So... Where's All This Money Coming From?

Written by Jason Simpkins
Posted March 20, 2020

I'll confess I was scared there for a minute.

There's a restaurant across the street from my house and I'm friendly with the owner. When things started to go sideways last Friday I asked him how his business was holding up. 

He told me he was already hurting and had no idea how he'd cope if they shut down restaurants and bars. His waitstaff, kitchenstaff, and bartenders were worried too. Most of them live paycheck to pay check. 

How would they survive this?

Well, now we have at least something like an answer. The government is going to to freeze evictions to keep people from losing their homes and start sending out checks. 

I actually think those are both really good ideas. But that's certainly not the end of the government's grandiosity. 

Corporations, as always, are going to get a heck of a lot more. 

"We're going big," the president promised Tuesday. 

But again, he wasn't talking about those $1,000 crisis checks. He was talking about the airline industry, where he aims to dump $50 billion.

“This is not their fault," Trump said. "So we have to help them during the short term.”

This is something I've really been struggling with...

I was told again and again that, prior to the pandemic, the economy was the strongest it ever was. Investors had been fortunate to bask in a decade of stock gains.

We witnessed several consecutive years of record corporate profits. And amid all that prosperity, they still got a massive, $1 trillion tax cut.

So how were they not prepared? What have they been doing with all that money?

Oh that's right, buying back shares and doling historically huge sums out to executives.

You see, I'm sympathetic when it comes to small business owners and working class individuals. But I'm a heck of a lot more skeptical when it comes to billion-dollar cash bombs being dropped on multi-billion-dollar corporations that ought to be able to protect themselves.

Though, I guess corporations are people too. 

So if we're determined to do it then, I guess my next question would be...

Where's all this money coming from?

Even before the crisis hit, the U.S. budget deficit had racked up $625 billion in the first five months of the current fiscal year. And it was already poised to top $1 trillion by that fiscal year's end. 

Also before this crisis landed,the latest CBO report showed 10 straight years of trillion-dollar deficits carrying us to 2030.

U.S. government debt held by the public was projected to soar from nearly $18 trillion at the end of 2020 to $31.4 trillion by the end of 2030. As a share of the economy, such debt would grow from 81% of GDP this year to 98% by 2030 — the highest percentage since 1946.

I even wrote about it on February 28, after Congressional Budget Office Director Phillip Swagel appeared before the House Budget Committee and implored our leaders to show some restraint.

"Our debt is on an unsustainable path," Swagel warned.

Well, Congress blew Swagel off then, and that was back when certain bad actors were out there dismissing coronavirus as a nothing-burger and the latest liberal hoax.

Now, as we sit here staring catastrophe in the face, in an election year no less, Congress REALLY doesn't care.

Cost be damned!

We need helicopter money to fortify our donors and bail out the executives who squandared their companies' fortunes on themselves... Or, err, I mean we need to reduce hardship on everyday Americans.

That means the deficit will likely soar well past the record $1.5 trillion hit in 2009.

Moody’s Analytics estimates the budget gap will hit $2.1 trillion this year and $1.8 trillion the next. J.P. Morgan economists project deficits of $1.7 trillion this year and $1.5 trillion next. Decision Economics Inc. projects $1.9 trillion this year and $2.5 trillion next.

That's a lot of pudding.

And it's all set to land squarely on top of the $23.5 trillion in debt we already collectively hold as a nation.

No matter. We'll get to it eventually... if the pandemic subsides rather quickly that is. 

I mean, we don't really know how long this going to last or how bad it will get. So we're basically determined to see which has a deeper well to draw on - our deficit spending or the coronavirus.

Which one is going to run out of gas first?

Let's hope it's the virus.

That's all I can say. 

At least then we'll have a chance to postpone or even (in a dream scenario) address our fiscal reckoning.

But that I'm not optimistic about.

Even if these bailouts work. Even if the virus fades quickly back into the forbidden depths from whence it came, I don't believe our politicians or our political system has the gumption, foresight, and planning to address such a monumental task.

This debt parade will come to an ugly end. I'll be happy if it's not amid a pandemic but there's really no good time for disaster to strike.

So regardless of what happens in the short term, I'd encourage you to get ahead of it.

Prepare for the meltdown now.

Fight on,

Jason Simpkins Signature

Jason Simpkins

follow basic@OCSimpkins on Twitter

Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page. 

*Follow Outsider Club on Facebook and Twitter.

Heal Your Ailing Portfolio Body