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More money, more problems?

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American paper currency is spread out. There's a $20, $100, $5 and $1 bill.

Just like cash, the value stored in a digital dollar would be instantly accessible to stores. But are Americans willing to kiss their greenbacks goodbye? Tamer Soliman/Getty Images

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With a dozen states considering sending payments to taxpayers to ease the sting of inflation, one listener is wondering whether more checks could actually have the opposite effect. We’ll break down the arguments on this Whaddya Wanna Know Wednesday. Plus, President Joe Biden announced this week that the pause on student loan payments would be extended to the end of August, but how would forgiving student loans altogether impact the nation’s economy? We’ve also got answers to your questions about bitcoin and the red-hot housing market.

Here’s everything that we talked about today:

Do you have a question for Whaddya Wanna Know Wednesday? Share it with us and it could be answered on the show! Send us a voice memo or email to makemesmart@marketplace.org, or leave us a voicemail at 508-U-B-SMART (508-827-6278)!

Make Me Smart April 6, 2022 transcript

Note: Marketplace podcasts are meant to be heard, with emphasis, tone and audio elements a transcript can’t capture. Transcripts are generated using a combination of automated software and human transcribers, and may contain errors. Please check the corresponding audio before quoting it.

Amy Scott: On cue.

Kimberly Adams: Hello, I am Kimberly Adams, and welcome back to Make Me Smart where we make today make sense.

Amy Scott: And I’m Amy Scott, and we’re happy to have you joining us for Whaddya Want to Know Wednesday. Our listeners have been sending in questions over the last week, and we’ll do our best to answer a few of them today. And if you have a question that you think we should answer on this segment, leave us a voicemail that 508-827-6278, or you can send us an email, it’s makemesmart@marketplace.org. Mandi. from Texas has our first question in an email, it says: “I saw a few articles lately about states considering sending out stimulus checks or tax rebates to lessen the impact of inflation on their residents. Doesn’t this have the opposite effect of the interest rate increases to combat inflation? If so, why are states considering the stimulus? Can you make me smart?”

Kimberly Adams: So the short answer is yes, that it could increase inflation in the long term because you put more cash into the economy by giving people another stimulus check. They can spend it on more goods, increasing demand, pushing up inflation. Yes, sure. However, politics, a lot of politicians are facing a ton of pressure to do something to give people relief right now, especially around gas prices and food prices. So about a dozen states, including Georgia, Maine, California, and a bunch of others are proposing sending stimulus checks to their residents to kind of like ease the sting of inflation, sometimes that’s in the form of direct payments, tax credit, or maybe even a tax rebate. Now, economists at the Federal Reserve Bank of San Francisco, basically found that the stimulus checks that went out during for the American Rescue Plan did push up inflation slightly. But the tem – the impact of it was temporary, another round of federal stimulus checks could fuel inflation in the long term. Because the extra financial cushion could you know, according to some, disincentivize job seekers from sort of taking the first low-paying job they could find, but it’s, you know, that didn’t necessarily hold up in the first round of stimulus checks. That was a big concern. But that wasn’t necessarily as pervasive as a lot of people thought or or said it was. So potentially, yes, could push up inflation in the longer term win people some political brownie points in the short term. But inflation is so significant right now that it’s unlikely that it would make a huge dent. I mean, what do you think, Amy? Would you want – I mean, obviously, you take another stimulus check. But what do you think?

Amy Scott: Well, I guess I would, but I mean, I think that speaks to the issue. I don’t – we don’t need it. You know, a lot of people don’t need it. Because balance sheets, household balance sheets generally are doing pretty darn good. And a lot of economists I talked to would think that adding fuel to this fire is not what we need. Right now, the economy is already overheated, in many ways. So maybe it’s a relief check. The difference between relief and stimulus. I don’t know.

Kimberly Adams: That I mean, that’s a good point, though. It’s sort of like we have these big data numbers about household balance sheets that is like how much people have in savings and how much they have in debt and how it balances out, doing well in the aggregate. But still a lot of people, especially lower income people feeling the hit of this inflation because they spend a larger portion of their incomes on food and fuels in the areas where we’re seeing the, you know, biggest jumps. And so it’s kind of hard to tell people who are struggling, you know, like, “oh, sorry, we can’t give you this check, because it’s gonna be bad for the macroeconomy.”

Amy Scott: Right? Well, it seems like it would have to be more targeted right? Rather giving everybody under a certain level, some money, people who really need it could use relief. But the economy in general doesn’t need people spending a lot more. I mean, what the Feds trying to do is reduce our spending to bring down inflation.

