Coronavirus — Act like you CARE?

in economy •  2 months ago 


Many people are confused about the government's recent CARES Act. I have not read the bill but I've glossed over the main points and it appears there are some basic principles that have people confused.

  • Would the government end up printing more money if they can’t borrow since they are in debt?

  • Wouldn’t that lower the value of the dollar?

  • I don’t see how giving people money will help.

  • A new job or multiple jobs should be created or offered perhaps?

Would the government end up printing more money if they can’t borrow since they are in debt?

The government can always borrow. Well, the real limit on the government's ability to borrow is whether anyone is willing to buy government bonds.

Most people with money to invest in other countries don't have very many good options when trying to buy "safe assets" or financial investments that are low risk. The fact that the yield or rate of return is low is not as important to those investors as the low risk part. So, even though Americans may not buy these bonds, Foreigners will.

At the same time, American investors will also be willing to buy the bonds because the stock market is volatile. So, when people sell stocks, they typically buy bonds.

In short, I don't see the ability to borrow being a real problem.

I don't see how giving people money will help. Wouldn't that lower the value of the dollar?

Giving people money really is a transfer of money from future taxpayers to today's recipients.

The value of the dollar might be affected. We might see prices for everyday goods and services go up. It will be really hard to connect that directly to the money giveaway.
First, prices for some things have fallen, a lot. Airfare and concert tickets are cheap, or zero. But people are not buying those things. When the government calculates inflation it typically takes a weighted average of all goods and services. In this situation, that calculation won't give a very good picture.

There will be an increase in costs of production for many goods and services. Food, toilet paper, etc, might see prices go up due to these increased costs of production.

We might see fewer things being produced. American productivity will fall as many people are not working. Fewer goods and services, even with no change in the supply of money, would lead to higher prices.

Essentially, it highlights the importance of the heterogeneity of various goods’ price changes. Importantly, nominal contracts like wages, mortgages, and rents will be easier to meet. Goods and services with quicker price responses will inflate or deflate depending on how this particular crisis impacts demand for that good.

Inflation is "officially" measured as the change in the general price level. An increase in the quantity of money typically will lead to an increase in prices, unless somehow the increase in money directly matches the increase in productivity over the same time period. This event will make it very hard to measure anything.

A new job or multiple jobs should be created or offered?

I like the idea of creating new jobs, and that is happening! There will be some real changes in the ways people do businesses. It could be that fewer people travel for business, and that they use video conferencing more. It could be that people don't go to restaurants as much. It could be that more people use food delivery, both from restaurants and from grocery stores. Many things will change.

It would be impossible for the government to know which new jobs to create. Instead, we have to wait and see what people want in the future.

I think the money giveaway is good, but would have preferred if it had been better targeted at people who have been directly affected. People in services and restaurants, for example. People who have kids at home now, so they can't go to work and won't draw a salary.

I will probably get a check, and many people on salary will, too. I think most of these people will use that money to pay down some debt. That is usually what happens when the government gives people money unexpectedly. Bush II used a tax rebate (unlike this bill, which is why many people are confused) during his presidency to try to stimulate the economy. Most people just used that money to pay down some debt.

For anyone who doesn’t need a check or whose employment is not in jeopardy, is going to be giving direct cash payments to the poorest people in the hardest-hit parts of the country.


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Regards dear @honeybee.

As for the origin of the funds and the creation of inorganic money, this is based on the implementation of the Modern Monetary Theory.

The MMT suggests that the fiscal deficit must be as high as necessary to maintain full employment.
The state will always be able to increase the internal debt as many times as necessary through the issuance of bonds, since it is possible to add other factors of internal production to the mathematical formula, and thus compensate for this "supposed" deficit.
In this way, maintaining employment can achieve greater production, increase GDP and thus compensate for debt.

Many times the surpluses of any sector of the economy are taken and channeled to compensate for the deficit of some other sector and of internal indebtedness.

On the other hand, there is the "humanitarian" character of these actions. Which could be reversed in the form of collective support in the upcoming presidential elections scheduled for November.

I only make assumptions.

Your friend, Juan.