During the tumultuous rollout of the CARES Act, the nation faced a storm of challenges: lockdowns, business closures, widespread unemployment, and civil unrest. These disruptions have had lasting consequences that far exceed the scope of a $2.2 trillion economic stimulus package. One might think that a significant legislative response is necessary during such downturns, but is flooding the economy with money truly the right approach?
Economists and politicians often argue that without the CARES Act, the situation would have been dire. Consequently, many advocate for additional stimulus measures. But what is the basis for this conviction?
Essentially, we cannot determine what could have transpired without the CARES Act. Can we genuinely assert that the economy is in a better place due to it?
What we do observe is that critical actions were not taken; the anticipated cleansing of bad debt was postponed. Furthermore, we will endure numerous repercussions from the CARES Act for decades to come, including a heavily indebted economy.
There’s a consensus among Americans regarding the need for further stimulus. A recent poll by the Financial Times revealed that 90 percent of individuals want Congress to pass another stimulus bill.
But then what happens?
Use It Or Lose It
Let’s say Congress does approve another stimulus package. If the economy continues to struggle and tech stocks soar, will we see yet another bill laid out? How many rounds of stimulus will it take before we question their effectiveness? What if this cycle of stimulus does more harm than good, further entrenching economic difficulties?
These are vital questions that remain largely unaddressed. The uncomfortable truth is that today’s intertwined fiscal and monetary policies are detrimental to working Americans. The central planning methods in play are failing the populace.
Yet, who wants to confront such truths? The demand for more stimulus persists, so should we simply comply?
Billionaire Mark Cuban recently proposed that every American household receive a $1,000 stimulus check biweekly for two months. However, it comes with a stipulation: families would need to spend the money within ten days or forfeit it. Is this unconventional idea a true solution or merely part of the ongoing problem?
One may hope that Congress will remain gridlocked, allowing the essential debt clearout to take place. This could lead to the dismantling of ‘zombie’ corporations, enabling innovative individuals to revive the economy free from the burden of debt. Only then can we hope for genuine economic resurgence.
This perspective, however, implies significant sacrifice; many Americans would have to forfeit their pensions and Social Security benefits, while cushy jobs at companies like Boeing could vanish. Unsurprisingly, such an approach is not politically palatable, making the likelihood of a new stimulus bill very real. We may face postponements of necessary changes, leading to even greater hardships for working families.
In the meantime, the political posturing is indeed quite extravagant…
Maxine Waters Drops the Hammer on Powell and Mnuchin
This week, Federal Reserve Chairman Jay Powell and Treasury Secretary Steven Mnuchin were summoned by the House Financial Services Committee to explain their actions concerning the CARES Act. Their efforts to fulfill the Act’s objectives fell short of expectations, it seems. While many anticipated a turnaround, only asset holders appeared to benefit.
With a blue surgical mask on, House Financial Services Chair Maxine Waters addressed them directly, surrounded by a desk full of hand sanitizer. She candidly stated, “Let me be blunt.”
Waters then turned her attention to Powell and Mnuchin, delivering this striking critique:
“This pandemic response has fallen badly short. … Your work to address this crisis doesn’t stop when the stock market recovers from its losses. Your mandate is to help hardworking individuals and families who are suffering.”
However, this moment of confrontation was ultimately misguided.
Waters questioned why the CARES Act did not yield the anticipated economic stimulation, lamenting the stock market’s rise amid an economic downturn. She appears unaware that neither the Fed nor the Treasury can create authentic wealth.
There are some discussions that Powell and Mnuchin cannot engage in openly. Thus, to clarify for Waters:
The Fed can conjure credit and acquire Treasury notes, allowing the Treasury to utilize this printed money to support failing businesses and send out nominal stimulus checks. However, bailing out an entire locked-down economy without devaluing the currency is impossible.
Undoubtedly, Powell and Mnuchin can inject stimulus into the economy as mandated by Congress. Once the next stimulus bill is passed, they will undoubtedly revive the money printing machine.
The outcome will likely reflect previous results—adding billions to the national debt without resolving the underlying economic issues. And Waters, by then, will be left even more perplexed.
Who knows? Perhaps the third stimulus bill will indeed be effective, or the fourth, or even the fifth. We will soon find out.
Sincerely,
MN Gordon
for Economic Prism
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