I will be writing a series of articles on the ramifications of the business shutdowns related to the coronavirus, and, more importantly, the response of the federal government and the Federal Reserve.

Even if the virus disappears within the next month and everything is declared open for business, we are not going back to normal.  There is already talk about unemployment in excess of 30%. This would exceed the highest reported unemployment from the Great Depression.

Even if things are reopened, how many businesses will be able to just open their doors as if nothing had happened?  And for those that do open their doors again, will they be hiring back the people that were let go during the shutdown?

In this article, I am going to discuss one portion of the $2 trillion bailout legislation that sailed through Congress.  It is called the CARES Act, which reminds me of the naming of the Patriot Act.  If you “care”, then surely you must support this legislation.

The portion I will discuss today is the checks that will be sent out to most adult Americans. If you are single and make under $75,000, then you will receive a check for $1,200.  For a married couple who make under $150,000, they will receive a check for $2,400.  You can add in $500 for each dependent child.  Therefore, a typical family of four (married couple with two kids) will receive a total of $3,400.

First, it is important to realize that the checks being sent to individuals are actually a small portion of the bill, relatively speaking.  This makes up about $300 billion of the legislation.  In other words, Congress could have spent the same money ($2 trillion) and sent checks to nearly everyone totaling almost seven times what they are sending.

In this scenario, a typical family of four, instead of receiving $3,400, would receive over $22,000.  Of course, that would have meant no corporate bailouts, no extended unemployment benefits, and no allocations to all of the pet projects pushed by the lobbyists.

If a small business owner received a check for $22,00, that might go somewhere.  It might be enough to cover the shortfall for a couple of months.  But we know that wasn’t going to happen.

As Thomas Massie stated on Twitter: “The stimulus package that just passed is the biggest wealth transfer from common folks to the super-rich (Wall Street and bankers) in the history of mankind. Done in the name of a virus with $1200 checks as the cheese in the trap.  This will be obvious in short order.”

Many Americans cheer that they will get “free” money from the government.  Some are rightly skeptical.  The truth is that this is going to be a major disaster.

This will ultimately make most people poorer than they otherwise would have been.  This money is being extracted out of the private sector in the form of debt and monetary inflation.

Your Situation

Everyone’s personal situation is different, so it is hard to give blanket advice on what to do with the “free” money, if in fact you are receiving some of it.

First, I think it is important to continue paying your bills (your obligations) as long as you are able to do so.  If you still have your regular income coming in, then this should not be a problem for now. If you are unfortunate enough to have lost all or some of your income, then you should still try to pay your bills if possible.  But if it is a choice between feeding your kids and paying your credit card bill, then feed your kids.  You should even feed your kids (inexpensively) before paying your rent.

The next thing to consider is whether you have any debt that should be paid down.  If you can eliminate credit card debt with your coronavirus check, then it may be a good idea to do so.  For bigger things, like a mortgage, and possibly car loans and student loans, you probably shouldn’t pay down that debt unless it will pay it off entirely.  It is better to keep some emergency funds on hand.

If you have anything that needs to be done, such as new tires for your car, then you should certainly take care of important things like that.  But hopefully you had budgeted for such an expense before and this new money is not needed for that.

It may be tempting for some of you to invest the money.  There is plenty of volatility in the stock market.  There is money to be made there, but there is also money to lose there.

I think at this point in time, it is best to be conservative with your money.  We face a very uncertain future at this point. Again, even if the scare of the coronavirus goes away shortly, we are going to be left with economic devastation.

I was already convinced that we had major economic troubles ahead, and that was before I had ever heard of the coronavirus.

There is a bit of a conflict between what should be done in the short term and what should be done in the long term.  For the short term, I think it is important to have emergency money. Most of this should be in an FDIC-insured bank with a little bit of physical cash at home.

For the longer term, I think we should fear the destruction of the dollar.  There is a great degree of uncertainty how this will play out.  With the U.S. dollar, there is going to be a tug-of-war between a high demand for cash and the Fed’s money creation.

There is great fear, and we are almost certainly in a deep recession.  The demand for money goes up.  Most people will be cutting back their spending on non-essential things.  This should be mostly deflationary for consumer prices.

But then you have the Fed on a wild digital money printing spree.  If the Fed keeps going at its current pace of something like $600 billion per week, or even anything close to it, then I can’t discount the possibility of hyperinflation.  I still give hyperinflation a low chance, but the chances are a lot more significant than they were a month ago.

I don’t know who will win the tug-of-war.  I fear it will be the Fed in the sense that they will exceed their 2% price inflation target.  Regardless, there is going to be great damage done to the economy.  There will be a massive misallocation of resources.  Capital investment will be severely hampered.

If we end up with price inflation in the double digits, I think the Fed will be forced to pull back.  We just have to hope that it’s not too late.  I would love to see the end of the Fed, but not as a result of hyperinflation that destroys the division of labor and our civilization.

I can’t predict anything in the financial markets with certainty.  But I am as certain as can be that gold is going to ultimately go up significantly in terms of U.S. dollars.  Regardless, it is important to have gold as a form of insurance, and it is more important now than ever before in our lifetimes in the United States.

If you already have an emergency fund, then my best suggestion is to take your “free” government money and split it between cash and gold.  The cash portion can bulk up your emergency fund a little more.  The gold can give you a little bit of insurance against a currency crisis.

That is the best I’ve got for you right now.  I will continue to stay up to date on what the Fed is doing.  I think the unsustainable spending from Congress will continue until the Fed has to refuse to buy more new debt. Unfortunately, the Fed will only take this stance once it is forced to do so because of high price inflation. In the meantime, most everyone will get poorer, but some will get poorer than others.