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,"
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I loved that they sent out announcements about the rebates. So, we got to borrow money to tell us we're going to borrow money. I'm just sending mine right back as my self-employment tax for the quarter. How crazy are we?
Last I checked, Americans are concave. We owe more than we own, especially in dollar denominated assets. By that logic, the less a dollar is worth, the less debt we are in. So spend the stimulus, then ask for more, lots more. How about $5,000 apiece!
hello zimbabwe
Zimbabwe inflation passes 100000%, officials say | World news ...
Zimbabwe facing acute food shortages as inflation rates reach highest in the world.
My neighbor was "bitching" to me last night about the cost of filling up his Hummer with premium gasoline. When I asked him why he is driving this monster truck, his reply... "because I can afford it".
God Bless America!
God Help US!
Let me guess,... your neighbor either didn't vote last time,... or he voted for GW Bush and (if he votes this time) is planning on voting for McCain?
It is difficult to leave a $600.00 check uncashed when your children are hungry and you need gas to get to work. Perceived future benefits don't put food on the table. Economic slaves don't have the luxury of saying "No thanks" when the master in the big house decides to throw them some crumbs.
Truth well spoken.
have we given up on the idea of America? democracy will always be a struggle, if it is a true democracy.
This $ 600.00 will only serve to keep prices higher for a short period and allow businesses to adjust to the lower prices and adjust their financing.
I'm spending my stimulus check on Bourbon. It's a win-win.
I like the way you think.
Another, admittedly obscure way to look at this:
The INTEREST on the national debt for 2006 was about $417 bil or so.
One third of that is due to Mr Bush and the GOP all by their lonesomes- or about $139 bil.
Or about the size of THIS YEAR'S stimulus package
- which does not take into account the INTEREST ONLY next year, or the year after, or the year after, etc.
All this so the rich could get their tax cuts.
Oh, and working class Americans got $300 each.
Can you believe it, our fiscally responsible conservative administrations of ronnie, daddy bush and jr bush, all by themselves, are responsible for 70% of our national debt!!! Don't try to tell me the repuglicans don't do anything. They spend, we pay!
Irony: anyone who can afford not to cash the checks could potentially sell them for far greater than face value. Interesting idea though. Maybe celebrities should donate theirs for a big charity auction.
Dave Barry on the Economic Stimulus Payment
"This year, taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:
"Q. What is an Economic Stimulus Payment?
"A. It is money that the federal government will send to taxpayers.
"Q. Where will the government get this money?
"A. From taxpayers.
"Q. So the government is giving me back my own money?
"A. Only a smidgen.
"Q. What is the purpose of this payment?
"A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.
"Q. But isn't that stimulating the economy of China?
"A. Shut up."
Sorry, had to comment again as this story seems almost sick.
Apparently, US debt collection agencies are outsourcing the work to India, of course . . . which is part of the reason why 'stimulus checks' are needed.
But check this out from this NYTimes piece on these India call centers targeting bad American debtors:
http://www
Quote:
Like many sales teams, Encore’s collectors in India gather for a daily pep talk before their shift. In one recent session, they were schooled on the intricacies of American tax policy.
“One hundred thirty million U.S. families will get a tax rebate this season” as part of the new economic stimulus package, Manu Sharma, the team leader, explained to a roomful of top-earning collection agents, most in their 20s. Those who qualify for the rebates will get as much $600 a person or $1,200 a household, he said, and “the I.R.S. is going to start paying this money in May.”
Start bringing up the rebate during calls, he told them. “This gives you an advantage so you can increase your wallet share,” he went on. “Get them set up on minimum balance arrangements” based around their tax rebates.
End quote. (how do you get html to work on these comments pages here?)
So you think there is a need to send Americans a check to replace the taxes that those jobs would have collected and helped each American over the past years!!!!!!
The fact that they have to stimulate the economy it the problem. You can't stimulate an economy you can only delay what must happen because of economic decisions.
The "Stimulus" charade is anything but.
It may be impossible for ordinary people to act with personal fiscal responsiblity when they are staring "free-money" in the face.
The larger picture of this $160B borrowing on the whole demands serious questioning by the citizenry.
