Monetary vs Fiscal Stimulus

Because I have an MBA (in addition to working in SQL Server and Power BI and because I am interested in the financial analysis side of things), a few people have asked me to explain the difference between Monetary and Fiscal stimulus when it comes to the way the federal government is fighting to keep our economy from falling into a depression at this time of the Coronavirus. So, let me give it my best shot.

Monetary stimulus is often associated by changes by the U.S. Federal Reserve to the interest rates charged to banks for loans. The theory being that as interest rates are lowered by the Federal Reserve, those banks in turn will make more money available to business, especially small business at lower rates. If this occurs as expected, it may help to keep small businesses which our country relies on from going out of business because they cannot otherwise pay their debts, their employees, and the cost of materials they need to conduct business. The Federal Reserve, I believe, can even now buy corporate debt to help those businesses survive.

Fiscal stimulus on the other hand consists of tax cuts, unemployment benefits, credits, government spending on infrastructure (which we could probably use) and even direct payments to individuals and families such as those checks many of you have recently received. This is money directly to individuals, not businesses. This is an entirely different tool than Monetary stimulus.

Still don’t see the difference? Think of it this way, Fiscal stimulus is the direct transfer of money from the federal government to the public through one or more different methods with no expectation of getting that money back. Yes, this increases our national debt and will someday in some way have to be repaid. If the economy soars, this can be done through normal fiscal methods without undo taxing of businesses and individuals would could hurt the economy. Only the spending on infrastructure has some ‘public’ return in the form of perhaps better roads, repaired bridges, and updated water and sewer lines. The rest of the fiscal stimulus is simply a hand out of money in the hope that people will pump it back into the economy to buy goods and services that they might not have bought before. If people just put it in their savings accounts, it will not help at all which is why most fiscal stimulus plans phase out as individual or family income rises.

On the other hand, Monetary stimulus does not simply hand out money. It is effectively money used for loans to business which the government expects to paid back at some time in the future. Even when the Federal Reserve buys corporate debt, they expect that debt to be paid back at some time in the future. Monetary stimulus also does not apply typically to individuals the way Fiscal stimulus does.

So, I hope that helps you understand a little about what is going on in the news these days. This will eventually all pass and we can get back into Power BI features and capabilities.

By sharepointmike Posted in Finance

Irresponsible Coronavirus Reporting?

All over the internet you see statistics about the Coronavirus. Yes, statistics are great to have, but without some basis, the numbers can be deceiving. For example, comparing the total number of cases or the total number of deaths by country and then ranking them that way is deceptive. Why? Because not every country has the same population! Duh! The real statistic that would be important to show is which country has been hit the worse, to compare the number of cases or deaths base on cases per 1000 people or any other consistent number. Of course, you may argue that we really don’t know the total number of cases or deaths because it is a given that the entire population of every country has not been tested and perhaps not all deaths have been reported as corona-related. Also, true. So, what does the statistic really tell us? Perhaps only that the coronavirus is something that needs to be addressed and that social distancing may have an effect in slowing it’s spread. It may even tell us within a country, a state, or even a county when the bell curve of new cases would indicate that the crisis is over. Of course, keep in mind that as more testing has occurred, the number of cases could grow, especially with milder cases that might not have been tested in the past because they did not have the symptoms to warrant testing. But should simple counts be used as a ranking tool? No!

I also why recovery counts are no longer typically shown. Total cases should be the sum of: Deaths + Recovery + Still Sick. To give us Total and death counts only is an incomplete picture of what is really going on.

A similar situation occurs here in the United States. Ranking states by the total number of cases or deaths is just as phony because not all states have the same population. It is entirely possible for a state with a total population smaller than another state may have a higher case or death rate. Does that make one state ‘safer’ than another and warrant earlier opening of that state? Should it be based on the state population? Again, cases per 1000 people to me is a much better way to determine your potential exposure to someone with the virus? Of course, even state number are somewhat deceptive as well as areas with greater population density are more ‘dangerous’ than areas that are sparsely populated.

I’m not going to repeat the above when it comes to comparing one county with another within a state, but you get the point by now right? Population density must be considered when determining how safe an area may be. If you are walking around in an area of low population density, you may see very few people while you are out, but if you work in one of the major metropolitan areas around the country, you might have close encounters of the contagious kind much more frequently.

As someone who is interest in Power BI, you know that statistics must be crafted carefully so as not to deceive or present an incorrect or distorted conclusion. That is something we all must be careful of when using Power BI to show statistics.

By sharepointmike Posted in Opinion