Kimberly Adams: Exactly. All right. Next question. The Biden administration announced that it’s extending the pause on student loan repayment through August 31. And we got this question about student loans.

Adriana: This is Adriana from San Antonio. With all this talk about student loan forgiveness, I just can’t help but wonder how is that going to hurt the U.S. economy? Please let me know. How would that affect us? Appreciate all the info. You have a blessed day.

Kimberly Adams: Thank you.

Amy Scott: All right. That’s a good question. So a couple things. One is that the Biden administration is extending the pause on student loan payments through the end of the summer, it has not come out and said yet that there’s going to be a more widespread forgiveness of student loans. But that was something that candidate Biden did support when he was running for president. He supported forgiving up to $10,000 in student loan debt per person. And I think some are watching for a decision from the White House in the near future about what it’s going to do more broadly. The economic impact kind of depends on the scale and who gets this relief. Broadly speaking, again, going back to stimulus, student debt relief, could act like a tax cut to stimulate economic activity, which could actually, you know, contribute to more inflation. But by and large are seen as good for the economy, if people aren’t spending all this money on student loans, they potentially spend it on other things. For the federal budget, though, it does, you know, take a toll I think forgiving all student loans would cost $1.6 trillion according to the Brookings Institution, limiting that to the $10,000 per person President Biden had proposed, it would be about 373 billion. And again, that’s money that could be spent, you know, on other priorities, and other programs that help people who need help. And I would I would also point Adriana to an episode that we had on Make Me Smart a while back about student debt cancellation, where they kind of, Kai and Molly did a deep dive on this question. And again Kimberly, I suppose, you know, maybe it would be nice to just have that erased. Those of us who have paid our student loans, though, I finally paid mine off a couple of years ago.

Kimberly Adams: Congratulations!

Amy Scott: You know, I would be a little jealous. Thank you.

Kimberly Adams: That’s a that’s a big accomplishment. Yeah, it’s such a fraught topic, because there’s arguments that it would, you know, serve people who don’t need it, but, and you know, disincentivize people from, you know, even paying on them at all, if they think it could be eliminated. But also, it’s interesting, one of the notes that Marissa put in was that it wouldn’t –  even though it could potentially increase the deficit, because money would not be coming in on those loan payments, it wouldn’t actually increase the federal debt, because the money that funded the loans is already out the door, which is kind of an interesting factor of debt versus deficit. Yeah.

Amy Scott: All right. We also had some great questions last week about Bitcoin. Here’s another one.

Charlie: Hi, my name is Charlie. I’m calling from Clive, Iowa suburb of Des Moines. Recently, you had a description by an outsider, of how Bitcoin works. I have two questions. The first one is, where does the Bitcoin come from, that these people are rewarded with. Is there like a mint or something that’s generate them? And the second question is, who generates and submits these complicated math problems that everybody works on?

Kimberly Adams: So there isn’t a Bitcoin mint, per se, it all kind of circles back to mining and the mining itself is the way that Bitcoin is generated. And just to recap, from last week’s show mining Bitcoin or other cryptocurrencies involves solving these really complicated math problems to earn the right to add a block of transactions to that particular cryptocurrencies block chain, which is like a register or ledger of transactions that’s public and everybody can see it. Okay. So now each one of these blocks of transactions has like a code on it that you get by solving that complex math problem. And doing that it takes all that computing power that Charlie was talking about. If a miner does solve it first they get to add to the blockchain and they are rewarded with the Bitcoin and right now it’s like a subsidy, which comes out to like 6.25 Bitcoin, plus the transaction fees for the block which is combined with the block subsidy and then bitcoin miner gets the reward. Now, there are a limited number –d id that make sense so far Amy.

Amy Scott: Oh, my God, I’m so impressed.

Kimberly Adams: Oh, God, I got Matt Levin’s help with this earlier today. Matt Levin helped me out earlier with this. Okay. So right now, there’s like a limited number of Bitcoin by design and the amount of bitcoin that miners receive for solving these problems drops every so often. So in 2024 if you win that contest, you won’t get 6.25 you’ll get 3.125 Bitcoin and when Bitcoin mining first began, if you got an early and you solve that problems, problem first, you got 50 Bitcoin per block. And so that’s where the Bitcoin comes from. Now in terms of where the problem comes from, it comes from an algorithm. Basically, it’s the Bitcoin protocol, which is a code that produces this proof-of-work algorithm that gives you this number. And so it’s generated by an algorithm. And then, you know, that algorithm was probably designed by the mysterious actor who created Bitcoin in the first place. So all of these things that, yeah, this is this is why, you know, Bitcoin is one of those things that I feel like people are either like, all the way into it, and deep in the weeds or they’re just like “I can’t, I’m just not even going to deal.”

