The Ones Who Pay
I’m a creature of habit. I can be seen out running before 5:00am Monday, Wednesday, and Friday, and I am standing at the door to the gym on Tuesdays and Thursdays at 5:00am waiting for it to open. Or at least, I was. Now, I’m upstairs on my non-Peloton stationary bike on my non-running days.
But I’m still paying for the gym. Hmm.
My wife has a voice coach who has moved his lessons online. It’s not the same, but he hasn’t changed his price. A friend has her kids in travel (read here: intense and expensive) soccer. The teams can’t practice together or play, but they still want the kids to practice and they still require payment.
My local golf club has closed most of the amenities, but the course itself remains open for the moment. My monthly fee remains the same.
Service providers in many areas of life are doing their best to stay in business by improvising, but it’s obvious that I’m receiving less service than I agreed to, and yet I’m still paying the same rate. Chances are, you’re in the same situation.
We’re passing the buck of the economic slowdown. Everyone wants to maintain where they were in mid-February, or as close to it as they can. But it’s not possible. Eventually, a person or entity must take the weight, pay the price.
As a consumer of services, as a taxpayer, and as an investor, the buck stops with you and me. Get used to it.
The government’s $2 trillion relief package will be a godsend to businesses, individuals, and even governments across the nation, but it won’t come close to filling the void left by the shutdown. We can’t get yesterday’s revenue to all businesses. We can’t get last month’s paycheck to all workers. And we can’t get last quarter’s tax payments to every city, county, and state government. It’s not possible. We will take hits, some of them voluntary, like picking up from our favorite restaurants and leaving extra-large tips, and some of them involuntary, like the continued dings to our bank accounts for services we can’t use.
To pay for it all, we will go to where the money is, with those who have saved and accumulated assets. For those thinking the government pays, remember John Bogle’s statement, “The government pays for nothing, the taxpayer pays for everything.” We will pay.
Long after the end of this pandemic, and long after many restaurants and gyms have reopened while others remain closed forever, we will be paying for this. Taxes at every level will go up to fill the gaps left by reduced sales, income, and capital gains tax receipts, while borrowers large and small ask for, and then demand, debt restructuring. This will lower the returns on bonds from municipals to corporates.
At the same time, the Fed will keep interest rates near record lows to help borrowers, including the federal government, by keeping a lid on repayment costs. This is the modern-day version of the Treasury Accord, which kept rates low from 1935 through 1951, except worse. The Fed is holding rates lower now than it did back then. For investors, this will mean lower returns on risk assets, just as they’re paying higher taxes to hold real assets.
If all of this sounds like you’ll be stuck with the bill, then you’re right. It’s like walking into a poker game. If you don’t recognize the mark, or the one all the other players expect to take money from, then it’s you.