The Economics of Stimulus Checks: Understanding ECB and Fed Actions and Their Implications

The Role of Central Banks and Governments in Economic Stimulus

The concept of economic stimulus through direct payments to individuals and businesses has been a topic of much debate and discussion, especially in the context of the European Central Bank (ECB) and the Federal Reserve (Fed). Despite the rhetoric from certain quarters, the ECB is not engaged in such activities. This is a national competence or incompetence, as exemplified by the UK government.

The Principle of Universal Income

My understanding of universal income is that it would provide a monthly income and eliminate the need for anything else. In the United States, every American would be given a living wage to ensure financial stability. For those who work solely due to necessity, the benefits would be minimal, if any, as the focus is on ensuring a universal standard of living.

Social Justice and Economic Stability

From a social justice perspective, every person, regardless of income, net worth, or profession, should be entitled to the same amount of universal income. However, it is understood that this ideal scenario is unlikely to occur. As debt rises and the market crashes, leading to economic tanking and job loss, everyone will eventually rely on universal income anyway. This is where the Green Deal, which costs approximately 94 trillion (940,000,000,000,000) euros, comes into play.

Quantitative Easing and Inflation Concerns

In the current environment, governments and central banks, such as the ECB and Fed, are using invented money to fund economic stimulus. They do this by buying government bonds and corporate bonds, effectively creating new purchasing power. In the past, central banks had restrictions on how much government bonds they could buy, but these have been loosened, particularly during the pandemic. The modern term for this practice is quantitative easing (QE), which is essentially money printing through book entries and electronic transfers.

This practice is worryingly similar to the scenarios where countries have faced hyperinflation. For instance, post-World War II Germany experienced severe inflation, leading to the exchange of old Reichmarks for new Deutschmarks at an exchange rate of 10 to 1. Similarly, Yugoslavia under hyperinflation issued a new Dinar to replace the old one, where 1 million old Dinars were made equal to 1 new Dinar. Such large-scale inflation can erode the value of wealth and income, causing significant social and economic destabilization.

The Implications for Future Economic Policy

The consequences of creating an excessive amount of money can be severe. It can lead to too much money chasing too few goods, resulting in hyperinflation or runaway inflation. Many countries that have experienced this fate have had to replace their currencies, as seen in the examples of Germany and Yugoslavia. While these actions bring temporary relief, they can also cause significant disruption to the economy and the well-being of citizens.

From a fiscal standpoint, large government borrowings can have long-term implications. Debts are a form of mortgage on the future, and they require the transfer of resources to creditor countries. This can limit the government's ability to pursue robust fiscal policies or force them to adopt austerity measures. Additionally, it can lead to controversies over the allocation of funds and politicization of the issue. Large borrowings can also affect market confidence and lead to distortions in interest rates, potentially crowding out private borrowers.

Conclusion

In summary, while the concept of universal income and economic stimulus checks may seem appealing, the reality is that it can have profound and negative economic consequences if not managed correctly. Central banks like the ECB and Fed, through quantitative easing, are essentially printing money to fund economic stimulus, but the long-term implications must be carefully considered to avoid economic instability and social unrest. The key is to find a balance between economic growth and fiscal sustainability.