Investors need to understand the latest coronavirus stimulus bill that was just passed. Investors can now take out up to $100,000 from their 401(k) or IRA prior to age 59 and a half without any penalty. The bill has also increased the loan size you can take out from your 401(k) to $100,000.
Another big piece of news investors should be aware of is that required minimum distributions are going to be waived for 2020. The question is how will the IRS fill the hole in the federal government’s revenue for the year.
This coronavirus bill is twice as large as the previous economic stimulus bill in the wake of the 2008 mortgage crisis. This is the single largest stimulus bill in the history of the world.
A quick breakdown of where the $2.2 trillion will be spent over the next few months.
Stimulus checks will be sent out. Individuals who make up to $75,000 per year will receive a $1200 check from the government. Couples who make up to $150,000 per year will receive a $2400 check. For individuals who make more than those thresholds, they will gradually reduce the amount of money being sent out.
Additionally, parents will receive an additional $500 per child. People that have their automatic bank deposit info on file with the IRS will receive their money in the next two to three weeks, those that don’t will be mailed a check but who knows when that will occur.
There is already a push for another stimulus bill beyond the first, specifically with pressure from Nancy Pelosi, that aims to increase the benefits for food stamps, increase the amount of money going to regular Americans, and introduces some environmental restrictions on airlines.
There is a lot more spending and money printing/borrowing coming down the line, including a plan for the US Treasury to mint two $1 trillion coins and deposit them in the Federal Reserve. This is essentially an exercise in playing around with Monopoly money.
There are universal financial laws at play here, and when you violate them there is always a chicken that comes home to roost. Money is valuable because it is scarce and creating more makes it less valuable and precipitates inflation or hyperinflation.
According to the New York Times, the stimulus is going to be financed by borrowing money. When asked how the government is going to pay for this additional spending, they claim that they will actually be reducing taxes on top of the spending.
There is always an unintended consequence of printing or borrowing money. This increase in spending will accelerate everything that we’ve been talking about on the podcast and that includes massive inflation.
Countries will likely stop loaning the US money unless we raise interest rates in the near future. Low-interest rates mean the loan is riskier for those countries so they are less likely to make them. Increasing interest rates will only make servicing the existing debt that much harder and will likely lead to a financial crisis much sooner than would have otherwise happened.
2030 will be a year of massive consequences for the US, and this stimulus bill may even bump that up to 2029 or 2028. We are essentially running a deficit of $3 trillion this year and that will have major consequences for the economy going forward. This is only emphasizing how important the Power of Zero paradigm is for your retirement.