14 Comments

The stimulus payments are one-time payments, not continuing payments. Even if their effect is inflationary the effect is unlikely to persist beyond a couple of quarters. Once everyone has spent their stimulus money their spending will decline back to baseline and the inflationary pressure evaporates.

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I'd be curious to learn more about what these public health and education portions are buying. In other words, would vaccination be slower and schools reopen slower without this spending? Doesn't seem like there is much discussion of that.

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I find the logic compelling, but I wonder about how the numbers were calculated. Is ~$350B the right number for state and local aid? What is it based on and has anyone provided a logic for it? My guess is that it is higher than is needed, but serves as a useful place to begin negotiating. In other words, can we tell when the package is being reduced too much?

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The question this raises is whether the belt and suspenders piece that's likely to be saved will cause overheating in the future once the economy reopens. Even if the multiplier on the $2000 checks is very low now, when we emerge, we'll have a big chunk of the public that's awash in savings. Couldn't there be a burst of spending then that would be quite inflationary? And if the Fed moves to raise interest rates to head that off, wouldn't we see contraction and probably some crowding out of needed public works projects, as Summers warns?

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If only the Fed had any room to raise rates to cool the economy...

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Sure, it could raise rates to cool the economy... and that in turn raises the cost of borrowing to do infrastructure in the future. That's what I think Summers' worry is. It's not obvious that he's wrong.

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If people who didn't need the check decide to invest in stocks rather than save, this could lead to a huge asset bubble. If the party selling stocks is doing so to reinvest in stocks, then checks money will, like you said, have a low multiplier effect.

Given the rise of retail investors, it is reasonable to assume that a good deal of these people's checks will find its way to the financial market.

If that happens, it seems the choice is either inflation or a bigger bubble. As if we must sin to get to the pandemic-free heaven.

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I have questions about Disposable Income available at the household level, and the rate of economic development. Parts of our economy are adapting to Work From Home and Take Away Products as a new important functions of the economy. The transition and development of these changes can be helped with greater DI. The varying economic impediments of the pandemic seem to require financial support in order to be successful, with more support being desired.

There was $2.4T in Mortgage refinancing in 2020, is this incidental, is it considered in any other context, in the way that the Stimulus package has had to endure "analysis". Refi creates money in the economy without Public cost, and should create all of the imaginary (sorry for editorializing) inflationary pressures as the Stimulus.

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Debt service and rent payments are not stimulus and do not add to GDP. Consider that the ban on evictions and foreclosures does not relieve tenets and homeowners of their financial obligations. If they are unable to meet their financial obligations in the present they must make good on them in the future. What this means is that unemployment benefits, stimulus checks and other payments to individuals will go to paying off debts to landlords who are still owed rent that was not paid during the pandemic and also to making good on their other financial obligations. Many of these are in the form of loans to small business that also need servicing. All such payments are not going to add to demand and cause inflation. In fact, when a loan or mortgage is taken out that does normally add to demand but not when its repaid.

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What do you wizards think about EU rescue package. Is it too weak; 750 billion euros for evolving any kind of growth (green or whatever). The plan is to have an effect on digitalization and green transformation. But 750 billion isn't enough for this which means they need new package in the near future?

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The 750 bill EU money come on top of national packages, some around 10% of gdp

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Yeah. But if national packages flow to keep the zombie structures alive the 750 billion for new future investments seems weak. Usa is shooting with big gun but Eu with small stick. They need also big gun.

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Christine Legard said this morning that she can go to 1.5 Trillion, if needed, and would go beyond that, if needed. Wait and see is the name of her game, so I think we will see a bigger stick by summer.

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Where are the interest payments in servicing the debt in your pie chart? Do negative real interest rates mean anything when no one is going to spend? How about that punch bowl?

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