The Stimulus Mirage

Washington's political theater loves a good magic show, and few tricks dazzle audiences quite like the promise of instant cash. Enter Trump's American Worker Rebate Act, the latest iteration of America's faith in the power of one-time payments to solve deeper economic malaise. The proposal, which would send $600 per person using tariff revenue rather than traditional borrowing, exemplifies what economists increasingly recognize as fiscal sleight of hand—stimulus that appears to offer relief but often masks fundamental imbalances.

The allure is undeniable. Direct payments provide immediate psychological comfort and brief spending bumps, creating the illusion that Washington can engineer prosperity through redistribution. Yet the checkered history of pandemic-era stimulus offers a sobering reminder of how such policies tend to play out: initial euphoria followed by the quiet erosion of purchasing power as prices adjust upward.

The proposed rebate checks arrive amid familiar economic crosscurrents that should concern any investor with institutional memory. Like their pandemic predecessors, these payments would inject liquidity into an economy where supply constraints and structural imbalances persist. The Federal Reserve's own research suggests that fiscal stimulus during the pandemic contributed approximately 2.6 percentage points to U.S. inflation—a finding that highlights how monetary injections interact with real economic capacity.

Similarly, former Treasury Secretary Larry Summers has cautioned that renewed fiscal largesse risks "setting off an inflationary spiral," particularly when labor markets remain tight and underlying price pressures persist. The current environment features unemployment near historical lows and wage growth still elevated—conditions that historically amplify the inflationary impact of demand-side stimulus.

The mechanics of the stimulus mirage reflect deeper monetary dynamics that often escape public attention. When government distributes newly created purchasing power—whether through borrowing or, in this case, tariff revenue—markets begin repricing assets and goods to reflect the expanded money supply. Charles Schwab's chief fixed-income strategist Kathy Jones has noted how such policies can create temporary demand surges that supply chains struggle to accommodate, ultimately resulting in "an imbalance between supply and demand".

This repricing process explains why stimulus recipients often feel richer initially but discover that their enhanced purchasing power proves fleeting. The $1,400 checks distributed in March 2021, for example, coincided with a $728 billion monthly surge in personal consumption—an increase that supply networks couldn't match, contributing to inflation's subsequent acceleration.

The current proposal's funding mechanism through tariff revenue adds another layer of complexity, as tariffs themselves create inflationary pressure by raising import costs. The irony is striking: using revenue from policies that increase consumer prices to fund rebate checks designed to help consumers manage higher prices.

While households focus on nominal dollar amounts, financial markets have learned to look through the stimulus veil toward underlying value preservation. Gold's performance during recent years of fiscal expansion illustrates this dynamic clearly. As central banks expanded balance sheets and governments distributed direct payments, gold prices surged over 38% in 2024-2025, reflecting investors' recognition that monetary expansion erodes currency purchasing power.

Real yields—Treasury rates adjusted for inflation expectations—provide the clearest signal of how markets interpret stimulus policies. When fiscal largesse threatens to reignite price pressures, real yields often rise as investors demand compensation for erosion risk, making defensive assets more attractive relative to growth investments.

The flight toward hard assets during stimulus periods reflects a sophisticated understanding that nominal wealth and real wealth often diverge. Investors and retirees may see account balances rise temporarily, but purchasing power quietly erodes as the broader price level adjusts to accommodate expanded liquidity.

The stimulus mirage reveals a fundamental tension in modern economic policy: the gap between political necessity and economic reality. Like travelers in the desert who mistake heat shimmer for water, Americans often interpret fiscal transfers as evidence of renewed prosperity rather than redistribution of existing wealth.

The real oasis—sustainable purchasing power—requires production growth, productivity gains, and disciplined fiscal management rather than monetary tricks. While rebate checks may provide temporary relief and political satisfaction, they cannot overcome supply constraints or repair structural imbalances that drive long-term price pressures.

Independent Thinking. Steady direction.