In early 2009, Obama proposed his stimulus package would “create new jobs,” provide “many years of economic growth” and “jump-start” the markets.
In 2012, the White House claimed that the U.S. economy would grow by 4.6%, unemployment would fall to 6%, and the deficit would lower to 3.5% of GDP.
That’s a far cry from the rosy predictions that the stimulus was supposed to have on the economy. The markets grew stagnant despite the government’s investment and the national deficit became larger from it.
A stimulus package is designed for short-term use, and in President Trump’s case – the $2 trillion injection into the economy will only be a benefit if organic movement in the markets is there to ride the coattails of the trillions being put in.
Charles Sizemore – CIO of Sizemore Capital Management and frequent guest on CNBC, Fox Business and Bloomberg – said that the stimulus may help the U.S. economy from a deeper recession but that “it could also sink the value of the dollar through rising inflation.”
Forbes points out the possible risks of Trump’s stimulus bill as being,
out-of-control inflation, the dollar’s displacement as the world’s funding currency, and the complete destabilization of the U.S. financial system.
Victor Li, professor of economics at the Villanova School of Business, also details “stagflation” .
After the coronavirus crisis passes, he says that recovery would likely be uneven. Slow – or even zero – growth from the recovering markets mixed with steadily rising inflation and prices would see a skewed return.
Li claims that after the crisis finishes and consumer fear vanishes, a surge in demand for restaurants, movie theaters, bars and other businesses will outweigh supply – leading to increased inflation.
One stimulus package of this size is worrying enough. If the crisis continues for a longer period of time, could more stimulus be given to keep markets afloat? Artificially propping up the U.S. economy could lead to a devastating market crash .
If money continues to be printed (as it undoubtedly is ), the dollar could be overextended. Coupled with the potential of increasing rates of inflation, the dollar could lose much, or even all, of its value.
As of February 2020, the deficit sat at $235 billion . Currently, the debt sits at an astounding $23 trillion . A house of cards falls eventually – and U.S. markets have been teetering for a while now.