"Hi, I'm from the government and I'm here to help. Here is $600 that some private bankers created out of thin air, and then lent to me, and now YOU have to pay those bankers back some $2,000 in debt service costs. Have a nice day"
Max raised two issues about our money.
One is the "debt-based" nature of our currency. ALL of the monetary supply in this country is created as a debt -again, each and every dollar requiring debt-service-costs from Americans of over three times its issue. Have a nice day.
Max's other issue is the "fiat" nature of our currency, so named because it does not have a physical backing.
I say the real problems are related to the debt-based money system, and not the faith-based currency. We CONTINUOUSLY create debt-service-cost obligations to our taxpayers that we can never repay, and growth in that debt-based money has been out of all proportion to fiscal soundness.
I can be wrong, but I think the only effect of having a metallic-based currency, among these two other conditions, would be to reduce the dollar-to-backing value.
The solution?
http://www
FYI - joebhed was referenced in this blog
http://www
Still the same question, joe...
Implementation?
Patriot -
The plan is under development.
Here.
Besides the NEF's policy paper, I wrote separately on the Chicago Plan for Monetary Reform.
This is the link the the American Monetary Institute's Paper on both the Chicago Plan and, from there, the AMI's Monetary Act proposal.
http://www
The final vehicle of implementation must be legislative, with the pen.
The fuel for that vehicle must be public understanding of what money actually is, and isn't.
Implementation plans only ever work when there is a recognized need.
There is a giant need for public understanding of why meaningful monetary reform is the one tool that is the necessary foundation to achieve all of the social, economic and environmental reforms that the thousands of commenters are seeking on the "POLITICS" pages of HUFFPO.
But that "need" is not recognized.
There's a reason why the Rotchchild quote is profound:
"Allow me to create the nation's monies and I care not who makes the laws".
I don't know if we are capable of a transformation of public understanding through these pages or not.
What I do know is that we are one click away from ever being able to communicate with each other again.
I wrote this to "modernleader".
We need to talk.
Notably, we need to be able to talk.
If something fails, let's get together through AMI.
My objective in these writings is to move the debate forward.
I am very much open to suggestion.
Your blog is an interesting mind exercise but ultimately pointless. Most of us cast about each month to find a way to pay spikes in gasoline, home heating, food, clothes, medical care, mortgages. . . you get he picture. That check is going to be cashed and spent in a matter of days because we need the money.
A more practical way to solve our problems is to purge our State and National political offices of the corporate sychophants that current infest them. That means 100% of Republicans and a significant number of Democrats need to be tossed out.
When we elect people more inclinced to serve the greater good of the country rather than CEO's and Investment Bankers, then we'll see some serious improvements.
So, everyone, cash your checks. And maybe send a few bucks to the Democratic candidate of your choice.
this is classic Prisoner's Dilemma;
wiki;
The prisoner's dilemma (sometimes abbreviated PD) is a type of non-zero-sum game in which two players may each "cooperate" with or "defect" from (i.e., betray) the other player. In this game, as in all game theory, the only concern of each individual player ("prisoner") is maximizing his/her own payoff, without any concern for the other player's payoff.
If all Americans acted in their collective interest they would all benefit... but since the MSM makes this type of cooperation for a collective good all but impossible; all will get a net losing position.
Max,
Excellent point.
"If all Americans acted in their collective self-interests, they would all benefit...
If all Americans COULD act in their collective self-interests, then they WOULD act in their collective best interests.
Take a look at credit unions.
They are collective financial businesses that serve the collective best interests of their depositors and members.
They don't create the few winners and many losers at credit unions.
Achieving the goals of our collective best interests requires the creation of something like a national credit union. And we need access to capital.
If all our deposits were in the national credit union, it would be a while before any move for outsourcing and off-shoring of jobs and credit was brought to the table.
Financial innovation would NOT be the billionaire-maker du jour.
Rather, the economic security of its depositors and its members would be the foundation of the lending policies of a national credit union.
It’s ALL a matter of access to capital; realistically, to get the money-creation powers away from the private bankers and into the hands of the national credit union?
Here's what Thomas Jefferson had to say about the matter.
"The issuing power of money should be taken from the banks, and restored to the people to whom it belongs...
