The stimulus package will accelerate the collapse of the dollar

The government is throwing gasoline on a fire

By Bradley Forrest, Collegian Contributor

In March, President Donald Trump passed several bills allowing for “stimulus” to the United States economy. The most well-known amongst these was the CARES Act (costing $2 trillion) which sent $1,200 to every adult making under $99,000 per year. Other parts of the stimulus went to big corporations and propping up the stock market. Many people applauded the bill, as it gave money to those who had lost their jobs due to shutdowns amidst the pandemic. However, there are many hidden costs to this bill that are often ignored.

To understand the cost of the stimulus bill, we must first understand the value of the United States Dollar. While it may not seem obvious, the dollar, like anything else, has a price associated with it. This can be confusing at first, since one dollar is by definition worth just that – one dollar. That said, it is constantly being traded with other goods and services. For example, if you buy a can of beans for $1, the price of that dollar was a can of beans.

In the long run, the demand for an item returns to the true intrinsic value of the item. In the short run, however, items may be demanded more than their intrinsic value. This is called a bubble. For example, the demand for houses in the long term is based on their intrinsic value as a place to live. However, in the 2000s, people began speculating that others would continue to buy houses, creating artificial demand and propping up the prices of houses. This led to the burst of the housing bubble in 2007 and the Great Recession that followed.

The intrinsic value of the USD is zero; fiat currency is not good for anything and has no true purpose. It is a mere piece of paper (or even just a number on a screen) that cannot be redeemed for gold or any other commodity that has real value. Therefore, any price put on a dollar means it is overpriced. In the long run, the value of the USD, like all fiat currency, will collapse down to its true market value of zero and be worthless. It does not matter that this “good” comes from the government as opposed to a private business or that the treasury prints the words “legal tender” on it. The intrinsic value remains the same.

The main action by the government that devalues currency is printing money; it is almost the sole cause of inflation. In fact, the old definition of inflation was an increase in the money supply, not a rise in the price level.

As economist Friedrich Hayek said, “With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” When governments issue commodity currency (such as the gold standard), they need to fund the government through legitimate means of either taxation or debt. Both are politically unpopular and are typically resisted by citizens. However, as economist John Maynard Keynes observed, the government can take large portions of wealth from its citizens without them really noticing, “[b]y continuing a process of inflation, the government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” Taxation and debt are the equivalent of an armed robbery while inflation is a pickpocket. The government takes the same value in both circumstances, but inflation is rarely recognized or protested by the people.

Now, back to the stimulus. A very large portion of the money to pay for the stimulus was printed. Estimates show that 22 percent of the money in circulation now was printed in 2020. In an interview by alumni David Pakman about how the government paid for the stimulus, economist Stephanie Kelton said, “the federal government sits in a unique position as the issuer of the currency; it can’t run out of money.” Of course, this is totally faulty logic. By her own logic, the more money a government prints, the richer it becomes. Zimbabwe, Argentina and Hungary would be some of the richest countries in history under her own logic. It just proves Hayek’s point: no government is responsible enough to have a monopoly on money. Sooner or later, every government will just print more money.

People who can’t afford rent now are certainly not going to be able to afford it when the price skyrockets. While I sympathize with people who have lost their jobs due to the shutdown, the government is not throwing water on the fire, they’re throwing gasoline on it.

Bradley Forrest can be reached at [email protected]