2020 represented a year full of turmoil and despair for some and opportunity for others. While millions lost their jobs, the portion of the population that managed to stay employed saw their bank balances swell. The weekly unemployment claims chart provides a stark contrast to the M2 money supply chart below. M2 money supply consists of savings deposits, money market funds, CDs below $100,000 and M1 money stock.
Cheap money became cheaper. We had stimulus programs that rivaled anything we have seen before both in terms of speed of rollout and size. The chart of the 10 year treasury rate and the Fed’s balance sheet speak volumes.
While we did a lot wrong on the pandemic front, we did a lot right on the fiscal front. Yes, we will pay the price for all this stimulus in the years to come but we averted a complete disaster. Watching the bear market unfold during the Great Recession in 2008-2009, I was amazed by the resistance to the $700 billion TARP program. That program bailed out a lot of large companies but was instrumental in stabilizing a financial system on the brink of collapse. The fact that the TARP program eventually turned a profit for the government was just the cherry on the top. Oddly enough, there was no resistance to the stimulus programs this time around and not enough concern for either the Fed’s ballooning balance sheet or our growing budget deficit. According to the nonpartisan Congressional Budget Office,