Why You Shouldn't Spend Your Stimulus Check

I'll explain two reasons why you should not spend your economic stimulus check: the first applies to people who work regular jobs for wages, the second applies to people who work in investment banks for bonuses.

If you work for wages (or live on a pension), consider this, if every American said, "No thank you" to Bush's stimulus check and refused to cash them, the value of the dollars in your pocket right now, in terms of their purchasing power would go up by a factor greater than the face value ($600) of the stimulus check. In other words, if you didn't spend these checks, you'd be the richer for it.

The reason being that America does not have a hard-money economy, it's a debt-based fiat currency economy. All the money in circulation in America has been borrowed and then re-lent. So borrowing more money ($168 billion for the stimulus package) and then re-lending it to Americans, as Bush is doing, only increases the debt load and debases the value of the currency outstanding (against a backdrop of stagnant wages and minuscule interest rates for savers).

If an American was planning to spend $40K this year on food, clothing, shelter, health and various other expenses and they were hoping to defray some of that cost thanks to Bush's stimulus check understand that by simply adding another $168 billion of debt (the cost of the stimulus package) on top of America's current multi-trillion debt load will continue the Bush-Paulson-Benanke trend of debasing the purchasing power of your money and, therefore, raise the price of goods and services by more than the $600 'gift' (without a commensurate rise in wages or increase in interest paid on savings).

This is why America's debt problems won't go away. Every dollar spent adds debt and spawns more fiat currency issuance which has the effect of decreasing the purchasing power of the U.S. dollars in your pocket. Bush tries to make up the difference by borrowing even more; borrowing 340 million a day to fund the war and close to 3 billion a day to cover U.S. operating expenses, not to mention Wall Street borrowing over $30 billion a day to keep their Ponzi scheme going. All this borrowing keeps alive the vicious financial spiral trending lower towards permanent currency debasement and possible sovereignty loss.

Now, if you work in investment banking, the opposite is true. Bigger money supply growth means bigger fees and bonuses. You may lose more than $600 in purchasing power with that $600 stimulus check, but the fees and bonuses you make processing all that debt (read: dollars) is greater still. In other words, the more the government increases the debt load (money supply), the more you make -- even discounting for the lost purchasing power caused by the inflationary impact of higher money supply growth.

But listen bankers, resist the temptation to spend your stimulus check even though by doing so you are increasing America's indebtedness and, therefore, your fees and bonuses.

In a year or so, after 99.999% of America has cashed their stimulus check, any checks that have not been cashed will accrue value as collector's items.

As such, the value of these checks as un-cashed mementos of the failed Bush presidency should appreciate at the inflation rate plus a collector's item premium rate for years to come.

As a matter of fact, an enterprising soul might make a pretty penny by setting up a website to buy people's un-cashed stimulus checks at the face value plus a small premium. Five to six years from now, you might be able to re-auction and sell these un -cashed checks on eBay for double or triple the price you paid to Asian and European collectors buying these up like visitors to the Berlin Wall who buy chunks of concrete left over after the collapse of East Berlin.

UPDATE: August, 5th. Since writing this in April, the stimulus checks have gone out and circulated in the economy so the question is, did they in fact cause a greater net reduction in purchasing power? Would have Americans been better of not cashing these checks?

The answer, according to this DJ-Marketwatch piece is, 'Yes.'

Higher inflation trumps tax rebates

And from the NYT;

"This is a kind of 'Honey, inflation ate my rebate check' story,"

Inflation Takes Steam Out of Rise in Spending

Follow Max Keiser on Twitter: www.twitter.com/maxkeiser

Comments

[obamagramma]

I'm going to give my stimulus checks to the mortage & credit card companies that have been gouging America. This stimulus package is going straight to big stinking business.

[obamagramma]

Don't spend the stimulus check? If you have a choice not to spend it you shouldn't be receiving it.

[obamagramma]

My stimulus check is spent! I'm going to use it to pay down debt.

[Stevelagain]

You don't want us to spend the check the democratic congress is sending us? I thought the democrats wanted to stimulate the economy, it's not true? Why haven't the democrats fixed things yet? I'm confused, congress passes the bills, not the president. Did last years democratic congress fail us? Is this years democratic congress failing us? Hmmm?

My wife and I both work, both save 15% of our income into matching 401K plans and have company retirement on top of that. We shall own our home in less than 6 years. We owe nothing on our single credit card, we keep it paid off. Our money by the magic of mutual funds and ETFs is invested around the globe.

I think we can afford to spend our check on a few things. Like the blender my wife picked up today that is also a nice food processor. Our old blender was missing the top and her food processor was small and not user friendly, she bakes a lot and she needed the new equipment. And it time to replace that bench we have out in the Garden with a new, metal one that wont rot like the old wooden one. I've ordered a new vent for the kitchen stove, the old one rotted where it exits the house. And we put a runner down our newly finished stairway in the house. Nice runners are expensive.

[obamagramma]

Well bully for you !

