Will You Be Getting A Stimulus Check?

Hi guys, Eddie here with another video. Today we're going to be discussing the concept of helicopter money and discuss whether UK citizens will actually receive a £2,000 stimulus check similar to what's been actually used in the United States. So first of all, what are stimulus checks? So Stimulus checks are essentially a lifeline for anyone who has lost their jobs due to the countrywide coronavirus lockdown. And they're part of essentially an economic relief package. So if we take the United States, this was a $2.2 trillion economic relief package passed by Congress in March. And this is part of a bill called the CARES Act. Millions of residents in the United States have essentially been receiving free money. So this is a $1,200 stimulus check. Okay. So this is to help them cope with the financial effects of coronavirus. Lots of people have lost their jobs in recent months. Small businesses are extremely struggling, particularly in retail, restaurants, etc. And $160 billion has been paid out in around 88 million checks, with a total of 150 million non-taxable checks expected to be given out by the end of the scheme. So as a result of these kind of injections, many people in the US are receiving this, and this is actually a term called helicopter money, and I'll discuss that later in the video. Donald Trump obviously is a big advocate of this to help his kind of political cause, and he actually is calling for this to go further. So the reason I wanted to discuss this is UK and the Bank of England, we're likely in the biggest depression right now. I know it kind of doesn't feel like it because we're all in lockdown, but this is actually something that the Bank of England have discussed and said we're in the biggest depression since around 1706. So yeah, 1706. And there's a lot of policy discussions at the moment, lots of Bank of England governors talking about negative interest rates. And as far as they're concerned, it's definitely a tool that they're going to explore. But like the United States, they may have other measures to look at. So why would the government just give us free money? And what does helicopter money really mean? So essentially, this is actually put put forth by a Nobel Prize-winning economist called Milton Friedman. And this was actually in a 1969 paper entitled The Optimum Quantity of Money. He basically proposed in this paper to hand out cash to the public as a means of kind of kickstarting the country and more importantly, the economy. In a very famous quote, Friedman wrote, let's suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by the members of the community. And why is this kind of tool being explored? Trillions of dollars, literally trillions of dollars. So in euros, yen, pounds, central banks have been pumping this into the economy to kind of get it going. And this is the same like we saw in the 2008 credit crisis, but global economic growth is expected and forecasted as a result of coronavirus to fall by around 50%. So all this money is being pumped in in the form of quantitative easing, mostly, and this is essentially via open market operations, the Federal Reserve or any central bank like the Bank of England buying these government debt, these treasuries or gilts, in the open market, and this basically provides liquidity to financial institutions. What helicopter money does is it directly hands money to consumers. And the theory basically just says that we would send us— it would send us scurrying to the shops or online shopping to spend our windfalls and boost the economy, essentially increasing consumer expenditure. And as a proportion of GDP, consumer expenditure is around 70%, mostly in most economies. So that increased demand would then allow prices to rise again, because there's a huge discussion at the moment about deflation, because there's been a huge demand shock as a result of the coronavirus. And there are fears of this extended stagflation or potentially deflation, which is extremely dangerous. And deflation versus inflation is a concept I'll basically cover in another video. But deflation, deflation is actually more dangerous than inflation as consumers believe prices are going to fall further. They put off spending even more. And then obviously this has a ripple-on effect in terms of kind of the velocity of money and people actually putting off purchases, which actually shrinks the economy. So this actually goes directly to consumers, whereas QE doesn't have a direct impact on the public. So who would be eligible for this stimulus payment? So this is actually taking kind of a very holistic overview of the US, kind of the way they've set this up. So I've kind of translated it into pounds. and this is something what it could look like. So this could be you're a single UK resident and have an adjusted gross income of less than £75,000. If you make more than £75,000, the amount given would go down incrementally by £5 for every £100 increase in salary. So it's an incremental kind of increase or decrease in the stimulus check for the increase in income that you have above that £75,000 hypothetical wage. You file as the head of the household and earn under £146,000, which obviously sounds like a lot of money, but let's say you don't have a partner that's currently working at the moment. So otherwise, you file jointly without children and earn less than £200,000, or you're the parent of a child aged 16 or younger. So This is, you know, may sound so too good to be true, but this is an economic measure that's essentially going to stimulate consumer expenditure to essentially repay that money. You will not need to repay that money. Essentially, it will be the economy that kickstarts again and then the ripple effect and the multiplier effect of that consumer expenditure should pay the government back and the economic damage could be lessened. and economic growth could then increase. What are the political implications? Opponents basically argue that helicopter money isn't really free and actually printing more money, so not quantitative easing, but through helicopter money devalues the buying power of essentially what savers have in their accounts. This paired with potential negative interest rates could, where there's essentially negative interest rates or a tax on savings, this could have a real impact on savers. So others also say that helicopter money is an overly complicated substitute for fiscal stimulus that governments should be providing. But again, that costs a lot of money. The Democrats in the United States want another $3 billion to be passed. So obviously this has to be paid back in the future. Usually by higher taxes. There's also a real danger that this could trigger much higher inflation than the 2% target that's deemed desirable. But just remember, there's $7.9 trillion that have been pumped through QE that could lead to potential inflation as well. So if you've got that two-pronged effect, let's say in a year's time when the economic damage and the deflation, stagflation, whatever you want to call it, of this year is kind of bypassed. You've got all this liquidity and there could be real inflation to be triggered. It may actually just fail anyway, given that nothing basically in economics is currently working out as a textbook promised. You know, why would this work? People may just save this stimulus check instead of spending it. So what would you spend your stimulus check on? So this is a graphic that basically says that consumers that receive the stimulus check in America basically made stock trades and were investing in equities. So obviously this would have a negative impact on what they actually want you to do with this money. This is just basically flowing back into the equity of companies. What they want you to do is basically go to your local restaurant, your bar when they open, and support your local economy, support your domestic economy so it gets going again. So trading stocks was among the most common uses for the government stimulus checks in basically nearly every income bracket according to this data. And people earning between $35,000 and $75,000 annually traded stocks about 90% more than the week prior to receiving their stimulus check. And the data basically says there's a correlation between COVID and people being renegade with their money. So the question is, what would you spend your stimulus check on? Put down in the comments section below. Maybe I would spend my money on getting a decent haircut. But I hope you enjoyed the video. Have a good weekend and take care.