Your Stimulus Check Is Creating Wealth Inequality
Stimulus checks make me annoyed.
In Australia, we say, “Give me my stimmy.”
I’m getting stimulus. You know the ridiculous part? I make more than six-figures, have zero debt, and don’t need stimulus. Yet, I get the highest amount of free money. It’s ludicrous.
This is why I’m using my stimulus to buy everyday supplies for people who have nothing. Not because I’m Mother Teresa, but as a quiet protest against getting some stimmy. I won’t be donating through a charity either because they siphon off most of the money to pay for supplies (cappuccinos). I’m going to be giving my stimulus directly to the people who need it.
“No such thing as a free lunch” is the catchphrase that best applies to stimulus.
Stimulus means free money.
Stimulus money comes from somewhere (most people don’t know).
This is where the stimulus money comes from:
Governments create stimulus money out of thin air. The Chair of the US Federal Reserve, Jerome Powell explains it nicely to 60 Minutes.
“Yes, we did. We printed [money] digitally. As a central bank we have the ability to create money digitally … We also print actual currency and we distribute that through the Federal Reserve bank.”
The Federal Reserve log on to a computer and create money digitally. They then hand it out to people, businesses, and government. There is no secret or conspiracy. Free money literally gets created out of nowhere.
You can’t simply hand out trillions in stimulus and expect nothing to happen.
This is what we’re expected to believe. The latest $1.9 Trillion gets handed out and nothing bad happens. In the last 12 months, the US has created $6+ trillion out of nowhere. This is far larger than the 2008 recession.
If this concept of money creation is so simple and effective, then we’d just digitally create our money rather than work for it. An economy could digitally create money, pay people, and produce nothing. It’s a silly idea when you zoom out.
I know what you’re thinking. But the people who need help are getting the money. Not really. Most of the stimulus money is going to support the government, not individuals.
On the one hand, people who need help get free money. On the other hand, people who have money have their purchasing power decreased.
Traditionally, the problem with stimulus is people in power get to choose who gets money and who doesn’t. In 2008, the banks got a big, fat bailout. Picking winners and losers isn’t a free market.
We need free markets.
Bear markets are non-existent now. As soon as stocks or the economy look to be tanking, governments around the world step in to stimulate. It’s madness. Bad businesses need to fail instead of zombie companies being kept alive. Innovation can’t thrive when money is handed out.
Bad businesses are supposed to fail, not be bailed out.
“Don’t bet against the Fed” is the catchphrase right now. It simply means if stocks go down the Fed will step in. So bet your money wildly in the stock market. Unless, of course, at some point, the Fed decides not to step in, or the problem is so big that not even trillions of dollars can fix the market.
Free markets have more risk, not less risk, with stimulus.
Stimulus comes with huge downsides
Stimulus eventually causes inflation. This simply means one of two things happens: (1) Everyday consumer goods you buy go up in price. (2) The prices of assets such as stocks, real estate, gold, and bitcoin go up.
You’re taught to believe inflation is tiny. Or that inflation is 2% per year. Not really. Less conventional ways to measure inflation show the number is more like 8.1% to 12.9% in the top 10 US cities. The price of assets has gone up enormously over the last year because of all the stimulus.
Asset prices going up leads to wealth inequality. Here’s how:
- The richest hold most of the investible assets. They are likely to spend less on everyday items that get smashed by inflation.
- The poorest hold the least amount of investable assets. At best they have a little bit of savings that is getting hit hard by inflation. The poorest have a much greater chance of buying everyday items that have price rises due to all the free stimulus money floating around.
When there is more money being created out of thin air, there is more money that eventually needs to find a home. Where does money magically disappear to? Investable assets. If I gave you $1 million of free money, you’d probably buy real estate or stocks with most of it. It’s simple logic. So, asset prices go up with all the stimulus money sloshing around.
The poorest give up their money to live. The rich take money from the poor and put it into investable assets to protect them from inflation caused by stimulus.
Bitcoin will go up.
$1200 checks flow into markets. Why? Not everybody who gets stimulus needs it. People are smart. The last round of stimulus checks showed a rise in $1200 deposits on large bitcoin exchanges such as Coinbase. Stocks will go up too. Diehard fans of Tesla will buy their $1200 slice of electric car heaven.
It’s natural. When you have money, you want it to grow, so you put it into assets. Bitcoin is a smart asset and will attract lots of stimulus money like it did last time.
The value of the US Dollar is going down fast.
People love data. This is the value of the US dollar. It’s dropping value faster than a hot potato. This isn’t an accident. It’s thanks to all the money being created out of thin air to fund stimulus, bailouts, and wars.
The total stimulus in the US alone over the last twelve months is more than $6 Trillion. A trillion is a lot of money. A billion in stimulus used to be massive. Now trillion-dollar helicopters dropping stimulus checks on the people, and images of money falling from the sky, aren’t uncommon.
When money can be created out of nowhere with no immediate consequence, you’re going to hit the panic button a lot. It’s natural human instinct, not an evil plot by any one group or person.
When does the stimulus end?
If stimulus is short-term then it may not be so bad. It’s not. Stimulus has been out of control since 2008. After the latest $1.9 trillion stimulus, CNBC reported Senate Majority Leader Chuck Schumer “did not rule out another pandemic relief bill if economic conditions show areas of need.”
We could have many more stimulus packages. Stimulus could become an every year thing rather than a once-off tool to be used during a crisis such as a pandemic. Stimulus money is addictive. Of course free money is addictive.
Who wouldn’t use access to free money to try and fix genuine problems humanity faces? The intent is good. The solution of stimulus is bad.
Solutions to the stimulus problem:
It’s time to cast the optimism lens over this problem.
1. Understand stimulus money is bad.
Stimulus is bad. When you hear stimulus from now on think of it as free money created out of thin air. Think about how random people with power have the privilege of deciding who gets free money and who doesn’t.
2. Educate yourself.
Understand the basics of financial markets. Learn about the real inflation rate and investable assets the rich buy to protect themselves.
3. Downsize or downgrade.
If you don’t have lots of spare money floating around then it’s time to think about reducing debt and living with less. Stimulus isn’t going to save you financially. It’s barely going to have any impact.
4. Learn skills that can help you make money.
Stimulus handouts aren’t the answer, which may sound harsh. You have skills. You can learn more skills. This is how you exit the rat race. Find ways to make extra money while simultaneously spending less and paying off any debt.
A skill you can charge money for is how you generate long-term prosperity for yourself and your country.
5. Help those who need it if you’re in a position to.
Survival of the fittest culture is terrible.
If you’re doing well in this stimulus madness then help those who aren’t. The rich getting richer and the poor getting poorer affects all of us.
If your pockets are overflowing with money, but your neighbor has nothing and is about to lose their home, then that affects you. The community has to do well for you to feel good about the present. You doing well and watching everything burn around you isn’t a good feeling.
Governments playing god with money they created out of thin air is ineffective.
You might be happy you’re getting a stimulus check. Don’t be. You are paying for your stimulus check with your purchasing power and at the expense of your country’s future prosperity. The rich get richer and the poor get poorer every time there is stimulus.
The answer to our problems isn’t free money — it never has been.
The answer to society’s problems is found in creating a better future, and doing the hard work to solve the actual problems causing the stimulus band-aid to be needed every time something goes wrong.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.