Linking The Stimulus Check To Inflation: Would More Stimulus Check Add To The Problem

stimulus check

The Biden administration is facing a period of low confidence as there has been a 23% fall in voter confidence, a fall of 15 points, which is the lowest on record. A major reason for this downfall is the highest ever inflation in 41 years. And the President realizes that the present inflation will perhaps not ease soon. And one major reason is that trillions of dollars are in the hands of Americans as excess savings, thanks to the multiple rounds of stimulus checks.

The three stimulus checks along with other relief measures cost the Treasury around $6T. President Biden‘s first act in power was to push through the American Rescue Plan Act, which sent close to $1.9T as pandemic relief. Critics have termed it social spending cloaked as pandemic stimulus checks.

The ARPA sent millions of stimulus checks and also funded the enhanced child tax credit stimulus check, the most extensive child support measure ever. There were also outrageously generous unemployment enhancements that compelled people to stay at home even when the pandemic ended.

Political Compulsions Pushed Biden To Sanction The $1,400 Stimulus Check

Immediately before President Biden signed the ARPA, Congress had pushed through a $900B stimulus check package, the second after the CARE stimulus check of March 2020, in December 2020. This was separate from the host of other measures taken by the administration to ease the pain of the low and moderate-income people.

The introduction of vaccines was rapidly improving the situation and the US economy was already on its way to a rapid recovery. People were already out on the streets and leading regular lives. But the new President wanted to prove with the Rescue Plan that he initiated the recovery from the economic downturn caused by the pandemic. Pouring an extra $1.9T directly into the hands of people led to inflationary pressure to an extent not seen for more than a decade.

Some far-right economists termed it the biggest fiscal policy blunder in decades.

Most Of The Third Stimulus Check Went Into Savings

A major portion of the third stimulus check went into savings, proving that people were not stressed due to the economic downturn at that stage of the pandemic. Personal savings soared immediately and people paid off their credit cards and other high-interest debts.

By the end of Biden’s first year in office, American households had amassed $2.7T in excess savings. This amount was above what would have been saved under normal circumstances.

People Were Not Compelled To Return To Work

With people having excess money on their hands, they delayed going back to work. While some were afraid to return fearing the pandemic, others just did not feel the need to work as they were flush with funds. This led to a momentous labor shortage.

People had enough money in their hands from the successive stimulus checks and began to spend more on services, and mainly on goods. But the supply failed to keep up with the abnormal spike in demand. With the disruption in the production and supply chains, the manufacturing sector had been hit across the spectrum.

From food to automobile parts, there was a huge shortage which disrupted assembly lines even as demand for goods kept rising. This led to the worst inflation seen in decades.

The labor scarcity persists to this day thanks to this short-sightedness. Around 11.3M jobs remain up for grabs in America. This number has remained almost constant since March when there were around 11.85M unfulfilled jobs.

Around 60% of small businesses report that they cannot find enough people to fill vacancies. And this shortage of labor will continue to persist till the stimulus check money in the hands of workers remains.

There was hope that people would return to work once the federal stimulus checks dried up at the end of 2021. But that doesn’t appear to be taking place. Reports by the WSJ say that American families have spent a mere $114 billion from the $2.7T of excessive stimulus check funds that they have stashed up.

Thus, an amount of $2.586T remains in the hands of the common man, more than the amount pumped in under the third stimulus check and other relief measures under the American Rescue Plan Act.

In hindsight, it appears that President Biden was saved from more disaster as the Build Back Better plan fell through. Democratic Senators Manchin and Sinema may have done Biden a favor by putting a stop to the social spending plan proposed by President Biden after the ARPA. Treasury officials say that it may have staved off inflation figures that would in its present state have appeared small.

Biden Continues On The Same Disastrous Path Of Overspending And Adding To Inflation

President Biden doesn’t appear to have learned from the mistakes of the American Rescue Plan Act and the third stimulus check. The Democrats are way close to signing another stimulus check and are believed to have convinced Senator Manchin. If it is passed, it would be a Democrat-only bill before the Republicans took over Capitol Hill after the November elections.

For now, it appears that the only way to keep the Democrats from digging a bigger hole would be to remove them from a position of the majority in Congress.

State Stimulus Check Could Add To The Mess

Around a dozen states are close to sending out stimulus checks to their residents in the absence of federal stimulus checks. Some states have already started the relief measure, including Maine and New Mexico. California has also announced a direct payment that could go up to $1,050 for families of low and moderate income.

Sending in excess money has already proved to be a bad idea as it fuels inflation. Once people start spending, more prices are bound to rise and fuel inflation. If more states begin to support their residents with stimulus checks, it is bound to affect the economy. And with a quarter of the total states already moving ahead, the inflation rate is bound to be affected.

The only way to lessen the impact is to be more focused so that the payment reaches only the truly deserving. Limiting the number of people who receive the stimulus checks and also bringing down the amount will limit the negative impact of more stimulus money pouring into the economy.