The Biden administration is currently rolling out a $1.9 trillion "American Rescue Plan" meant to stimulate the American economy. Around $450 billion of this is earmarked to go directly to Americans’ wallets, which is different from former rescue plans where the entire stimulus went directly to Wall Street institutions.
Most commentators expect the current rescue plan to pan out differently in the economy than previous plans. There's an intuitive understanding that Main Street will spend stimulus checks differently from Wall Street, and the big question is what the average Joe will do. The discussion is centred around the Cantillon Effect, which states that the effect of a credit expansion is dependent on who receives the freshly issued money. The effect is not evenly distributed. It takes time for the credit expansion to move through the economy. Hence, some prices rise more than others, and at different times. It can take years, even decades, for price increases in one set of assets to trickle through to other assets.
When Wall Street was the exclusive target of government stimulus, financial assets rose with little corresponding price rises in basic goods and services. The spill over into the real economy has been slow and gradual. However, now that a lot of money has been targeted directly towards Main Street, we can expect prices in consumer goods and services to be more directly affected.
There's also a general expectation that financial assets will be affected more in direction of retail investor darlings than Wall Street favourites. Tesla and Bitcoin are frequently mentioned. However, it mustn't be forgotten that the $450 billion directed at Main Street is a relatively small part of the overall plan. Furthermore, the average Joe is not a speculator. He's a consumer. It's not like $450 billion is about to hit Tesla and Bitcoin. Speculators may even have overestimated retail interest in these names. In their eagerness to front run Joe Six-pack, they may find themselves overextended and forced to sell.
In short, there's no way of saying exactly where the money will flow. But it's safe to say that it will affect prices on Main Street more than previous rescue packages. However, the vast majority of the money is still directed towards Wall Street. That's where the real action will take place, and those guys will no doubt position themselves in such a way that they end up with most of the profits. A sensible move on their part would be to bid up prices on commodities required in the manufacturing of consumer goods, thereby draining the purchasing power of the average Joe in favour of themselves. The benefit to Joe Six-pack is likely to be less than what he imagines it to be. In fact, we can say with absolute certainty that he has been very much misled.
What is rarely mentioned, if at all, is that the rescue package is being financed through debt, and that this debt uses American taxpayers as collateral. Biden's $1.9 trillion are to be financed through future tax obligations. Main Street is receiving $450 billion today at the cost of $1.9 trillion in tax obligations into the future. That's a horrible deal that no-one in their right mind would have accepted if it was laid out clearly and honestly by journalists and politicians. But the numbers are clear for all to see, so there's no excuse for this blind trust in the wisdom of this. Joe Six-pack's enthusiasm for his stimulus check is a case of wilful ignorance. He wishes this to be some kind of Santa Clause fairy tale, so he refuses to think it through. However, that's not going to save him from the facts when they become apparent in the not too distant future.
The US has a population of about 330 million, which means that Biden's $1.9 trillion stimulus represents a $29,000 loan for a typical household of five. This same family receives $7,000 in stimulus checks, provided all its members qualify. This means that the Biden administration has just burdened this family with $22,000 in future expenses, unmatched by money received. There's also interest payments to be paid that stand at about $400 per year at current interest rates.
It's almost as if we can hear the pied piper coming down the street, and the question everyone should be asking themselves is what to do about the situation. My suggestion would be for everybody who objects to the deal to buy physical silver and gold, and to store it privately. That way, we can at least rescue our own children. We may even be able to force the elite to reconsider their reckless and deceptive policies.
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| The pied piper |
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