

Savings

Isn’t all that saving and debt paying a good thing? Well, it would be if we as a people weren’t borrowing many times that amount to give relief both to those who need it and those who don’t. It would be if much of the “relief” money wasn’t ending up in bubble assets. Moreover, some of the savings are going to disappear when inflated stocks and perhaps Bitcoin plummet.

Some economists say it was and is a good idea to just shovel money into the economy so demand doesn’t plummet. But, at the same time we gave out heaps of money indiscriminately, we closed much of the local economy.  Money can’t be spent in closed stores and restaurants. Certainly the extra money helped Amazon – its sales for 2020 were $386 billion, up 38% from 2018. Their net profit did even better: up 84%. Where else were people who didn’t need stimulus money going to spend it other than buying from Amazon, buying Bitcoin, and playing the stock market.

We’re not out of the pandemic yet. We do need more money for vaccination, for treatment, to track cases and mutations, and to help those who are still being kept out of work. We do need to rebuild our infrastructure. We do need to get broadband everywhere and make sure that even the poorest households can afford access. What we don’t need – but are getting anyway – is more checks to people who don’t need relief. Trust me, Jeff Bezos is doing fine.

For unwise stimulus to the rich and rich corporations see: Flying Elephants Aren’t Pretty

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