One couple I know has already received their $1,200 per adult stimulus payment from the federal government.
Over the next month or two, or maybe longer, the rest of us who qualify should receive these infusions of money, too.
It is common to hear folks musing, “When will the $1,200 arrive?” But a question with deeper ramifications is, “Where does the money come from?”
The quick answer is that Uncle Sam borrows the money, putting the nation deeper into debt. The government does not just print additional money willy-nilly, whether by operating the presses at the United States Mint or by adding funds electronically into bank accounts. The money’s underlying value has to come from somewhere.
Otherwise, adding money to the nation’s supply without regard to consequence is dangerous; it would make each dollar of the nation’s money supply less valuable. Adding to the money supply is also known as diluting or weakening the dollar.
A weakened dollar would lead to more-expensive imports, a higher cost of living, and a demand for higher wages which, if granted, would lead to increased prices on domestic goods and a fresh inflationary spiral. It goes hand in hand with rock-bottom interest rates.
A weakened dollar encourages spending and discourages saving; which, I admit, is the goal of many of our leaders. But I prefer it when the Federal Reserve and the banks charge higher interest rates, thereby encouraging saving and discouraging borrowing.
The more interest your money earns, the more you are likely to sock it away. To me, that is how it should be. It should cost you more to borrow something of value (a strong dollar) than to borrow something of lesser value (a diluted dollar). When taken to extremes, this excess money supply creates frightening scenarios. Such as runaway inflation, as has been hurting Venezuela of late (in 2017 it defaulted on its debt payments).
I remember back in 1981 when Argentina was smothered by a depreciating peso and a painful cycle of triple-digit inflation. People would not put their money into banks; they would not put money under their mattresses; every peso earned was immediately spent – before its value could plummet further.
Early in 1922, it took 162 German marks (the country’s currency back then) to get one U.S. dollar; but so many marks were printed that on November 20, 1923, it took 4.2 trillion (yes, with a “T”) marks to fetch a dollar. People would throw together suitcases full of money just to buy a loaf of bread at the bakery.
So, where does the anticipated $1,200 stimulus gift come from? Our government borrows it. How? By issuing bonds. Individuals, corporations, even foreign nations, purchase these bonds, which come with a guaranteed rate of return. Our government borrows the money from whomever purchases those bonds, creating a future liability.
Over the years, as the bonds get redeemed, our government will pay back the face value of the bonds plus the accrued interest. But where does the government get the money to do that? From the U.S. taxpayers. We will end up paying later for what we are getting now.
Except maybe it is not really us who will do the paying. It could be our descendants. We saddle them with more and more debt, just like the previous generations have saddled us with government debt.
Each year, more and more of the federal government’s budget is spent on financing its debt. For each dollar spent on debt financing, that’s one dollar less for other purposes it could have been spent on. Extra funding for schools? Rebuilding bridges and highways? Scientific research? The military? The health care system? Social Security? Medicare? Public television? Toxic-waste cleanup? Expanded rail service? It doesn’t matter what your political leanings; the entities you would rather see get money down the road won’t get as much, because some of that money will be diverted into servicing the debt that the government is taking on right now.
Just so it can send $1,200 to the majority of us.
Perhaps emergency conditions make it necessary for the federal government to take on more debt to help the taxpayers right now. Perhaps it isn’t necessary. I don’t pretend to know.
As for whether the $1,200 payments prove to be prudent and wise, versus a kind-hearted fiscal mistake, only time will tell.
If you have consumerism questions, send them to Arthur Vidro in the care of this newspaper, which publishes his column every weekend.