The Wonders of Free Money in Two Pictures

Mish

Advance retail sales have recovered to the trendline.

Lesson of the Day

If you give away enough free money, spending recovers.

Census Report on Advance Retail Sales 

The Census report on Advance Retail Sales provides half of our "Lesson of the Day".

Adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, July sales were $536.0 billion, an increase of 1.2 percent from the previous month, and 2.7 percent above July 2019.Total sales for the May 2020 through July 2020 period were down 0.2 percent  from the same period a year ago.

The May 2020 to June 2020 percent change was revised from up 7.5 percent to up 8.4 percent. Retail trade sales were up 0.8 percent from June 2020, and 5.8 percent above last year.

Nonstore retailers were up 24.7 percent from July 2019, while food and beverage stores were up 11.1 percent  from last year.

Retail spending rose for the third straight month despite a rise in coronavirus infections with reopenings stalled.

Spike in Government Spending

Government Spendiing Spiked

The chart from Pew shows stimulus and deficits exceed that in the Great Recession. 

Since March, government stimulus authorizations (not all spent yet) total at least $3 trillion. Another $2 trillion is on the deck when Democrats and Republicans agree to another package.

That is the second half of the Free Money Wonder.

The federal government has run deficits nearly every year since the Great Depression and consistently since fiscal 2002. Through the first 10 months of fiscal 2020, the government took in $2.82 trillion in revenue and spent $5.63 trillion, for a year-to-date deficit of just over $2.8 trillion, according to the Treasury Department’s Bureau of the Fiscal Service. Through the first 10 months of fiscal 2019, by comparison, the deficit stood at $866.8 billion.

Looking at the deficit as a percentage of gross domestic product rather than in raw dollars puts it in the context of the total U.S. economy and makes comparisons over time more meaningful. As of the end of the fiscal third quarter in June, the deficit represented 13.1% of GDP, also a level not seen since World War II. By comparison, during the Great Recession in fiscal 2009, the deficit accounted for 40.2% of total spending and reached 9.8% of GDP.

Free Money Corollary Lesson

Nonstore retailer spending (think Amazon) is up 24.7 percent from July 2019

Even if you close the shops, the bars, and the restaurants, people will find a way to spend money if you give it to them. 

All Continued Claims

All Continued Claims in 2020 August 13

Over 28 million people have been receiving weekly $600 checks for months. Those checks get set to everyone on state programs as well as those on federal pandemic programs.

For details and discussion, please see Initial Unemployment Claims Dip Below One Million for the First Time Since March.

Where To on Spending?

It takes about $3 trillion in free money to keep spending about where it was.

The $600 weekly PUA checks ran out for over 28 million people on July 25.

Tomorrow, the third check won't get sent due to Congressional bickering over the amount.

$600 * 28 million * 3 = $50,400,000,000.

Unless people go further into debt. Spending will drop at least that much in the absence of additional and retroactive stimulus.

In addition, people have deferred rent payments, mortgage payments, and credit card payments. Those deferrals will kick in at some point as well. 

Add it all up and retail spending may be in trouble even if there is another package.

Losing Steam

Note that Boston Fed President Eric Rosengren says "The Recovery is Losing Steam"

That what happens when free money runs out. But the debt did not go away.

Losing steam was a given: Hello. There is No Magic Money Multiplier.

Mish

Comments (42)
No. 1-21
Jam_Ham
Jam_Ham

Young People are old enough to remember the GOP screaming bloody murder about Obama deficits and now see the GOP running up the tab like there is no tomorrow.

njbr
njbr

Time to fire up the Bernanke-bird helicopter again...

shamrock
shamrock

My niece got the extra $600/week and went on vacation every other week. It's easy to spend.

njbr
njbr

If God loves Republicans and America, why has he thrown the US down repeatedly under GOP administrations.

Inquiring minds want to know....

Tony Bennett
Tony Bennett

"In addition, people have deferred rent payments, mortgage payments, and credit card payments. Those deferrals will kick in at some point as well."

...

This doesn't get nearly enough play. Forbearance was for the asking on most loans - student / vehicle / credit card / mortgage. Easy to pump retail when folks got loads of free money + not have to pay existing debt obligations. The only thing that surprises me is that sales not even higher.

Black Knight today an interesting item. The number of mortgages in forbearance still dropping (slowly) now a little less than 4 million. BUT of those still in forbearance a whopping 73% were in extension of original 90 day grace period. I have a hard time imagining people making up 3 missed payments (lenders typically want a lump sum ... or payment schedule that makes everything current within year or two) as is ... but if you are asking for an extension? No Way most - if not nearly all - end up in default. Credit is / will tighten.

