The stimulus “stimmy” checks sent out last year and at the beginning of this year have most likely made their way into the financial system. It has been an interesting year so far with labor shortages and supply shortages. More money chasing less goods and services sets the stage for higher prices. The last article I wrote last month, inflation was at a little over 4 percent this year and now it is at 5 percent. So, with rising costs of goods is the stimulus spending making us richer or poorer?
Investments
I think it depends on how you are invested. If you are living paycheck to paycheck and spend the stimulus as it comes in, then you probably are going to be worse off because of the stimulus spending. We are starting to see that play out now in real time with prices rising. Today I went into the local grocery store and noticed the store brand tortilla chips that used to sell for $1.88 are now selling for $3.67. While stimulus spending and generous unemployment benefits are popular among the people, I do not think they are going to benefit from them if prices continue to rise.
Real Estate investors on the other hand have benefited from the inflation and stimulus more so than the people receiving stimulus checks. Some investors such as I and many I know have already seen over six figures in unrealized gains or equity this year. Right now, it would not be hard to realize those tendies (WallStreetBets lingo for profits taken) either because real estate is selling like crazy. Multiple offers, over asking, waived inspections.
Other investment classes have also benefited from the rise inflation. I invested a good amount in oil at the beginning of the year and that has paid dividends and appreciated very well. Overall, the stock market has been going up and people invested are seeing some good returns.
Stimmy
My take on the stimulus checks and stimulus spending is that it negatively impacts the people it is supposed to help, and they do not understand that. It is nice to get some support or relief, but I think if prices continue to soar, we will be on the road to serfdom. Those who own property and assets will continue to prosper and people who do not own assets are going to get upset when they cannot afford stuff. They will be looking for someone to blame and the politicians and media will be ready to assign that blame to anything but the root cause: stimmy.
Our current education and financial system seem like they are almost designed to trap people into serfdom. No financial education at all growing up, college marketed heavily, and the government letting you borrow any amount you want without being able to absolve it through bankruptcy. The unsuspecting person could easily find themselves in six figures of student loans with a job that does not pay well.
Financial servitude aside, there are two more stimulus bills in the works for this year that total $3 trillion. This will put us over $30 trillion in debt as a country and the current spending trajectory puts us over $50 trillion in 4 years. Creating inflation is probably the only hope to being able to afford the debt. If the interest rates rise a few percent, then the debt payment could be the largest budget item above social security and Medicare. A 5 percent interest rate on $50 trillion is $2.5 trillion. That is a lot of money just to pay off debt.
Conclusion
The future is uncertain and who knows which way the markets will go. I think one thing that is certain is that stimulus spending will continue in the near term, which is good for inflation hedges like low interest, fixed rate mortgage debt. I also think if inflation starts getting any higher then gold and silver will start to go up, but they have not done well this year. I think stimulus spending overall will continue to create inflation and weaken the dollar. This makes it more difficult for everyday Americans to pay bills and feed families. Real estate prices and the stock market are at all-time highs but sitting on cash will lose you 5 percent or more a year, so it is a difficult investment landscape for sure. More stimmy will have the rich getting richer and the poor getting poorer.
