The Rolling Stimulus: Monthly Payments Juicing the CPI
The Inflation Tax is alive and well for consumers as the September CPI surges 5.4%
Originally posted on my Power and Markets Substack, please feel free to share and subscribe to my newsletter to get these articles in your inbox!
The Bureau of Labor Statistics dropped the September inflation number this morning, and it wasn’t good: 5.4%. This is known as the Consumer Price Index. We have known for a while inflation has been ramping up, but the Federal Reserve, tasked with keeping a lid on inflation (ironically, they create it), previously dismissed concerns as “transitory.” Well, it doesn’t look like inflation is going away anytime soon.
Inflation is a tax. We all pay it. There’s no exemption or credit or deduction one can file; it’s reflected in rising prices. The source of inflation is the fractional reserve banking system with the Federal Reserve at the helm.
The US government of late has been spending globs of cash in the forms of economic stimulus to “get things going” in the economy. In doing so, the US Treasury issues debt that is then bought up by institutions like the Federal Reserve by crediting the Treasury desk with funds out of thin air. This money is then spent by the Treasury and control is lost as it circulates throughout the economy. The more money issued, the eventual rise in prices is reflected as demand for goods increases with the new money and it isn’t paired with an increase in productivity or supply of goods.
Hundreds of millions of Americans have received multiple stimulus checks since 2020. The newest iteration is the Child Tax Credit being issued on a monthly basis from July-December 2021. Qualifying families receive $250 or $300 per dependent.
This acts as a rolling stimulus where the money is directing sent to the individual and spent however they wish. The problem is, prices are accelerating rapidly. The checks issued create a competition between consumers who buy goods and services, and as a result, bid up prices.
The rolling stimulus at first is a benefit, but the euphoria eventually wears off. Once the stimulus money is spent, it circulates untraced through the economy. Eventually all prices rise and the consumers are left with requiring more stimulus to keep up with escalating price levels.
This is where the danger comes in. The Child Tax Credit monthly program is due to sunset by the end of this year. If not renewed, families will face a de-stimulative cold turkey effect. For many, the checks have been long spent once January 2022 comes around. Prices will continue to climb. Economic activity will contract. The classic “stagflation” economists long to avoid.
With no easy way out, politicians will opt for extending the program. Eventually, conditions spiral out of control and the brakes will have to be tapped, resulting in catastrophic economic consequences.
The rolling stimulus is unsustainable. Consumers who spend the money will require greater sums to make ends meet. Those who hold onto the funds see prices around them lift pressuring to dump their savings as well. In the end, we all lose as we all pay the inflation tax.
