Data from BEA’s personal Income and outlays report. Real means inflation adjusted. Chart by Mish.
What Are Transfer Receipts?Transfer receipts are government payments for which no services were performed.Transfer receipts include food stamps, subsidized housing, Social Security, Medicare, Medicaid, child tax credits, and other government assistance.Three rounds of massive fiscal stimulus during the Covid pandemic set off a huge wave of inflation that the Fed never saw coming.The numbers are worse than they look above as the following chart shows.
Transfer Receipts as Percentage of Real Personal Income
With every recession, transfer receipts as a percentage of real personal income declines.The three massive rounds of fiscal stimulus is unprecedented. A friend asked me today why the Fed could not see this coming.I explained: These guys are not wizards; they have never called a recession in real time. Bernanke denied there was a recession even after it started. He denied there was a housing bubble. They all believe in models that don’t work. And history suggests they always err on the side of being too loose. They will make the same mistakes over and over.The Fed never saw the uptick in inflation because their models said otherwise. Their models now say inflation will return to normal.I can see things models don’t: Global wage arbitrage is over. Just in time manufacturing is over. Both Trump and Biden will increase tariffs. The energy needed for AI will soar. The energy needed for EVs will grow even if transition slows. Demographic changes are huge.
Four Reasons Transfer Receipts Poised to Surge
Influx of ImmigrantsPlease note: Denver Health at “Critical Point” as 8,000 Migrants Make 20,000 Emergency VisitsMuch of that you will pay for directly with higher premiums. But the Federal government will pick up some of it via Medicaid Expansion.
Child Tax CreditsWe have a new number on the deal the House Republicans agreed to. It’s $1.5 trillion over ten years.For discussion, please see How Much Will That GOP Deal on Child Tax Credits Really Cost?The reported numbers do not include an Affordable Housing giveaway, or aid to Ukraine and Israel, or expanded defense spending. More money and bigger deficits means more inflation.The tax credits add directly to transfer payments.
Medicaid Expansion 
On March 9, I noted Medicaid Expansion Was Supposed to Pay for Itself, Instead Hospitals Are Closing10 states did not fall for the Medicaid expansion trap under Obamacare. The rest are suffering. Private payers (you, one way or another) make up the loss.
Boomer RetirementsDue to age demographics, I expect employment in age groups 60 and over to decline by about 12.5 million. 
Population stats are from the BLS. Expected Employment Loss is a Mish calculation based on the Employment Population Ratio (the percentage of people working in each age group).In terms of expanding transfer payments this is the biggest of the four by far.Boomers health care need and retirements will have a huge impact expanded Social Security payments and Medicare payments.And there is a shortage of 6 million workers to replace retiring boomers. This is another set of things the Fed has not properly modeled.As a result of demographics, transfer receipts as a percentage of real personal income will surge. And due to a replacement worker shortage, wages will likely rise and productivity decline.For discussion, please see In the Next 5 years, Employment in Age Groups 60+ Will Drop by ~12.5 MillionI go over the demographic math, point-by-point. Click on the link for details.Conclusion: The decline in the rate of inflation is transitory. The Fed does not see this coming.More By This Author:Spending, Income, And Inflation Data Do Not Support Fed Interest Rate CutszCase-Shiller National Home Price Index Hits New Record HighApartment List Reports Rent Prices Increase For The Second Month
