{"id":6439,"date":"2020-04-28T09:35:12","date_gmt":"2020-04-28T14:35:12","guid":{"rendered":"https:\/\/rixtrema.com\/blog\/?p=6439"},"modified":"2020-04-29T12:39:18","modified_gmt":"2020-04-29T17:39:18","slug":"what-happens-when-money-falls-from-the-sky","status":"publish","type":"post","link":"https:\/\/rixtrema.com\/blog\/what-happens-when-money-falls-from-the-sky\/","title":{"rendered":"What Happens When Money Falls From The Sky?"},"content":{"rendered":"\n\n\n<ol class=\"wp-block-list\"><li><a href=\"#1\">The CARES ACT is not TARP<\/a><\/li><li><a href=\"#2\">CARES will help with the restart in a few ways<\/a><\/li><li><a href=\"#3\">Americans are getting $1200 this month but what about inflation?<\/a><\/li><li><a href=\"#4\">Short-run Economic Effects of the CARES ACT<\/a><\/li><li><a href=\"#5\">So&#8230;modest to say the least.&nbsp;<\/a><\/li><li><a href=\"#6\">Hold onto your seats, folks.&nbsp;<\/a><\/li><\/ol>\n\n\n\n<div style=\"height:20px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">It is about this time that my family and friends come to me and ask me to put my Economics degree to proper use. I am an expert snake-oil salesman taught by the best snake-oil salesmen, but sometimes a little snake-oil can help the medicine go down.&nbsp;<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Since <\/span><a href=\"https:\/\/rixtrema.com\/blog\/the-cares-act-and-what-it-means-for-plan-participants\/\"><span style=\"font-weight: 400;\">Alexandr reviewed the CARES ACT<\/span><\/a><span style=\"font-weight: 400;\"> at the beginning of April and what it means for plan participants, we are seeing the full picture around the effect of the $2.3 trillion coronavirus legislation.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"1\"><strong>The CARES ACT is not TARP<\/strong><\/h2>\n\n\n\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Don&#8217;t fall into the trap of thinking the CARES Act is similar to TARP or the 2 other Fiscal relief policies during the Great Recession. The CARES Act is equal to the total cost of those three past laws but will affect the economy much differently.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"2\"><strong>CARES will help with the restart in a few ways<\/strong><\/h2>\n\n\n\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Forgiving loans to small businesses if they are used to maintain payroll.&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Stock options and other equity instruments are being used to help corporations instead of traditional loans.&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Many regulations dealing with student aid should make it easier for students to endure the crisis and resume studies.&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"3\"><strong>Americans are getting $1200 this month but what about inflation?<\/strong><\/h2>\n\n\n\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Yes, what about inflation, indeed? For years the Fed used a 2% price level increase as its annual benchmark, but that has never been a true goalpost. Suddenly it&#8217;s on many minds but it is still not a short-term concern.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">At this point, that does not seem to be the concern of lawmakers who, in fact, wanted to put taxpayer money back into the hands of the American taxpayer without creating a \u201c<\/span><a href=\"https:\/\/townhall.com\/columnists\/haydendublois\/2020\/04\/14\/cares-act-makes-it-more-lucrative-not-to-workcongress-must-fix-that-n2566910\"><span style=\"font-weight: 400;\">disincentive to work<\/span><\/a><span style=\"font-weight: 400;\">\u201d.<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Sure, inflation is caused by more money in circulation chasing after a fixed amount of goods and services. But, where are we to spend our measly $1200? Beyond food and consumer staples, demand is not going after much else and the closing of restaurants is causing food supplies to turn rancid. So, in this shutdown most non-essential businesses are shut-down and you can bet that people hoard cash more fiercely than toilet paper.&nbsp;<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Expectations are also a driver to inflation (Fischer equation, anyone?). If people expect prices to rise in the future, then they will try and buy goods now. Yet, I don&#8217;t think there are many consumers who are bullish about the economy picking up speed anytime soon and there are more and more reasons to stay realistic.&nbsp;<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">The COVID-19 government allowance is less than 1 month of minimum-wage earnings ($7.25\/hr). In 2008, people mostly saved their payments to brace against the worst of the crisis. This time, though, households are more leveraged with auto, credit card, mortgage, and student loan debt that saving the measly $1200 will be a luxury. In some instances, the debt is so overdue that <\/span><a href=\"https:\/\/www.washingtonpost.com\/business\/2020\/04\/20\/amid-bipartisan-criticism-treasury-department-attorneys-review-bank-seizures-1200-stimulus-checks\/\"><span style=\"font-weight: 400;\">banks seize<\/span><\/a><span style=\"font-weight: 400;\"> allowance before families can spend the money on necessities.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"4\"><strong>Short-run Economic Effects of the CARES ACT<\/strong><\/h2>\n\n\n\n<p><span style=\"font-weight: 400;\">(<\/span><a href=\"https:\/\/budgetmodel.wharton.upenn.edu\/issues\/2020\/4\/8\/short-run-effects-of-the-cares-act\"><span style=\"font-weight: 400;\">From the Penn Wharton Budget Model<\/span><\/a><span style=\"font-weight: 400;\">)<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Without the CARES Act, US GDP would have fallen at an annualized rate of 37% in 2020 Q2, with the unemployment rate reaching 12% by 2020 Q3.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The CARES ACT will dampen the GDP decline to 30% in 2020 Q2 and the unemployment rate will reach 11% by 2020 Q3.&nbsp;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Produce around 1.5 million jobs by 2020 Q3 and increase GDP by $812 billion over the next two years.&nbsp;<\/span><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"5\"><strong>So&#8230;modest to say the least.