Last week Joe Biden announced that $1 billion in federal grants would be generated for manufacturing, clean energy, farming, biotech and other industries in 21 regional partnerships across the US. The money is part of a $1.9 trillion covid relief package that was instituted way back in March of 2021. That’s right, if you thought the covid funds were gone for good, you were mistaken. While certain elements of the original covid stimulus packages have dried up, there are still vast sums of fiat dollars being held in the coffers of various federal and state programs.
The issue of covid stimulus remains a key problem for the US economy for multiple reasons – First and foremost, it was the covid stimulus packages that sent our stagflationary crisis into overdrive.
In 2020, over $6 trillion of stimulus money was created from thin air by the Federal Reserve and injected directly into the US economy by Donald Trump (and continued by Joe Biden) through covid relief checks, PPP loans and bailouts for numerous corporations. Again, in 2021, Biden instituted the ‘American Rescue Plan Act’ which added $1.9 trillion to the pile. That’s at least $8 trillion in helicopter money dropped on top of the US economy.
The results have been mixed, but are mostly disastrous.
While Biden and the media consistently point out initially high retail sales and low unemployment numbers as a sign that all is well, what they conveniently ignore is the effects of the covid money bonanza. When you dump $8 trillions into the system in the span of two years (continuing into 2022), what you are doing is creating a massive spike in artificial demand. People, businesses and government agencies are going to go out immediately and spend that money with wild abandon. By extension, that spending will create a need for more workers and more jobs.
However, this momentum is impossible to maintain because as trillions of dollars are created the value of the money diminishes. Inflation or stagflation is the inevitable result. Prices skyrocket while wages remain frozen or are unable to keep up. All those jobs the government conjured from thin air are meaningless because they do nothing to balance out demand. They are not manufacturing jobs or jobs that drive production; they are bartender jobs, retail jobs, waitress jobs, etc. Without increased production of goods, inflation continues to rise.
Inevitably, the gravity of inflation pulls down all other elements of the economy. Furthermore, the Federal Reserve will also continue to raise interest rates into economic weakness as a means to disrupt inflation (at least that’s what they claim they are doing). The jobs market will crash right along with everything else as the cost of debt for businesses climbs right along with the cost of materials. The one thing keeping the system afloat is that precious covid stimulus cash still circulating through the system, but it’s also poisoning the system at the same time.
Only a small portion of Biden’s American Rescue Plan funds have gone to original funding goals. Just 12% of the over $100 billion earmarked for elementary and secondary schools has been spent so far, according to federal statistics. And according to Treasury Department figures, as of the end of March 2022 only about $70 billion of the $350 billion allocated for state and local governments had been spent on listed goals.
Where is the money really going? It’s hard to say, but there has been some exposure of questionable allocations of the money by state and federal organizations. For example, the Iowa state government has earmarked millions in taxpayer and covid stimulus cash to pay for a “Field Of Dreams” baseball stadium, named after the Kevin Costner film. The stadium is expected to create 250 jobs.
Some of the money has gone into the operations of government owned golf courses (which is apparently a thing).
Other funding has been allocated directly to creating even more government jobs and also bonuses for government employees. An independent analysis of 5,000 school districts covering 75% of districts’ American Rescue Plan funds shows that nearly 60% of funds are committed to staffing, academics, and mental and physical health. Only 23% is committed to keeping schools operating safely; the original intent of the bill. Meanwhile government workers have received almost $1 billion in bonuses taken from covid relief funds.
Even now, Biden is pushing for more covid cash through emergency measures. The administration officials laid out the new requests, totaling $47.1 billion, on Friday ahead of the long Labor Day weekend. The largest individual piece of the White House proposal seeks $22.4 billion to cover “ongoing needs” associated with the COVID-19 pandemic. The White House is pretending as if the country did not move on from the pandemic a long time ago.
While covid cash did not do much in the way of direct job creation, what is is doing is fueling money velocity, which is not necessarily a good thing. Without production to match the money supply and consumer demand, the stimulus creates a massive financial bubble and a fragile illusion in the jobs market. It is only a matter of time before the bubble bursts. This is why we have a stagflationary crisis today and why there will be a reckoning in unemployment in the near future. Covid stimulus measures created a fever dream of false prosperity in retail sales and the jobs and soon the country will have to wake up.