The massive federal support in response to the COVID-19 pandemic in 2020 and 2021 proved to be a double-edged weapon. The stimulus check payments were a definite help to people, especially in the low and moderate-income categories. It helped keep the US economy from sinking into recession, it also helped stocks reach an all-time high shortly after the initial crash following the pandemic.
But the stimulus check also contributed to some of the economic ills which are starting to manifest themselves, the primary being the record inflation. They have managed to jeopardize the recovery of the American economy. There are unintended and unforeseen drawbacks of the successive stimulus checks which did save the US economy but have brought much pain in 2022 that threatens to stay around for some time.
Stimulus Check And The Record Inflation
The early period of the pandemic pointed toward an economic depression, at best a recession. For the first time, the complete workforce was forced into their homes, and businesses across America shut down. Some would never reopen again. Under such desperate circumstances, stimulus checks were needed both for families and businesses.
The Fed in San Francisco said that without the support of the stimulus check, the economy might have slid into total deflation and dead growth of the economy. The consequences of such a situation would have been more impossible to manage than inflation.
A San Francisco Federal Reserve study revealed that the stimulus check payments were in the end responsible for only a 3% increase in inflation. The primary cause was that there was too much money in the market, but too few goods.
A Rise In Consumer Debts In Part Due To The Stimulus Checks
The stimulus check money helped to pay debts in the initial stages of the pandemic. Around $83B in credit card debt was wiped off thanks to the stimulus checks. But the trend has reversed since then. With the federal stimulus check support coming to an end, Americans have been forced to fall back on the card and other high-interest debts to sustain in an inflationary market.
The total household debts have moved up to a record $15.84T in the first quarter of 2022. This includes home mortgages, student debts, and auto loans. The New York Federal Reserve has said that credit card debts are expected to keep moving up above the current level of $841B.
Senior analysts say that there is every probability that the credit card balance will also touch record highs. This would mark a sharp change from the hasty slide seen in the past two years. The credit card spending patterns in 2020 and 2022 reveal the effect the stimulus checks have had on the US economy.
Many Jobs Remain Unfilled
A curious development of the economic impact payments was the increase in the number of total job vacancies that remain unfilled. It fell at the start of the COVID-19 pandemic but has since continued to rise and has touched near record levels.
Even as the economic expansion continued unabated, the unfilled opening of jobs across America nearly doubled since the second quarter of 2020.
A part of the development is due to the reluctance of workers to join the workforce even as the pandemic continued to linger and claim lives. Many older workers also retired during the pandemic. But a major reason was the successive stimulus checks. The multiple rounds that included the three stimulus checks, student loan forgiveness, the enhanced child tax credit payments, and the extension of the unemployment benefits all persuaded workers that they could not need to join the workplace till they had the money in their pockets.
Many Disagree That The Stimulus Checks Were To Blame For The Inflation
Many economists, politicians, and analysts insist that the payments were the right prescription at the right time. Andrew Yang, a former presidential candidate, insists that the stimulus checks were short-lived and too low, and their contribution to inflation negligible.
Yang said that the money in people’s hands remained only for two months in the case of most families. Most of the money was gone by the third quarter and did not contribute to inflation. And inflation continues to rise since then.
Other economists such as Austan Goolsbee said that inflation was not confined to America and was a worldwide phenomenon. The stimulus checks did not contribute to it and pointed out that the EU also recorded high inflation of 7.5% though they had not issued any stimulus checks to their citizens.
The successive stimulus in 2020 and 2021 certainly helped kick-start the economy but it also led to inflation and may have at least contributed to a part of it. But there were other major causes including the war in Europe and the production and supply chain disruption that contributed majorly to the mess.
But it is the positive effects that score over the negatives. The greatest benefits were that it saved a substantial percentage of the population from starvation and also kept the American economy away from a protracted economic contraction during the long months of the COVID-19 pandemic.
Even As The Nation Debates On The Merits Of The Pandemic States Prepare To Send Up to $1,700 In Stimulus Checks
As millions of low and moderate-income families continue to suffer from the high inflation rate that has led to record prices of gasoline, and other essential items such as food, around a dozen states have stepped in to help residents by giving out tax rebates.
Six states have already initiated legislative measures and some have even begun sending out stimulus checks to their residents.
Over 4 million residents of Indiana have begun receiving stimulus checks worth $125, with married couples getting double that amount.
The money has been issued as direct deposits or paper checks. Residents over 18 years in Chicago have been assured of a monthly gas or transit card. The prepaid gas cards will be worth $150.
Maine has been among the most generous in its state stimulus check payment, sending out a $1,700 stimulus check to qualifying resident families, and half that to individual filers. The income for eligibility has been set at $100,000 for individuals and double that amount for married couples who file jointly.
People in Iowa who have been excluded from previous rounds of stimulus checks will get $1,400 from the state government. This payment is for low-income residents but suffering from job loss and food insecurity.