The government is going to give us 150 billion dollars. Doesn't that sound like the lead-in for a Jay Leno joke? For what it's worth, they didn’t take in enough in taxes to cover the yearly budget. You kind of wonder where it's coming from. I’d love to enlighten everyone, but it's not nice to explain what’s going on and piss people off, all in the same sentence.
The government is going to disperse 125 million checks for $1,200. Its purpose is to stimulate the economy. We jump to the conclusion that the government wants us to buy something to get the economy going. Then it gets carried further with the observation that paying off debts won’t stimulate consumption. So what gives?
I’m stepping out on a limb here; this is pure conjecture on my part. So if you are using this column as investment advice, I express my sympathies to your family. Using speculative conjecture for brains is rather novel, award yourself two points.
Bernanke has lowered inter-bank-transfer-rates to levels not seen in a while. This allows a bank more time in selling assets to raise cash for withdrawals. There is no way the bank gets any free money out of this deal. What they borrow, they have to pay back to the Fed (we are not talking credit card math here).
During the real estate boom people bought a house for 100K and sold it for 200K. The extra 100K went into the banking system money pool. Right now the reverse is going on. You buy for 400k and sell for 200k and the bank chokes. The money supply that the banks and the economy have access to is contracting.
I am suggesting that this 150 billion dollar package is to help the banks. Congress really doesn’t care whether you spend it on a plasma TV or pay off a debt. The goal is to insert money into the banking system by way of your bank account. This cash injection will hopefully increase the money available to jump start the economy and keep the banks solvent.
150 billion dollars is peanuts to pay to avert a major bank collapse. The trouble is, printing the checks. I don’t know how many checks a day the government can print, but logistically, 125 million checks at one million a day is about 4 months of continuous printing. Even if the measure passed Congress tomorrow, I don’t think that the economy has the luxury to wait out four months. This mess started 6 months ago and it seems like it doubles in size every three months.
In Kalifornia, it took 6 years in the 1990’s for housing foreclosures to get to the levels they are today. 150 billion dollars dropped into the money supply has to be inflationary. The loss of buying power is becoming more apparent. More money will be chasing the same amount of goods.
Things have changed since I was a kid. We use to drag our date to the drive-in for a good time, popcorn and all. Now days you can get screwed at any gas station—it just isn’t the same.
Now you know where the money in this future check is coming from, or do you? You get something for nothing--it must be an election year. Congress is buying "The Short Bus" vote.
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