I agree.
Max wrote:
> this is classic Prisoner's Dilemma;
Well, I am a great fan of the Prisoner's dilemma, but in this case, I think it just doesn't apply. The problem is basically in the claim you made in your original article:
> 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
Assuming that by renouncing our stimulus payments, we could lower prices by 2% (which I hope you agree is overly generous to your argument), you'd need to hold $30,000 in cash to benefit from this. Now while the average American might hold that much, the typical American certainly doesn't. (The average wealth of 999 poor people and Bill Gates is well over $1 million, but the typical person in the room still isn't rich and wouldn't benefit from policies that favor the rich.)
bill
It is hard to imagine sillier economic advice than to act in a way that would be good if everyone was going to act that way, even though they are not. The analysis is much to fast anyway. For those of us with debt of our own, a slight devaluation of money is not likely to outweigh the advantage of getting those checks (and the percentage increase in the debt that would be pulling down the value of our money is not particularly large here). And not everyone is getting just $600 since there is additional money for children.
But even if the analysis here was spot on, the conclusion drawn is silly. Since everyone else will be depositing their checks, the few people who chose not to would be throwing away money while making no significant dent in the problems described in the article.
This is, of course, not an argument that the money give away is good policy. But given that it is going on, it is silly to think there is an advantage to those individuals who choose not to partake. (If one doesn't want the money, giving to charity would be a much better option.)
what you are describing is the classic "prisoner's dilemma" if you cash your check you get the cash now vs. a perceived benefit of not cashing the check and maybe missing out on the benefits others will gain by cashing their check now.
the $600, by the way, is emblematic of the rebate (understood is that the numbers vary per family)
now, the amount of gain in purchasing power by all not cashing the checks, even it's only an aggregate fraction of a penny should appeal to those who follow B. Franklin's
'a (fraction of a) penny saved is a penny earned'
...on the question of silliness, it's only silly if you don't mind paying more for gas and food. if you do mind, it's not so silly. most of the price rise (not all) in gas and food is driven by the Fed increasing the money supply in ways that are impoverishing Americans (who dont' work as bankers). A mass act of civil disobedience - not cashing these checks, would have the net benefit of helping the dollar by increasing its purchasing power.
...and thus reducing the need for the globe's 'charity' that is the American economy that exists thanks to the charity (more or less) of Asian, European and mid-eastern creditors (for now).
It is an example of the prisoners dilemma if in fact everyone is hurt by the money giveaway, which is not clear. But there is not really much of a dilemma in cases in which one knows that the majority of other people are going to cash the checks. In cases in which it is none what most other people will do, there is no dilemma left. Perhaps there is some irony involved, but no more dilemma. In the situation that people actually find themselves, they will benefit from cashing the check, and they will lose from not cashing the check. The money involved in my check is not great enough to have any significant affect on gas and food prices, and yet will allow me to pay down debt in a significant way to me.
But the problem with the more general argument is that it is silly in precisely the same way that supply side arguments are silly. It gives a general principle that is true (increasing the debt naturally leads to inflation) but without the numbers or other consequences which weigh in the balance. With supply siders, the equivalent principle is, of course, that leaving more money in the hands of mostly wealthy individuals and corporations increasing the capital available for job creation.
The problem in both cases is that what matters are how the various benefits and harms balance, and that is not something that is true independently of background economic reality.
Max, although I agree with your theory, the truth of the matter is this "stimulus" is a drop in the ocean. The dollar is going down, and there is nothing to save it.
Why should we not spend the fed is going is going to drop rates which will lower our currency oversea and since we import 90% of our good anymore this weaker dollar will not purchase anything. I also see where the second shoe is dropping which is credit cards most of the Major financial firms who deal in credit card are raising rates which are already high some as high as 30%. They are fixing to cause a consumer revolt not seen in this country.
....becaus
Dreamer
While probably true, your proposal is not so dissimilar to Bush's abstinence only program for teenage sex.
What a great idea. I love the stimulus check being historically analogous to a piece of Berlin Wall.
You are so right.
It's end of an era, the end of free money economics or banking socialism, whatever you want to call what it has been since that Wall fell down - it's over.
Next stage of history will be . . . ?
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