Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Economic Stimulus Doesn’t Always Stimulate – Pushing On A String

Economics / Coronavirus Depression Jan 25, 2021 - 03:38 PM GMT

By: Kelsey_Williams

Economics

The word stimulus has become an oft-repeated term, sometimes overused. We are referring to the non-biological meaning below.

According to the dictionary,  stimulus is “a thing that rouses activity or energy in someone or something; a spur or incentive”.
Besides spur and incentive, other synonyms for stimulus are boost, impetus, prompt, provoke, etc.


Much discussion recently has centered on ‘stimulus’ checks to individual citizens and taxpayers. Within a nine month period, two specific rounds of stimulus checks were issued.
The legislation that authorized the issuance of stimulus checks to individuals also included  liberal increases in unemployment benefits and financial aid for small businesses.
The checks, increased unemployment benefits, and aid for small businesses are forms of financial stimulus; but, the legislation is referred to as an “economic stimulus package”.
The distinction between the terms financial and economic should not be overlooked.
The purpose of the financial incentives included in the legislation is to promote economic activity. It was a response to the horrendous decline in economic activity that was precipitated by response to the Covid-19 pandemic.
Very literally, though, the financial incentives were an attempt to stave off economic collapse; or at least buy some time. This is true notwithstanding attempts by politicians of all stripes to justify the measures in more humane terms.
21st CENTURY – SLOW GROWTH, NO GROWTH
The first fifteen years of this century were spent in reverse and recovery modes. The trillions of dollars that have been created and spent were reactions to financial and economic catastrophe, which continue to increase in volatility.
Which brings us back to the title of this article. With artificial stimulants, such as certain drugs, there is an expectation of desirable positive effects from its use.
Over time, the positive effects of the stimulus become muted and lose their potency. It takes higher doses and more frequent use of the stimulus to create the same original results. Remember how long it took to bring the economy back to a level reasonably commensurate with its activity prior the credit collapse in 2007-08?
Some were expecting an overwhelming inflationary surge due to the (at that time) historically large amounts of money and credit creation. Some even expected runaway inflation, but it did not happen.
Also, over time, the cumulative negative effects of the stimulus take their toll. For example, the Federal Reserve has been inflating the supply of money and credit intentionally for more than a century.
The cumulative negative effects of that intentional inflation have resulted in a loss of purchasing power for the US dollar of ninety-nine percent.
An excellent example of the declining effects of continued money and credit creation by the Fed is seen on the chart (source) below…
DEBT TO GDP RATIO HISTORICAL CHART
It is clear on the chart that each dollar of increasing debt provides for less and less economic output (GDP, Gross Domestic Product).  The results of debt stimulus for the economy have grown weaker and weaker since 1980.
Noteworthy is the fact that it now takes more than one dollar ($1.27 in October 2020) of debt to produce one dollar of GDP. Anything in excess of 100% (a 1:1 ratio Debt/GDP) is a losing effort; and the losses are growing.
PUSHING ON A STRING
Sometime after the distribution of stimulus checks to individuals last April and since then, there has been a growing resistance to sending out additional stimulus checks. When the recent checks were authorized, the amount ($600) was significantly smaller than the first ($1200) checks.
Some of our representatives did not think that the first round of stimulus checks to individuals had their desired impact. It was hoped, and intended, that recipients would spend the money; but evidence indicated that much of it was held or saved.
Pushing on a string is a metaphor for the limits of monetary policy and the impotence of central banks. …businesses and households cannot be forced to spend if they do not want to. Increasing the monetary base and banks’ reserves will not stimulate an economy if banks think it is too risky to lend and the private sector wants to save more because of economic uncertainty.” By Adam Hayes
The huge amounts of dollars and cheap credit gifted to us by the Federal Reserve and the US government seem more illustrative of emergency patchwork rather than stimulus. We should all hope it works as good as Flex Seal.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2021 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in