Never underestimate how direct injections of stimulus to the end user can ignite inflationary pressures. If these direct fiscal injections are not dished out judiciously, they can help to cause a loss of confidence in both the monetary system and governing authorities.
While deficit spending prior to covid was primarily directed in a fashion that helped to mitigate the adverse ramifications of such monetary and fiscal largesse, social spending subsequent to covid has not followed this route and has lost most of this restraint; it seems to be geared in a way that is antithetical to keeping price inflation subdued.
Unfortunately, for those who depend on a wage or do not possess income-generating assets, we observed how the covid stimulus and its subsequent social largess caused general price inflation and raised asset prices. When social spending is not effectively sterilized and is handed out directly to the end user, the results can by catastrophic, at least for those below the 90th percentile of balance sheet wealth.
Since March 2020, much of the fiscal deficit spending was given directly to the recipients to spend in any way they deemed fit. The rest, as we say, is history.
Another $426 billion in direct money injections raises prices for all and degrades life for the bottom 90%
Despite the harsh lessons of the covid deficit stimulus, the Biden regime has continued to hand out money directly to the end user in a way that will only raise general price inflation for all. While those whose student loan debt was reduced will receive a direct benefit, their total benefit will be reduced by the amount of inflation these debt forgiveness programs cause. Those who do not receive any debt forgiveness will ultimately be left with shouldering most of the resulting economic burden via the price inflationary distortions that are caused by the resulting demand pull inflation from the debt forgiveness programs.
The deficit CBO estimates for 2022 is $341 billion larger than the shortfall estimated in its most recent baseline projections, which were issued in May 2022. Outlays and receipts alike are now estimated to be greater than CBO anticipated in May—outlays by $401 billion (or 7 percent) and receipts by $60 billion (or 1 percent).
The increase in outlays primarily stems from $426 billion in costs estimated and recorded by the Administration in September 2022 to reflect the long-term costs of certain forms of student debt relief, including forgiving portions of federal student loans for many borrowers. (Other federal spending, on net, was less than CBO projected in May.) The largest policy change—student debt forgiveness—was announced in August. In accordance with the Federal Credit Reform Act, the full multiyear costs of those actions are recorded up front on a present-value basis.
The only people who can remain ahead of these inflationary trends are those who own the income-generating assets
Good luck waiting for inflation to come down; the government and central banks seems to be doing whatever it takes to keep price growth elevated. With QE reversing, the disconnect between the Fed and US government is only confusing the markets.
So, if you are worried about a collapse, don’t. Debt forgiveness may be bad for those who don’t own the assets, but it is good for the markets and for those who own the assets. So, what about those who don’t own the assets? They don’t matter anyway. Just remember to let them know that Tuesday is Soylent Green day.