Free Money And What To Do With It
$1,400 stimulus checks are coming.
That's good news for the 10 million Americans who had a job this time last year but don't have one now.
It's also good news for US equities to the extent a portion of the new direct payments finds its way into stocks.
I'm going to bury the lede here, so prepare yourselves for a tangent.
Regular readers know I'm not particularly fond of the suggestion that lower-income households short on necessities are predisposed to rolling the dice on GameStop or grabbin
The 1.9 Trillion is bad policy. I am with Larry Summers on this. And if you drill down this is laden with pork. While you might defend the money for state and local govts, it is surely accurate that much of this is going to be used to delay the date of reckoning in their pension funds. Is it still the case this bill has 100 million of a California underground rail road? Seriously? Also, here is a worrying trend–earmarks are coming back enabling each Representative to get pet projects for their districts. This was used in the past, but went dormant, and now its is back. This is all going from bad to worse. Less government please. “I am from the government and am here to help” are still dangerous words.
You, on December 13: “Why are Democrats more confident? Are they deluding themselves that they will take the Georgia Senate seats?”
How’d that pseudo-prediction work out for you?
Are people line-up at food banks because restaurants are closed? If the currency-creator doesn’t provide the money that is missing…who will?
Not well.
What is the value of losing 100% of the $1400 in the markets. Taking a 100% loss would be very hard to do (unless you were GME short recently), but even if an individual could lose 100% of their stimulus in the market the education gained would be worth more than $1400 in my opinion.
The lesson on understanding risk tolerance alone would be a value exceeding $1400 in the long term. Who knows one day they may have an opportunity to participate in an employee sponsored plan, and might be more engaged and thoughtful in understanding how they want to allocate across the risk profiles presented to them. In general the person who invests their $1400 is going to learn a valuable lesson (even if it just an incremental knowledge gain), that can be applied to their other resources and toward risk taking inside and outside of the markets probably for the rest of their lives.
Having said all of that, the vast majority of the population in question would not dare invest their stimulus in the markets because they have no faith in investing such a small amount of money in the markets. “Too poor to invest” If I were to believe what I have read by some commenters here on that topic then then these poor people are pretty smart for such thinking. I disagree.
I am with Paul Krugman on this one. The political and economic calculus for Biden and the Democrats is to go big. Better to overshoot than undershoot here. If they overshoot, the Fed can raise rates, and taxes could be increased on the top 10% and corporations to slow things down. My own guess is that a large part of the stimulus is not overshoot- and likely the economy needs every penny. Why risk falling short?