GeneralWhat do Joe Biden's $1,400 checks mean for Americans

What do Joe Biden’s $1,400 checks mean for Americans


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President Joe Biden has hit the ground running in his first few weeks in office: signing multiple executive orders which reversed many of the Trump-era policies, outlining a corona virus recovery plan and the most pressing one that this stage: trying to make good on his campaign promise for a stimulus package worth $1.9 trillion.

The Facts

During his presidential run, one of Joe Biden’s main promises to the American people was the delivery of a stimulus package to help struggling families.

Biden is looking to send a check worth $1400 to each deserving person. The COVID-19 relief proposal, totalling $1.9 trillion has been a serious point of contention in Washington since Biden took his oath of office.

The Democrats and Republications are yet to reach a consensus on the exact amount of the stimulus – including what each individual would receive – and the qualifying prerequisite for receiving aid. It looks likely that given the Democrats’ majority in both houses, Biden’s proposal will be approved without Republican votes.

In a recent press conference President Biden reiterated his commitment to making good on his campaign promise:

I’m not cutting the size of the checks, they will be $1,400, period. That’s what the American people were promised.

President Joe Biden speaking on the COVID-19 relief proposal

It is no surprise that COVID-19 rocked the world’s economy, with businesses forced to shut down due back in March of 2020.

With millions of Americans out of work and struggling to survive during this pandemic, the economy took a hit. While the world tries to slowly re-open and put more people back to work, it is a remains a very slow process. Therefore, Americans need more relief than what is currently proposed.

While some of the proposals the Republican lawmakers made have merit – the current debate is not clear cut. The GOP senators propose giving money to individuals who make less than $40,000 and couples who make less than $100,000.

Yes, individuals who make less than $40,000 should be the priority, after all they were hardest hit by the economic downfall. However, individuals making $50,000 in California could equally be struggling based on the cost of living alone.

The point is, every American’s circumstances are different. There need to be more variables factored into the American income than what is on their paystub (payslip).

A check of $1,400 doesn’t go far when rent or mortgages take half or most of that check for the average American. Plus, utilities, food, and other monthly payments will take the other half if not exceed it, depending on the particular city.

Only issuing $1,400 and doing nothing more is just as foolish as giving Americans $1,200 here and $600 there, as has previously been the case, hoping it would be enough to see them through this recession.

The people who really need the money are the families below the poverty threshold. The American government can and should do more. Americans need relief and should receive it. The government needs to make good on the promises it made to the Americans that elected them into office.

Government exists to coordinate response in unprecedented situations, like when you can’t mandate people stay home without providing adequately. Stimulus temporarily fills that need to prevent structural collapse by accelerating economic activity so the system sustains itself without stalling again. A protracted pandemic is different.

Ongoing stimulus can be inflationary if the extra money is chasing fewer goods and services – all that stuff not produced because of “social distancing”, and supply chain bottlenecks from closed borders.

That $6 Trillion isn’t just sat there, the US government sells IOUs to investors, even themselves, under a perpetual deficit – exporting their inflation to developing nations via the US dollar indirectly controlling world markets.

PV = nRT

Where P=prices, V=volume of goods and services, n=”money supply”, T=”velocity of money”.

We are increasing “n” with stimulus and decreasing “V” because stuff is not getting produced at the same levels during COVID-19 “social distancing” as pre-COVID-19. And after this passes “T” will want to be basically as it is now as all that pent up demand hits the economy – “P” has no mathematical alternative but to increase.

When we say inflation is unprecedented, we only need return to the 1970s Stagflation era.

The 2009 Cares Act stimulus didn’t create the “hoped for” inflation because “T” was too low. It was parked in stock buybacks, debt repayment, improving balance sheets – it wasn’t loaned out so the fall in “T” offset the rise in “N”.

Add in the $15 minimum wage, which is currently being mooted and it likely won’t help the numbers on payroll, but will mean the costs are passed on in higher prices.

In fact, mass layoffs and furloughs are deflationary. The US didn’t do enough during the Great Recession to stop 750,000 workers a month losing their employment. Instead, it extended unemployment benefits hoping the economic recovery would result in employers rehiring all those who lost their jobs. The widespread business failures meant the jobs no longer existed as the recovery began.

This time around, Democrats insisted on payroll grants, so employers maintain jobs, and business can ramp up later to provide the goods and services the public will need. This bottom-up approach avoided cascades of misery accompanying large-scale unemployment. Maybe the first package helped short-term. But more injections, and long-term lockdowns, remove the urgency to return to work. More stimulus before the economy reopens is like throwing money into a black hole.

Riding out the disruption was viable for a few months – not for 18 months, possibly longer. US debt per taxpayer was $170,000 before this latest $2T. Either higher taxes, covert taxation via inflation to reduce the dollar’s purchasing power, more debt, or significantly higher output will right the ship.

Delivering the direct payments in snippets would have enabled bills to be paid. But one-off, uncertain delivery of payments are political manoeuvring, to “buy votes”.

The stimulus should have gone exclusively to those earning below $25,000 a year, because they will likely spend it straight away, and stimulate the businesses to maintain operations. Those earning more than $25,000 will likely invest or save or pay down debts. Prepaid gift cards would have done the trick.

Those sectors hardest hit – entertainment, cuisine, etc. – crippled by forced mandate should receive help. Other sectors fared somewhat better. But with 40% of Americans not having $400 in savings for an emergency; locking down indefinitely for a virus with a 0.01% fatality rate for those in their 20s, and 0.4% for 50 year olds is the more dangerous course.

Richard Bolton
Richard Bolton
Richard Bolton was born in the UK and is a Manchester University PPE graduate. He is a financial planner. Areas of intrigue include global political affairs, culture and nascent technologies. In his spare time, Richard is a keen sportsman and investor.

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