Amy Scott: I – yeah, I mean, I feel like a business reporter shouldn’t admit this, but I’m kind of the latter camp. It’s just so headspinning to me that this whole thing has to happen. And what is the result of all those problems solving? So yeah, I’m impressed. Kimberly, really impressed. And I hope that helps Charlie.

Kimberly Adams: Yes, and I would really direct everyone to check out the series that Matt Levin Lily Jamali, Andy Mueller and a bunch of other folks worked on cryptocurrency mining, it really gets into these things and lays it out in very clear detail. And there’s a lot of resources attached to that. All right, what do we have next?

April: Hi, this is April from Denver, Colorado. I, like many other millennials cannot seem to break into the housing market. Sometimes I hear others saying they’re waiting for another housing crash so prices drop before they purchase? Can you make me a little smarter about the ebbs and flows of the housing prices over time? Thanks for the help.

Amy Scott: Oh, wow. Yeah, I know, this is my area. So okay, here we go. April, I’ll try to keep it short. I would not hold my breath for a crash. I’m just gonna say that. I mean, you never want to be the one to say “well this time is different.” And then, you know, the economy always finds ways to surprise us. But the smart people that I talked to say this really is different than the housing crash in the 2000s. Because that one was fueled by speculation, and unsustainable and you’re responsible debt. What what’s going on now, is that we just don’t have enough houses. And so it’s causing bidding wars, from people who just want to buy a house to live in, not to bet on and those bidding wars are driving up prices unsustainably. I mean, there’s no question the market is unhealthy. But that’s a little bit different than a bubble that people are expecting to pop, at least right now. But I will say I mean, it’s hard to time the market. But I’ve talked to folks who are expecting things to moderate a little bit, and for a couple of reasons. First is that as mortgage rates go up, in this week they surpassed 5% for the first time in about four years, there will be less demand, because people are, you know, if they’re facing higher monthly payments, they may just not be able to do that. And so if there’s less demand, we might see that price growth softened a little bit. Also, spring and summer are usually a time when people put houses on the market. And so we hope that inventory will pick up a little bit. Also builders are building, finally, more houses than they had been. So hopefully, this will give you some relief. But I know I mean, having lived in Denver, myself, that market has been really hot for a long time. And I think, you know, if you’re looking at a place to live, and you are in a financial position to buy, it doesn’t really make sense to wait because if you did that, like three years ago, you’d be wishing you jumped in sooner. Right?

Kimberly Adams: That’s all you Amy.  Yeah. And, and buyers aren’t just competing with like each other, and people who want houses, they’re also competing with like, you know, the investors and things like that people coming in with these all cash offers and stuff, right.

Amy Scott: Yeah, and that is different. I mean, those that is, you know, it’s not exactly speculation, but there are a lot of people, not just investors, but people moving from more expensive markets to less expensive markets armed with cash. So the competition is really crazy. But I do – I wanted to point out a chart we actually had a story on the the PM show today about the Case-Shiller home price index, and it’s kind of complicated history. But there’s a chart from The St. Louis Fed that we can link to on our website that shows the trajectory of prices and you do see that they kind of dip quarterly every now and then. But except for that crash, you know, between 2007 and 2012 prices have basically been going up for most of the last 50 years. So downturns are pretty rare doesn’t mean it won’t happen again. You know, I just as I said, I wouldn’t be holding my breath.

Kimberly Adams: Okay, that’s all we are gonna do today. Yeah, yeah, that’s it. Thank you so much all for listening. And we will be back tomorrow with the news and some Make Me Smiles you can keep sending us your questions for Whaddya Want to Know Wednesday, and then you can also email us makemesmart@marketplace.org or leave us a voicemail at 508-UB-SMART.

Amy Scott: Make me smart is produced by Marissa Cabrera and Marque Greene with production help from our intern Tiffany Bui.

Kimberly Adams: Today’s show was engineered by Juan Carlos Torrado. Ben Tolliday and Daniel Ramirez composed our theme music and our senior producer is Bridget Bodnar, although Marissa is handling that today.

Amy Scott: Thanks Marissa.

Kimberly Adams: Thanks, Marissa.

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