What Would You Do with an Extra US$1,400? — US Government Stimulus

That’s a question many are facing in the US after the government passed the US$1.9 trillion stimulus.

Looking at it only from the economic perspective, the pandemic has brought lockdowns, it’s closed international travel, businesses, it’s affected supply chains…you name it.

It’s pre-empted a massive stimulus from governments to revive the economy and promote spending.

So, what are people planning to do with this extra cash?

Market research company Harris Poll joined up with Yahoo! Finance recently and ran a poll to find out. What they found was quite interesting.

Overall, 41% of recipients are looking to use the cheque for everyday things. 40% will be using it to save money, with 36% planning to pay down some debt. 16% are looking at spending the money on non-discretionary items, things like entertainment or gadgets.

But some of that money will no doubt find its way into investments, with Yahoo! Finance saying that it could be ‘substantial’.

Harris Poll found that already 15% of those who got the first cheque spent part or all their money in investing, with 7% investing into cryptos such as bitcoin or ethereum.

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The Harris Poll concluded:

With stimulus check investment in cryptocurrencies remaining so stable throughout the pandemic, with general investments increasing overall, and with more Americans putting stimulus money into their savings, it appears Americans are looking for safe havens for their extra cash and experimenting with increasing their holdings if possible.

I mean, it’s not surprising.

Cash in the bank barely pays anything.

There’s a lot of liquidity around, and we’re starting to see fear of inflation. For years the fed has said they will be keeping inflation controlled around the target rate of 2%. Anytime they got a whiff of inflation they’d move in early to tighten.

What’s changed now is that they will not move in early, which increases the chance of higher inflation. The possibility of higher inflation has caused bond yields to rise.

In fact, investor Ray Dalio issued a warning on bonds the other day:

The economics of investing in bonds (and most financial assets) has become stupid. Think about it. The purpose of investing is to have money in a storehold of wealth that you can convert into buying power at a later date.

Rather than get paid less than inflation why not instead buy stuff—any stuff—that will equal inflation or better?

But it’s something that happens when our whole economic system has been continuously spending and taking on more debt. US national debt has now hit 100% of GDP. The last time it was at similar levels was during the Second World War.

It’s unsustainable. At some point these policies erode confidence, which is what our whole system is based on.

Whether bitcoin is a bubble or on the verge of massive adoption, it does provide an alternative, like gold.

And that’s why it’s been interesting to see central banks stepping up their digital currency efforts against that alternative with central bank digital currencies (CDBCs).

From Bloomberg:

Banks, credit card companies and digital payments processors are nervously watching the push to create an electronic alternative to the paper bills Americans carry in their wallets, or what some call a digital dollar and others call a Fedcoin.

“The fire has been lit,” said Josh Lipsky, who has helped convene government officials from the U.S. and other countries working on digital currencies as director of the GeoEconomics Center at the Atlantic Council. “The world is moving very quickly on these projects.”

At issue are forms of digital cash being considered by the U.S. and other governments. The growing popularity of Bitcoin, Ethereum and other cryptocurrencies, whose market value has grown to more than $1 trillion, inspired the projects.

Using the currencies could be as simple as holding up the screen of a mobile phone to be scanned. Behind the scenes, the digital cash would move from one account to another. This is similar to how most money already works — the majority of U.S. dollars are just digital entries in bank accounts — but the new currency could potentially avoid the go-between of a commercial bank or credit-card network. For vendors, settlement would happen almost immediately, without having to wait for the money or worry about fraud.

The difference to Bitcoin [BTC] is that central bank-issued digital currencies are not decentralised. CBDCs of course could make it easier to promote things like negative rates or capital controls. It gives central banks more control.

The Fed isn’t the only one looking into this.

The Bahamas has already launched their sand dollar. China has been testing their own digital currency and has even joined up with the Thai and Hong Kong Monetary Authority (HKMA) in a joint cross-border project.

The Bank of Japan also recently said they need to ‘prepare thoroughly’ for when they’ll need to issue their digital currency, and are planning to begin experiments this year.

Expect to hear more…


Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

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Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Fat Tail Investment Research’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.

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