[Reio2288]

AGREED, my check .... should I ever even get it .... will be saved ....Although, it is my intention to patronize a couple of small local owned businesses. I believe that it is time to stop big business. Big business greed is what caused this in th first place. Once we stop playing their game, we will in the long run be better off.

[WorkingClass]

Amen to small local owned businesses. I'm going to start at "Fatboys Bar and Grill". A giant double cheese burger with double cheese and peppers. Onion rings and fried green tomatoes on the side. Wash it down with a pitcher of beer. *burp* skuze me.

[mbaty]

So the bankers will make more money the more debased our currency gets? No wonder the government is doing this.

[JBS]

Has everyone missed that this guy's a Hollywood writer and the post is complete, and utter NONSENSE; satire worthy of Monty Python at their goofiest.

The only thing missing is lumberjacks and the ministry of silly walks.

[boogieandjive]

It's a thought provoking commentary that asks you to sit up and think before you act as a docile receptacle of apparent government largesse. The very same minds that concocted this 'stimulus' program also worship Milton Friedman who said, "there's no such thing as a free lunch."

So, how much are we really paying for this apparently 'free lunch' is a legitimate and important question to ask. And one, I might add, that has not been asked by enough people.

But, if the piece were satire, then it is even cleverer than I thought. And to equate satire with nonsense as you do exposes you as a modern mind brought up on well . . . too much bad Hollywood writing.

[JBS]

Actually, I grew up on GOOD Hollywood writing - Dalton Trumbo, Dashiell Hammett, John Huston, Ring Lardner, Jr ...

And reading the likes of Raymond Chandler, Joseph Heller, Leon Uris, Ernest Hemmingway ... not to mention Heinlein & Asimov

[WIpatriot]

Here's the thing, Max, has the money already been borrowed?

If so, what is the point?

[racom]

Let's add in the fact that this administration spends borrowed money like a coke snorting republican that just won the lottery. So, we do not cash the check and are out the cash feeding frenzy and gwb & company then spend the same borrowed money on parties and payouts for their cronies. The logic escapes me!!!

[I8soothsayer]

Come on guys, give me a break. When I heard that the Gubment was handing our money to all the powe folk in chunks of $600, I did the Amerkan thang and went right out and bought me some o that Wally Mart (WMT) stock and some o that MickeyD (MCD) stock. Please don't rain on my parade by discussing why we should or shouldn't give it back or why we are going to hell in a economic handcart. When opportunity knocks, go answer the door Fool.

[TakeSake]

Where is the money coming from? Who is going to have the obligation to pay it off? The answer: your children, and their children.

To the best that I can, I will deposit the amount in their accounts so they have a little more with which to pay off the debt that W is giving them.

[DR]

I'll be giving the money back to the government by applying the check to next years taxes!

[Samnite]

Excellent option but highly doubtful that ignorant Americans will heed the call. But you failed to note the most important reason while you should resist spending that very much borrowed money. In little more than six months they will have to pay taxes on those checks. While the $600/$1,200 may look good to some the pain in the future of paying the tax bill will counteract any joy they may experience now.

But, what else do you expect from the American public ... buy now pay later! That's what being a patriotic American is all about.

[racom]

I can agree with some of your comment but 'highly doubtful that ignorant Americans will heed the call' doesn't work here. It is not ignorant Americans that are about to authorize another $170 billion for bushs war, it is ignorant politicians. The so-called stimulus plan, yes it sucks, will cost less than the war for one more year. If we had any say in the matter I believe the 'ignorant Americans' would cancel both and save $330 billion.

[NoSillyName]

Sorry, I'll only get a $300 check and I'll use it to survive another month on my small, fixed disability income. (Thats about half of what I usually live on.)

[dadw5boys]

I suggest that anyone who can afford too cash the check and send it to Social Security.

Imagine what that amount of money would do to turn around Social Security!!!!!

[WIpatriot]

They'll just spend it foolishly....

[JBS]

Now, pull the other one ... it's got bells on it.

[nunzia]

You have got to be kidding!
This is America:
land of the instant-gratification idiocracy.

[jsarets]

I'm 25. The debt-money system will surely collapse during my expected lifetime, right? I mean, the whole macroeconomic equation doesn't balance out without an exponentially increasing flow of assets from public to private ownership, and at some point, there won't be any more public assets left to privatize. After global capitalism swallows everything, the debt-money system will collapse because it doesn't work as a closed system.

Then we'll have to face the simple fact that any output value beyond the value of its inputs becomes debt, because there isn't any money in the system to account for this margin. Any profit is unsustainable in the long-run. We can argue about the morality and/or utility of the profit motive, but all it really does is create debt.

More debt will be issued than can ever be paid back, because that's the way the mathematical underpinnings of the debt-money system work out. It's a big giant scam to pressure sovereign authorities to privatize their assets and thereby receive the tangible short-term benefits of this magical debt-money that has no sustainable reality.

[WIpatriot]

It's all true, young man.

[drkazmd65]

Damn,... I wish I had been that smart back in the 1980s when I was 25.

[WIpatriot]

Sadly, I must admit the same, doc.

Old German proverb: "we get too soon old and too late smart."