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COVID-19

Stimulus without debt?

Sabri Ben-Achour Mar 18, 2020
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Can the government just print more money to stimulate the economy? Joe Raedle/Getty Images
COVID-19

Stimulus without debt?

Sabri Ben-Achour Mar 18, 2020
Can the government just print more money to stimulate the economy? Joe Raedle/Getty Images
HTML EMBED:
COPY

The Senate passed the House relief bill Wednesday, an $8.5 billion package. Stimulus is coming, it’s just a question of when. And how the government is going to pay for it.

A lot of people could use that stimulus right now. Sam Gold is a photographer in New York, where the city is all but on lockdown. Things are not going well.

“All of the shoots basically from today on have [been] completely cancelled or postponed,” Gold said. “I went from having a fully booked calendar for March and April to, now, nothing.”

Multiply this across millions of jobs throughout the economy and that’s what a recession looks like. Gold still has to pay rent, still has to eat. The Treasury Department wants to send $1,000 checks to people like Gold. Congress is working out aid packages for industries and small businesses.

All told, it could easily cost a trillion dollars. Larry Seidman, professor at University of Delaware, said the department should send out checks of $3,000, and the Fed should just print the money.

“The Federal Reserve should be permitted to write a huge check to the Treasury, not a loan but a grant,” Seidman said. “The Treasury does not have to borrow and there would be no increase in our federal government debt.”

But nothing is ever totally free, even free money. According to Kent Smetters, professor at the Wharton School, if you “kept doing that willy nilly, you’re going to cause inflation.”

When there’s too much money in the system, prices go up. When central banks do this it’s called “monetizing the debt.”

“When we see high inflationary countries like Zimbabwe, it all comes from the monetizing the debt,” Smetters said. But, he added, you’re not likely to get that kind of inflation in a recession, short term. And, he said, it may well be worth some inflation in the long term to get people the help they need right now. 

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