No Stimulus for the Weary: The US is Now Sitting on an Inflation Time Bomb

Coronavirus Inflation Feature Photo

Feature photo | Phu Dang, left, the owner of i5 Pho restaurant, gets help from a contractor as he boards up his business in Seattle’s downtown Pioneer Square neighborhood, March 30, 2020. Ted S. Warren | AP

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

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.4,2705:43 PM – May 10, 2020Twitter Ads info and privacy1,383 people are talking about this

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.

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