In October, I discuss how the “2nd Derivative Effect” would mute the impact of future stimulus programs. With the passage of the $900 billion stimulus package, we can update the estimates for the economic impact heading into 2021.

While most hope more stimulus will cure the economy’s ills, the “2nd derivative effect” will be problematic. Of course, since vast portions of the stimulus package went to everything but “helping out the average American,” such ensures the impact will be far less.

Let me recap.

NOTE: This article was written prior to Trump’s rejection of the stimulus bill. The analysis is based on the bill as is currently written. I will update the analysis if the bill changes. 

Making Some Assumptions

As the economy shut down due to the pandemic, the Federal Reserve flooded the system with liquidity in March. At the same time, Congress passed a massive fiscal stimulus bill that extended Unemployment Benefits by $600 per week and sent $1200 checks directly to households.

As shown in the chart below of GDP, it worked. In Q3, inflation-adjusted GDP surged 29.91% from the Q2 reading of 35.94%. If we assume that Q4 will increase according to the Atlanta Fed GDPNow estimate, GDP will slow to just a 2.76% advance…CLICK for complete article