Elon Musk loves space so much that he wants to send interest rates there.
The internet was abuzz yesterday with Elon’s proposal to send $5,000 refund checks to taxpayers.
To be clear, it is not actually “Musk’s plan,” as it was just a suggestion by an X user, and Musk offered to take it to the President (hardly a full endorsement).
But it is very interesting and valuable to think about the implications.
This Kobeissi Letter post explains it all in much more detail.
Sidebar: I hear news outlets citing the Kobeissi Letter all the time now instead of more traditional news sources, reminding us all that those traditional news sources are either dead or dying.
The plan is to redistribute 20% of DOGE’s projected savings of $2 trillion – so we’re a long way from being ready to send the checks in any case.
The plan is to also only send checks to households that are “net taxpayers” (that pay more than they receive). This is about 60% of U.S. households.
The total cost would be about $400 billion – 1/10 of the total cost of the $4 trillion in stimulus checks that went out.
So, this will not come close to having the impact on the money supply and inflation that COVID stimulus had.
Here are a few things to consider though.
- Maybe don’t send money to people who don’t need it. Net taxpayers tend to be far wealthier than nonpayers. And yes, I understand there is fraud amongst the nonpayers, and there is a “fairness” argument in that we’re returning money to those who paid. But the poorest among us are already suffering in our two-tiered economy – and they need $5,000 far more than net taxpayers.
- If DOGE actually does cut $2 trillion in spending very quickly, an economy that is dependent on that spending will slow significantly. This will be temporary, as government spending is usually a drag on the economy, but until the economy finds new sources of income from private investment (and it will if government is out of the way), it will slow. So, this would be a strong argument for sending $5,000 checks – just not now, before any substantial spending cuts have actually taken place.
- Taxpayers probably don’t want it. I once did a loan for a very wealthy restauranteur who wanted to pay more taxes to pay off our government debt – even though he was already taxed at over 50% (he lived in CA). I always respected that, but I suspect he would have had a different opinion if he knew how much money politicians wasted; how politicians always just spend more when they get more instead of paying off debt; and how much an oversized government actually hurts the economy and the lower echelons whose jobs are impacted by a slow economy. Anyway, it was interesting and gratifying to see the number of net taxpayers on X who do not want those $5,000 checks (count me as one of them).
- It will be inflationary because recipients will spend the money. Proponents make the case that $5,000 checks will not be inflationary because net taxpayers tend to be strong savers. But I suspect net taxpayers are more likely to save the money they earn and spend the money that falls from heaven (or from Elon, depending on your perspective). This is partially why COVID stimulus checks were so inflationary. Everyone ran out and spent the money – and that faster turnover of money (increased “velocity”) fosters inflation; it is not just the increase in the money supply.
- It will scare the hell out of the bond market. This is the biggie! Bond markets and financial markets worldwide are terrified that the U.S. will not get its financial house in order and start reducing its debt load. Politicians are already talking about spending DOGE savings (see #3 above where I say that politicians always spend more when they get more…) – which is disconcerting to put it mildly. In any case, if politicians, Musk, Trump, or anyone else tries to give away DOGE savings, the bond market will likely panic and send rates higher.
TLDR: If drastic spending cuts are indeed enacted in the near term, some forms of temporary stimulus may be necessary. But probably not to the wealthiest Americans – and the priority needs to be limitations on spending no matter what. And – if “refund” checks are announced too soon, rates will shoot to the moon in response. Fortunately, this is far from becoming a reality.
