White House, Senate reach late-night deal on massive $2T coronavirus stimulus package

I belong to a lot of Old Fart forums, (Yes, I am one) and a lot of them ask if they will get a ‘relief check’ like others.

I did my best to find an answer and for now … I think that I have found it!?

I haven’t read the new bill but if the new bill is similar to the last one (referenced here) then you might qualify, even if you are on social security.

"Taxpayers with little or no income tax liability, but at least $2,500 of qualifying income, would be eligible for a minimum rebate check of $600.($1,200 married).

Qualifying income includes earned income, as well as Social Security retirement benefits and certain compensation and pension benefits paid to veterans.

This ensures relief gets to low-income seniors and disabled veterans," the summary reads.

As I said, if this new bill is similar to the last one, it looks like even the folks on SS would qualify.

The differences that I do know about are the dollar amounts.

Instead of the poorer folks only receiving $600.00, they changed it to $1,200.00 for the lower incomes too.
(Each spouse would receive $1,200.00)

Of course, this is all just guess work on my part!

I referenced from the following website:

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This is from the new bill according to the hill:

"It will also give a one-time check of $1,200 to Americans who make up to $75,000.

Individuals with no or little tax liability would receive the same amount, unlike the initial GOP proposal that would have given them a minimum of $600."

This just explains what I tried to explain in my other post. :slight_smile:
(Pretty sure that the SS part would still stand.)

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The ball is now in Pelosi’s court. Will she act like a patriot or be a jerk? It’s up to her, but if she’s a jerk, she might commit political suicide.

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Looks like we’re all MMT’ers now…

That’s what I said in that other thread :stuck_out_tongue: Well all but five of us.

Also, I’m hoping you MMT folks are right and the five of us are wrong.

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What is MMT?

So you support MMP. Your socialist IQ just went down another 30 points. I actually thought you had more sense than that. I guess you are an AOC acolyte. Too bad.

I can see why the Congress and President are passing this, but I have serious concerns about the long term effects of this. I remember the late 1970s when inflation was 16 percent a year. Massive increases in the money supply are a great concern.

I thought I was on ignore?

I mean, I’m always happy to discuss with you if you want, but you can’t have it both ways.

What’s it going to be?

Believe me, I have a lot to add to your commentary, but I want to know you’re going to discuss and not just complain that I don’t think like you do.

Treat the post as if it never happened. I don’t want to upset your delicate system.

In the meantime, I am concerned about the long-term effects of this on the economy. The spending bill, which is pegged at over $2 trillion, plus another $4 trillion in government bond sales to the Fed brings the price tag to over $6 trillion. The Fed creates $4 trillion out thin air and then transfers to the Federal Government to be spent.

I know that this is necessary to cope with the effects of this disease on the job market and the economy, but such massive increases in the money supply will result in price inflation. For those who are old enough, think about the economy in the late 1970s when inflation reached 20% per year. Wringing that out of the economy involved a lot a pain.

AOC has told us that this new “Modern Monetary Policy” is perfectly sound. You can run up the debt and increase the money supply with no ill effects. The trouble is, it hasn’t worked in “banana republics” and places like Zimbabwe and Venezuela. Destruction of the currency was the result.

Our economy is much larger that those places. It can absorb a lot more of this, but the question is how much? AOC and Socialist Democrats are not concerned about this issue since many of them would like to wreck the current economic system and start over. The rest of us, who have a stake in what does happen, are concerned.

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These are interesting times.

Price inflation happens when the demand for goods and services exceeds supply.

During WWII inflation was high for 2 reasons:

  1. Unemployment was at historic lows - A large number of people were working and making money

  2. Productivity was being shifted away from consumer goods (causing scarcity) to the war effort which effectively reduced supply on the consumer side

In the years that followed after the war all of the productivity directed at the war effort was redirected back toward the consumer side. Unemployment rose as women went back to their traditional roles, however, as a nation the average family had record savings and was eager to purchase the myriad of goods and services created after the war.

So we had higher employment (people making more money) and lower consumer productivity (that is, productivity created to meet the demand of the consumer). The government reacted by selling “War Bonds” as a way to reduce the spending power of the consumer sector and turn it into savings as money saved does not drive consumer demand and not to “fund the war effort” as the government claimed at the time. The government also enacted price controls, which only further stalls productivity on the consumer side as producers aren’t interested in creating goods at a loss.

Notice that inflation spikes at the beginning of WWI as well for similar reasons, but you’ll notice that after each war is over, inflation drops sharply.

So will this $2 trillion in spending cause inflation?

Right now, we have both a decrease in demand AND and a decrease in supply (the impact of China’s shutdown hasn’t been felt yet, but I’m already seeing prices in technology increasing. I think it’s possible we’ll see some short term inflation but longer term it will fall as production increases.

Yes, Volker was a moron who made a bad situation worse. It’s pathetic that he was hailed as a hero Raising interest rates (which was Volkers solution) has a net neutral effect on the economy.

