Saturday, April 25, 2020

About all those federal stimulus checks...they do have to be be repaid....you do know that don't you

The laws of economics require that all that money to be repaid, be assured it will be repaid, starting soon, in the form of inflation, say 25% a year for 20 years. 

Sort of like a mortgage. 

Did you think you were getting something for nothing? 

We are sorry if you had the wrong impression. 

Making a Bad Situation Worse

One entire decade of employment gains washed out in one single month…
The United States economy took on 22.13 million jobs during the past 10 years. Yet it has given back 22.03 million within the past four weeks.
Rather, 22.03 million jobs were deliberately strangled out of the economy. The
“lockdown” was, after all, self-imposed.
April unemployment may nonetheless scale 17% — a post-WWII record. Let us not forget:
Behind each cold statistic beats a human heart, a broken heart. Our men forward us the following information:
Each 1% increase in the unemployment rate may yield up to 30,000 fatalities from suicide, alcohol, drugs and related deaths of despair.
We are further informed that each 1% unemployment increase elevates the odds of death the following year by 6%.
We do not know if the figures have full accuracy. But we suspect there is a high degree of justice in them.

Three Months of Savings

Meantime, one recent survey revealed that 41% of working adults claimed only enough savings to see them through for three months.
If the present economic paralysis represented a mere suspended animation — if the idle returned to duty within three months — the blow would not prove fatal.
Yet many will be turned out forever and ever, orphaned and abandoned. Their positions will be permanently deleted.
Many will be unable to take up employment in new lines. How will they rub along on three months’ savings?
Government checks will only take them so far.
It is a grim calculus.

$25 Billion per Day

Meantime, the top man at the St. Louis Federal Reserve hazards this estimate:
The United States economy hemorrhages $25 billion in lost business each day of economic coma.
No economy can withstand months and months of it.
The lights must flicker back on, the machinery must begin to whine, workers must punch the clocks.
Else the cure will prove deadlier than the disease that afflicts us.
When will the economy reopen its doors for business?
The question is easier asked than answered.
North Dakota has issued “guidelines” to open up May 1. But with the highest respect… the Peace Garden State is not central to the United States economy.
New York’s economy represents a much larger chunk. And Gov. Andrew Cuomo has extended the statewide jail term through May 15.
California — an even larger chunk of the national economy — is no closer to opening.
But what the nation is losing in output… it is gaining in debt.

The Shattered Keynesian Multiplier

The entire economic and financial system was dreadfully indebted before the pandemic.
Now it is plunging deeper and deeper into debt without the economic activity to cushion the cost.
The Federal Reserve’s balance sheet is expanding to dimensions truly obscene… like a 600-pound man with a mania for donuts.
And governments are ladling out reams and reams of borrowed money. That is, money they do not in fact possess.
Who will pay for it? And what good will it work?
The miracle of water into wine — of the Keynesian multiplier — says each watery dollar yields a surplus of rich wine.
It is therefore an “investment” in future growth.
The theory may have something in it under debt-free conditions.
But today’s system is so soaked through with debt… additional debt yields not wine… but vinegar.
It subtracts rather than adds.

Well Past the Point of Diminishing Returns

Economists Kenneth Rogoff and Carmen Reinhart have arrived at this conclusion:
When a nation’s debt-to-GDP ratio exceeds 90%, median growth drops 1%. And average growth “falls considerably more.”
The United States entered the present catastrophe with a debt-to-GDP ratio of 105%.
Now debt is galloping ahead under full steam. But GDP is going backward. The ratio will only increase. And growth will lag even further.
Perhaps Rogoff and Reinhart are off — critics allege they are.
But we do not believe that plunging deeper into debt will lift up the gross domestic product.

After The Dollar… But Before A Return to Gold

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We certainly expect no V-shaped recovery like the rah-rah men gabble about.
We expect rather a protracted guttering along, an extended economic lethargy, a long, cold drizzle.

Unproductive Debt

What is more, much of current debt is “unproductive.” That is, it holds no theoretical promise of return.
It merely fulfills existing political promises.
Some 50% of all Americans already receive at least one federal benefit.
Some 63 million receive Social Security payments. Sixty million receive Medicare. Medicaid, 64 million. Five million American households claim housing subsidies.
And 40 million Americans receive “supplemental nutritional assistance.” That is, food stamps.
Even pre-crisis, this federal transfer spending — largely spending that shovels money to those who did not earn it — was on the track for a record $3.22 trillion this year.
These payments would have likely accounted for 68% of all 2020 federal shellouts, or 14.4% of GDP.
But comes your objection:
“My taxes pay for Social Security, Medicare and Medicaid. How can you call those transfer payments when I in fact pay for them?”
Yet these programs qualify as transfer payments under United States accounting rules.
Regardless, taxes to fund benefits already fell far short.
We remind you that was before the present crisis. And now?

The Difference Between Today and the Great Depression

Take the year 1940 as your comparison. The United States government dedicated a mere 2.1% of GDP to these types of payments.
But here is the difference between the economy of the Great Depression and the economy of today:
Real GDP 1929–1940 expanded at a cumulative 19.89% rate. And for the past 11 years?
Cumulative GDP expanded at 18.85%.
That is, the economy of the Great Depression — cumulatively — outperformed today’s.
It turned in years of 12.9% growth… 10.8%… 8.8%… and 8.0%.
Meantime, not a single one of these past 11 years exceeded 3% growth. This year certainly will not. And the next several may be spent simply clawing out.

Deficits to the Moon and Beyond

Thus we arrive at this sad conclusion:
Many American households drain more money out than they pour in. And less real growth supports the operation.
These twin trends are now vastly accelerated.
The tax stream is running dry… while the demand for government relief inflates to extravagant dimensions.
Annual deficits may surge to $2 trillion — or $3 trillion.
Pre-crisis, the Congressional Budget Office (CBO) projected a $28.7 trillion national debt by 2029.
But these Pollyannas never accounted for recession — much less depression.
Now assume $2–3 trillion annual deficits. The national debt could well approach $40 trillion by 2029.
Meantime, CBO previously projected that debt service would rise to $915 billion by 2028 — nearly 25% of the entire budget.
For some slight perspective, consider:
That $915 billion roughly approximates 2018’s combined Medicare and Medicaid costs.
And do not forget: That calculation assumed a $28.7 trillion national debt. It did not assume a $40 trillion national debt.
Interest payments in this second scenario would swamp the entire federal budget.

Consolation

How America is to rebuild its finances, we do not pretend to know. We are certain only that debts that cannot be paid will not be repaid.
Default of one form or other appears inevitable.
But let us stow our worries, draw a smile across our features… and take heart.
For the stock market was up again today…
Regards,
Brian Maher
Managing editor, The Daily Reckoning

4 comments:

  1. Anonymous4/25/2020

    You have to give.....to get.......

    ReplyDelete
  2. Anonymous4/25/2020

    By Brian Maher
    The Daily Reckoning
    April 22, 2020
    ๐Ÿ˜พ

    ReplyDelete
  3. Anonymous4/25/2020

    Everybody in America needs to pay federal income taxes.
    Everybody in America needs to shoulder the burden.

    ReplyDelete
    Replies
    1. Anonymous4/26/2020

      Theoretically....but some tax payers are more equal than others.....and some "others" pay NO txes.

      Delete