Stimulus Package Passes

Back in my first Economics class my teacher described me as a monetarist. That is an individual that sees monetary policy, that controlled by the Fed, as more powerful and effective than fiscal policy, that controlled by the President and Congress. I have since taken on a more pragmatic perspective. I am always in favor of tax cuts for instance. That said, this latest round of fiscal and monetary policy shows to me again why I am a monetarist.

The Congress agreed on a stimulus package of about 150 billion dollars. This package will send rebate checks to folks ranging from$300-$1200. Here is where monetarism is reinforced to me. This stimulus package was fast tracked and the package went through the Congress and will become law in lightning speed relative to the way in which Congress and the President normally operate. Despite all of that, these checks won't start arriving until May at the earliest. In the meantime, the Fed has lowered the Fed Funds rate two points in the last couple months and that immediately affects the liquidity of the banks. The Fed Funds rate is the rate at which banks can borrow from the fed. Their interest rate is immediately lower and the effect will be felt immediately. The President and Congress moved their stimulus package through the legislature at lightning speed and none of its effects will be felt until May at the earliest.

Beyond that it is unclear what effect this will have. Most of the rebate checks are going to the middle class and most of them are deep in debt. It is unclear how much of this will be spent on paying down bills and how much will be spent buying things.

The situation remains fluid...