On the one hand, high rates decreased consumer demand (which in turn was simply met with reductions in supply and unemployment), but on the other side, the US government was paying outrageous interest on iti debt, which at the time was earned at income by savers.

So, on the one hand, the government reduced demand on the kinds of things that create real work and in turn incentivized the wealthy to save in government bonds. Basically savers were paid to hold money. This decreases demand and the need to increase supply.

I don’t know if that’s true as you’ve provided no source. That said, it wouldn’t surprise me if she said that. She has, at best, a rudimentary understanding of MMT. If your quote is accurate it only proves my point. MMT is not a “policy”. It simply is how the US economy operates.

That’s not to say that people that understand MMT don’t advocate certain policies based on that understanding.

Think if it like the rules of a game, knowing the rules of a game does not dictate what you should do during a game.

In football, knowing the rules does not tell you if you should throw a hail mary or attempt a long punt, the rules only define your options and the consequences of each.

Similarly, MMT doesn’t tell you if you should (or should not) spend $6 trillion dollars, but an understanding of MMT will help understand and predict the consequences.

That said, like anything, people who claim to understand MMT that do not could cause serious problems.

MMT perfectly predicts and explains the outcomes in those nations.

Yes, I worry about the plans of social dems who know just enough to be dangerous.

No. The government ordered a shut down of the economy. Putting money in is their way, likely unevenly, inaccurately, compensating sectors for doing that.

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And it also happens where there is a huge increase in the money supply without a corresponding decrease in the velocity of money (commonly measured as the number of times a dollar is spent in a quarter.) The velocity has been low of late, and during this crisis it could get lower because people are not getting out to shop. This might be partially off-set by increased on-line sales.

The question is what will happen after the restrictions come off combined with $4 trillion increase in the money supply created by the Fed?

The high interest rates were not all his fault. The key is the real interest rate after an adjustment is made for inflation. I don’t remember the exact numbers but it was some like inflation was running at 20% while the nominal rate of interest earned in money market accounts was 16%. The REAL rate of interest was actually -4%. If you will holding cash, you REAL net worth (buying power of the money you were holding) was actually going down despite the fact that it was earning 16%.

We could have higher interest rates again if inflation is up and the Fed is not pumping money into the economy. The trouble with that Fed pump is that it will ultimately destroy the monetary system. Volker was not as bad as you claim. He was trying to get a handle of the money supply to lower expectations for continuing inflation. That was why the fix was so painful.

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Your copy and paste function must be failing you, CSB.

Yeah, that’s weird, not sure how I managed that.

QE proved that the government can create a quadrillion dollars without a corresponding increase in inflation, because it’s not money creation that causes inflation, it’s money creation that drives demand beyond supply capacity.

People will spend money and drive demand, velocity has nothing to do with it, as long as the private sector can increase productive output to meet demand.

As I said, given what’s happened in China, there is a real possibility that we might see some short term disruption in supply and that might lead to a short term increase in prices driving inflation. But I don’t think that there is anything that will run short long term that the private sector will be unable to produce that in turn will lead to an increase in aggregate prices.

That said, energy prices are the single biggest factor in inflation.

Here are some charts.

Here are wages and the CPI

This chart demonstrates, in some cases, almost the opposite.

What about economic growth, does it cause inflation?

Nope, not much of a correlation there…

What about government deficit spending?

Hmmmm……

What about the price of energy?

You said it was velocity…

Not seeing anything…

As far as real interest in the 1970’s I think this piece (below) shows that the inflation of the 1970’s had a lot of factors…

First, Nixon instituted a 90-day freeze on all wages and prices. He set up a Pay Board and Price Commission to approve any increases after the 90 days. Conveniently, it would control prices until after the 1972 presidential campaign. That’s how he planned to control inflation.

Second, Nixon imposed a 10% tariff on imports. He intended to lower the balance of trade and protect domestic industries. Instead, he raised import prices.

Third, he removed the United States from the gold standard. That had kept the dollar’s value tied to a fixed amount of gold since the 1944 Bretton Woods Agreement. Most countries agreed to peg the value of their currencies to either the price of gold or the U.S. dollar. That had turned the dollar into a global currency.

The crisis occurred when the United Kingdom tried to redeem $3 billion for gold. The United States didn’t have that much gold in its reserves at Fort Knox. So Nixon stopped redeeming dollars for gold. That sent the price of the precious metal skyrocketing and the value of the dollar plummeting. That sent import prices up even more. Learning the history of the gold standard will help you understand why the dollar then was backed by gold and why currently it isn’t.

These last two policies raised import prices, which slowed growth. Then growth slowed even more because U.S. companies couldn’t raise prices to remain profitable.

I’ve also read that the 1970s saw a decrease in available capital for business, another contributor to inflation in that period.