Tony Bennett
Tony Bennett

A bomb dropped Wednesday.

Pretty big news, but hardly reported. Anyone refinancing a Fannie / Freddie loan got hit with .50 point fee by the GSEs. Obviously, the GSEs see the tsunami of delinquencies / defaults coming ... and trying to build up a bit of capital to offset the losses.

Pater_Tenebrarum
Pater_Tenebrarum

It is quite funny that those who will end up paying the most are worried the least.

Pater_Tenebrarum
Pater_Tenebrarum

While both parties are big spenders, it should be noted that spending decisions are up to Congress, and the Democrats control the House at the moment (and are demanding an additional spending package that is three TIMES larger than the one the Republicans advocate for).

ksdude69
ksdude69

We have much bigger issues than retail spending. All of this can't possibly end well.

tokidoki
tokidoki

Unlike some idiots here, who keep insisting it's about the virus, this dataset shows that I've been right all along i.e. muppets are partying.

You give muppets money, they'll spend it. Full stop. That's the American economy.

Has nothing to do with the virus, etc.

Thank You China for giving us a Once In A Lifetime Party!!! Next Virus, comrade?

anoop
anoop

Always focus on the positive. No matter the data, find the most positive way to interpret it.

RonJ
RonJ

"The chart from Pew shows stimulus and deficits exceed that in the Great Recession."

During the Great Recession, state governments didn't shut down all artificially designated non essential businesses. Some 30 million people weren't suddenly out of a job through no fault of their own.

Two FED people, Kashkari, for one, want another shutdown. Salon owners were protesting up in Sacramento the other day, as Newsom closed them down again.
A barber shop that was open when i passed by a few weeks ago, is shut down again. It just opened this year. Next to it is a new hair salon, also closed down. Next door is a family restaurant that has closed permanently. A for lease sign is up.

Covid aside, there is a blue print called the Rise and Fall of the Roman Empire, which shows where things are heading. The cyclical human nature aspect never changes, just as the economic investing cycle remains the same, cycle after economic cycle.

RonJ
RonJ

It is the debt that is supposed to be paid down in the good times. Pay down the deficit does not pay down the debt. Neither political party has any intention of paying down the debt. That is why they always talk about some nebulous 10 year plan that they already know will never be fulfilled.

magoomba
magoomba

This inflation will be largely unenforceable on the peasantry. Although it would be very pleasing to many feudal lords to have the serfs huddled outside sick and starving while the housing goes empty and the pipes freeze, it just isn't very practical. They will have to tax themselves haha.
They will have to print their money faster and faster from now on because the economy will NEVER 'recover'.

ToInfinityandBeyond
ToInfinityandBeyond

The Fed has lost all control and the economy is headed for some serious trouble. Trump and his cronies know we can’t afford another $3T bailout and the Fed knows that without it the economy is destined to fall precipitously of a cliff. We are between a rock and a hard place. Time to buckle up and enjoy the ride for as long as it lasts because things are about to get really really nasty in the next few months.

ToInfinityandBeyond
ToInfinityandBeyond

In the wake of the Financial crisis the government increased the unemployment benefit by a whopping $25 per week, extended unemployment benefits to as many as 99 weeks and the Federal Reserve increased its balance sheet by about $3.5T. Fast forward to the Covid epidemic and the overall response will eventually dwarf the response to the Financial crisis. Party on dudes.

tokidoki
tokidoki

@Mish, a bit of breaking news. Our famous crony American "capitalist" Buffet just bought big into Barrick Gold. 20.5 million shares, and he's dumped Goldman.

Remember this famous speech:
"(Gold) gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

ToInfinityandBeyond
ToInfinityandBeyond

Buffet is a smart cookie. His decision to unload bank stocks and buy a gold mining company does not bode well for the economic outlook.

purelogic
purelogic

As long as people are willing to go to work and eat the cost, money printing can be sustained indefinitely. They've been saying in Germany for a very long time: "Wer arbeitet ist der dumme." (The worker is the stupid one.)

RRAHH
RRAHH

It doesn't matter what people think is going to happen. I point to the price of gold as a measure of where the economy is headed. We are in the midst of spending ourselves into oblivion. The bill will come due in due-course. We will not be able to spend our way out of it, nor will we be able to continue creating money out of thin air. In fact, the only thing keeping our butts from the fire that is coming is the strength of our military and the current weakness of our creditors. Not to mention, the fact that the bulk of our debt is owed to ourselves. But good times are coming to an abrumpt halt, and soon.

ToInfinityandBeyond
ToInfinityandBeyond

More debt hardly sounds like a logical solution for a debt problem but it will work until one day it suddenly stops working and then all hell breaks loose.


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