Was It Worth It?

Cullen Roche recently posed an interesting question on Twitter. Was it worth spending trillions of dollars to make the COVID induced recession go away in a blink of an eye? While it wasn't perfect and hindsight is 20/20, there's no telling how bad things could have gotten had massive monetary and fiscal support not been put into place.

It's a great reminder that we live in a world full of trade-offs. And keeping the world economy on life support for a few months wasn't going to come without consequences on the other side. Higher inflation for everyone.

"Americans got a stark warning from the government this week: Expect higher heating bills this winter. According to the Energy Information Administration, nearly half of U.S. households that warm their homes with mainly natural gas can expect to spend an average of 30% more on their bills compared with last year."

You can substitute natural gas for real estate, furniture, food, travel, vehicles, rent, wages etc. Social Security just received its highest cost-of-living adjustment in nearly 40 years. Store shelves are empty. Ports are backlogged. We can't find workers to fill vacant jobs.

I find parallels to the aftermath of World War II. After the war ended, soldiers came home to double digit inflation - attributed to pent-up demand, supply shortages and the release of price controls. There was major concerns around American exports since Europe and Japan were in ruins. Interest rates were intentionally low, which allowed for the country to service its debt and support the birth of the American consumer. Ultimately, inflation receded. 

So yes, what goes up must eventually comes back down. There's still a strong case (IMO) that deflationary pressures (technology, demographics etc.) rule the day and ultimately outweigh the present economic disruptions. Alternatively, above average inflation and economic disruption could be here to stay for a while. Wage inflation will presumably stick (who's going to take back a pay raise) no matter what, which is a great thing. But the story is not yet fully written. Never is.

Wouldn't it be ironic that what saved the economy and stock market in March of 2020 ultimately helped lead to its downturn and the next recession? But we'll never know what would have been in the absence of that unprecedented action that took place 18 months ago. 

Was it worth it? Time will tell to see how this piece of history unfolds.

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