&nbsp;<\/strong><\/h2>\n\n\n\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">With another 4.3 million workers filing for unemployment last week (bringing the total to 26.3 million since late March), I don\u2019t know that anyone will herald 1.5 million jobs by Q3. Much of the CARES Act is dedicated to rescinding more business tax restrictions that <\/span><a href=\"https:\/\/www.taxpolicycenter.org\/taxvox\/who-benefits-cares-act-tax-cuts\"><span style=\"font-weight: 400;\">will benefit high-income households with more than $1 million in income<\/span><\/a><span style=\"font-weight: 400;\">. Those households are far less likely to spend new income and will generate little boost.&nbsp;<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Yet, the Penn Wharton estimates also show a dismal figure: the multiplier output effect i.e. how much residual economic output will be produced by the CARES Act. The greatest effect comes from transfers of cash into low-income and unemployed households (0.4 &#8211; 2.1) while, not surprisingly, cutting high-income taxes is the least. The fact that even the highest multiplier estimates are so low may indicate that the benefit of more cash and liquidity will be minimal and slow (a trap I\u2019ll show more of in the next post).&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"6\"><strong>Hold onto your seats, folks.&nbsp;<\/strong><\/h2>\n\n\n\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">The 2007-2008 recession was largely caused by a sudden decrease in economic consumption &#8211; i.e. the demand side of the economy. Restoring the economy back to its full roaring potential required renewed confidence and cheap borrowing to spur investment and consumption.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Shaking off the risk aversion from the lockdown will be difficult, but what about a second or third?\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><span style=\"font-weight: 400;\">Crises do offer a fresh perspective on old ways of thinking. Adopting some new habits, as I wrote in <\/span><a href=\"https:\/\/rixtrema.com\/blog\/4-habits-to-forget-fear-and-seize-growth-from-the-jaws-of-this-crisis\/\"><span style=\"font-weight: 400;\">this article<\/span><\/a><span style=\"font-weight: 400;\">, may help you stay positive and resist fearful negativity.\u00a0\u00a0<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><a href=\"https:\/\/rixtrema.net\/pctlanding\/index?source=Colin-28-04\" target=\"_blank\" rel=\"noopener noreferrer\"><img loading=\"lazy\" decoding=\"async\" width=\"800\" height=\"418\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2019\/01\/PCT-1.png\" alt=\"\" class=\"wp-image-2551\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2019\/01\/PCT-1.png 800w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2019\/01\/PCT-1-300x157.png 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2019\/01\/PCT-1-768x401.png 768w\" sizes=\"auto, (max-width: 800px) 100vw, 800px\" \/><\/a><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>The CARES ACT is not TARP CARES will help with the restart in a few ways Americans are getting $1200 this month but what about inflation? Short-run Economic Effects of the CARES ACT So&#8230;modest to say the least.&nbsp; Hold onto your seats, folks.&nbsp; It is about this time that my family and friends come to&#8230; <\/p>\n<div class=\"clear\"><\/div>\n<p><a href=\"https:\/\/rixtrema.com\/blog\/what-happens-when-money-falls-from-the-sky\/\" class=\"excerpt-read-more newsstand-button\">Read More<\/a><\/p>\n","protected":false},"author":9,"featured_media":6445,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[239,192],"tags":[308,130,95],"class_list":["post-6439","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing","category-risk-management","tag-coronavirus","tag-financial-markets","tag-investing"],"jetpack_featured_media_url":"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/04\/trump-min.png","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v15.9.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Happens When Money Falls From The Sky?<\/title>\n<meta name=\"description\" content=\"Americans are receiving stimulus checks this month, but what are some expected impacts of the CARES Act?\" \/>\n<link rel=\"canonical\" href=\"https:\/\/rixtrema.com\/blog\/what-happens-when-money-falls-from-the-sky\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Happens When Money Falls From The Sky?\" \/>\n<meta property=\"og:description\" content=\"Americans are receiving stimulus checks this month, but what are some expected impacts of the CARES Act?\" \/>\n<meta property=\"og:url\" content=\"https:\/\/rixtrema.com\/blog\/what-happens-when-money-falls-from-the-sky\/\" \/>\n<meta property=\"og:site_name\" content=\"RiXtrema.com\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/LarkspurRiXtrema\/\" \/>\n<meta property=\"article:published_time\" content=\"2020-04-28T14:35:12+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-04-29T17:39:18+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/04\/trump-min.png\" \/>\n\t<meta property=\"og:image:width\" content=\"600\" \/>\n\t<meta property=\"og:image:height\" content=\"400\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@RiXtrema\" \/>\n<meta name=\"twitter:site\" content=\"@RiXtrema\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\">\n\t<meta name=\"twitter:data1\" content=\"4 minutes\">\n<!-- \/ Yoast SEO Premium plugin. -->","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts\/6439","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/comments?post=6439"}],"version-history":[{"count":5,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts\/6439\/revisions"}],"predecessor-version":[{"id":6455,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/posts\/6439\/revisions\/6455"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/media\/6445"}],"wp:attachment":[{"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/media?parent=6439"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/categories?post=6439"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/rixtrema.com\/blog\/wp-json\/wp\/v2\/tags?post=6439"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}