Whoever or whatever “QE” (quantitative easing, I presume) the key assumption here is that adding to the money supply instantly creates more demand. That is all well and good if the economy is in a position to produce more goods and services, but what happens if it isn’t? What if there are massive crop failures, a pandemic or the entrepreneurs produce the wrong stuff? What if the work force is fully employed and there is not enough productive capacity in reserve to keep up? The result will be price inflation.

This sounds way to easy. All you have to do is increase the money supply, everybody demands and buys more and the economy keeps growing forever. If so, maybe a $4 trillion increase isn’t enough. Why not make it $10 trillion or $100 trillion? The sky is the limit.

This sounds like the modern version of Says Law which was discredited during the Great Depression. “If you make it, it will be purchased and will sustain the economy.” Not so if you make the wrong stuff.

as long as the private sector can increase productive output to meet demand.

Here is the key assumption to you economic theory. If that doesn’t happen, then your system will lead to disaster if it is not kept in check. Goods and resources are not infinite. The mere creation of with computer entries does not change that. If it did, Zimbabwe, Venezuela and the Banana republics run by dictators would be the leading nations of the world. They are not. They the basket cases that depend upon the nations who have reasonably responsible monetary policies.

Absolutely true.

So what do I base my assumption?

Let’s look at productive output vs productive capacity.

As you can see the nations productive capacity is declining over time, which tells me that more money can find productive uses without running out of resources.

Now, I’d agree that this chart is extremely high level, but also too remember that this chart only plots existing productive capacity against what is currently being used. There is nothing that would prevent the nation from creating more productivity unless you think you know that there will be a shortage of energy, or some key resource that will happen over a long period.

When prices rise because supply is constrained, that is where capital and investment opportunities exist. In the 1970’s those resources (capital) were constrained and the result was an inability for the market to meet higher levels of demand.

I don’t think we have that constraint at the government or in the private sector at the investor level.

Lastly, onsider the trade deficit in the 1970’s:

This means that increases in money creation and spending will be supplied, not just domestically, but globally more today than it was in the 1970s. If there are shortages and prices rise, other nations have to compete the the enormous buying power of the US when obtaining goods on the global market.

If you are China, Vietnam, Philippines, Cambodia and other nations that export to a number of different nations, if the US causes supply shocks and prices increase, more nations are going to look to sell their goods to the US if other nations are unable to compete at the increased price.

Needless to say, inflation is much, much more complicated than simply saying increasing spending will, as a rule, result in increasing inflation. The charts I posted lend evidence to that.

Despite the claims to the contrary, neither is demand. The thing that people don’t consider when making this statement is that goods can be divided into needs and wants.

People will go to much greater extremes to acquire needs, food, shelter etc than they will wants, like a trip to Disney, or a cruise.

They say every nation is just nine meals from a revolution, but as we see today, you can close everything but “essentials”, and people get on without much fuss. It is needs that drive inflation, not wants. There is no reason to believe that we’re in any danger of running out of things we need at least for the foreseeable future.

The point is, wants aren’t infinite, if they were, no one would save tens and hundreds of millions or billions of dollars, they would use their money to acquire unlimited wants.

The reality is, once a person gets to multi-billion dollar level, the “want” simply becomes about obtaining power, not driving demand though the purchase of real goods.

So we don’t need infinite resources, we just need enough. I don’t think there is any doubt that technology will continue to advance, and while things could radically change (certainly you are old enough to remember when toys were made of metal and wood, not plastic) life will go on.

The single biggest threat in terms of supply, IMO, is energy. The population of the planet is going to top out given current birth/ death rates, which are still declining BTW, at about 11 billion. The human race won’t grow infinitely and neither will the need/ want for goods and services. That said, we have fusion/ cold fusion always a possibility on the horizon. Solar, wind and other renewables, while unlikely to power the planet any time soon, can and should be part of a portfolio of energy sources. And let’s not forget nuclear. We could use nuclear exclusively if we had the political will to do so. If energy levels get critical, nuclear will be seen by future generations as a viable option.

But you just explained why it didn’t work in those nations.

That is why Zimbabwe, Weimar, Hungry, Austria, Argentina, Brazil and the list goes on and on…>This is why these nations fall into the inflation trap because they didn’t have a private sector (or a global economy) willing and capable of creating real output to meet demand.

Ensuring that money creation does not cause real long term supply constraints is the real problem, not the creation of money alone.

BTW, for what it’s worth, IMO, Trump has been the wrong president in this crisis, but, he might be the President we need coming out of this crisis.

I have said, a few times, that Trump is a master of public manipulation, while he often uses that “power” for his own ends, he has had an effect on people’s behavior and expectations which I think we’re going to need coming out of this situation.

I can only hope he’ll use it effectively and admit that while he isn’t the president I want, he may, in the short term be the President we need (I just threw up in my mouth)…

But, I don’t have faith that he will use his power in the interest of the nation, I hope he proves me wrong…