Has The Federal Government Completely Backed Out Of Any More Stimulus Checks In The Future?

Stimulus check
Stimulus Check

Americans continue to be haunted by the specter of rising prices which has negated the improvement that they had enjoyed for a brief spell during the later months of the pandemic. This is especially true after the third stimulus check was issued under the American Rescue Plan Act.

The third stimulus check finally helped many citizens get rid of their debts and move towards a better quality of life. But the rising inflation soon hit them and canceled out any money they had saved in the last year after they received the stimulus check.

But the American economy is caught in a classic Catch-22 situation. While Americans desperately need further stimulus checks to cope with rising costs all-round the sectors, any further federal stimulus checks after the Economic Impact Payments will only worsen the inflation situation and will contribute to rising prices.

While the Biden administration contends that the high inflation rate is a worldwide phenomenon fuelled by the shortage of goods caused by supply issues and pent-up demands, as well as the war in Europe. While it is true that the inflation rate has surged, covering the whole world, inflation is also at its peak in America and has affected the country more than it has in other states around the world.

Pumping Trillions Of Dollars Directly Through Stimulus Checks Overheated The Economy

The reason behind the high rate of inflation is linked to the generous amounts pumped directly into the US economy through its citizens. This has led to a marked shift in the economy.

While the trillions pumped into the economy bolstered the purchasing powers of Americans and reduced their high-interest debts, it also pumped too much money into the economy, thus hurting the purchasing power of the dollar.

Leading economists have argued that the American government directly paid Americans inflated the money in their hands and inflamed the US economy beyond control. In an analysis published this week, a leading economist argued that inflation in America and Europe have always matched each other closely. But this time it is American inflation that has gone out of control and has outpaced inflation rates in developed countries since the first two quarters of 2021.

And it is the financial support measures in the form of the stimulus check that is taking the brunt of the blame though it served its purpose of counteracting the harshness of the economic effects of the pandemic. Instead, it could have been a major reason for its divergence.

Other Developed Nations Did Not Spend As Much On Stimulus Checks And Had Lower Inflation Figures

Inflation in America crossed the 8% mark in the first quarter of 2022, which is a 4 decade high. But inflation remained comparatively modest in countries like Germany with 5.1% and France, which saw a 3.6% inflation rate. The UK had an inflation rate of 5.5% in the first quarter.

Across the Organization for Economic Cooperation & Development,  a 38-nation consortium, the rate is around the same as in America, but that could be pinned down on Argentina, which has seen a 52% jump in prices in one year.

Governments around the world helped their citizens in various ways during the pandemic, but few countries pumped in such a huge sum by way of stimulus checks and other measures. All through the last two years, Americans enjoyed a higher increase in their disposable income mostly due to the largesse of the federal government when compared to other OECD nations.

Three Rounds Of Stimulus Checks Delivered Close To A Trillion

Around $900 B went out just as direct payments as stimulus checks to American citizens in the three rounds covering the pandemic. The initial round in March 2020 sends a stimulus check of $1,200 to American households under the Coronavirus Aid, Relief, & Economic Security (CARES) Act.

The second round of stimulus checks went out in December 2021 and this time it was a modest $600. But it was around this time that the Democratic administration pushed for a $1,400 stimulus check under the biggest package of them all, the America Rescue Plan Act, signed by the new President in March 2021. The Economic Impact Payment, or the third stimulus check, delivered the biggest blow.

Stimulus Checks Went To People Who Never Lost Jobs

One major drawback of the stimulus checks was that they went into the hands of citizens who never lost jobs through the pandemic. It was a bonus for such families as families earning even $150,000 got the full amount of the stimulus check. Many in the Democratic Party felt that the cutoff income should have been way lower.

This created a surplus in the hand of millions who did not have to worry about their basics in the first place. This led to a splurge in goods as money moved from services to products. All that surplus cash ended up chasing limited goods, as production and the supply chain were both hampered during the pandemic and took months to recover.

It was a classic recipe for high inflation, too much money chasing too few goods. This demand-pull inflation led to an upward pressure on prices that comes with a shortage of goods.

There were warning signals way back in the first quarter of 2021 itself. Obama’s administration’s chief economic adviser, Larry Summers, had warned a year ago of too many stimulus checks leading to high inflation.

But Counter Arguments Suggest That The Stimulus Check warded Off A Recession

Pumping more money directly into the hands of citizens caused inflation to rise out of control and reach a point that it should not have. But it would also be fair to point out that a weaker reaction to the economic downturn caused by the pandemic may have led to a different type of economic pain.

In the absence of the stimulus checks, the economy might even have ground to a halt or tripped into total deflation and slow economic development. The costs of such a situation would have been tougher to manage as it could have led to a recession or even a depression.

Any analysis of the current economic situation in the US should take into account that the stimulus checks helped in avoiding starvation for a large section of Americans, the consequences of which are incalculable. It also would have led to the shutdown of thousands of businesses, causing further unemployment at a crucial time.

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