Making significant stimulus payments in 2020 and 2021 in response to the coronavirus pandemic has several drawbacks. On the one hand, the payments helped the stock market recover rapidly from a sharp selloff and avoided a major recession in the US economy.
On the other hand, because of the effects they had on the economy, they were a contributing factor in several economic maladies that are just now jeopardizing the economic recovery. They affected the economy, which is why this is the case.
Take a look at some of the unforeseen consequences of the economic stimulus package, which some people believe has rescued the American economy. These outcomes are directly attributable to the stimulus package.
In the early stages of the pandemic, the economic risks were significantly skewed toward a downturn. The protracted labor slowdown led to several businesses closing their doors, some of which never reopened.
In that environment, both people and businesses were in desperate need of stimulation. According to the San Francisco Fed, without stimulus, “…the economy may have gone into outright deflation and poorer economic growth, the ramifications of which would have been harder to handle.
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When the stimulus program was enacted, the Federal Reserve Bank of San Francisco anticipated three percentage points of inflation because too much money was chasing too few goods, which is a typical inflationary scenario.
Jobs that aren’t filled
One of the most puzzling labor data for the 2020–2022 era is the fact that total unfilled job vacancies initially declined at the outbreak’s beginning but have since skyrocketed to nearly record levels. The number of open positions has more than doubled since the second quarter of 2020 despite the economy being in a strong boom.
There is no denying the impact that stimulus funds have had in keeping American workers at home, even though part of this may be attributed to employees’ hesitancy to take jobs while COVID-19 exists and some may be attributed to older workers’ retirement.
Many workers don’t need to go back to work right now because of the numerous stimulus checks, the cancellation of student loans, the increase of child tax credits, and the extension of unemployment benefits.
Consumer debt is growing
Early on in the pandemic, $83 billion in credit card debt was paid off with stimulus funds, but those trends have now reversed. After the direct stimulus programs were completed, Americans resumed their pre-stimulus habits.
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According to the New York Federal Reserve, total household debt will reach a record $15.84 trillion by the start of 2022 as credit card debt is predicted to surpass current levels of $841 billion.
Not all politicians, economists, or financial pundits concur that the inflationary issue was brought on by stimulus payments. Former presidential candidate Andrew Yang stated that the stimulus payments were insufficient and too short-lived to account for the current high inflation.
According to Yang, who spoke with CNBC, “Money in people’s hands for a few months last year was a very, very minor effect since most of that money has been spent and inflation is still rising.”
Yang has common beliefs. Inflation is “global,” according to a former Obama economic adviser. Since the EU recorded 7.5 percent inflation without any stimulus measures, it is not a result of American stimulus.
It is almost probable that the stimulus payments in 2020 and 2021 caused inflation, although they are not the only cause of this. Supply chain constraints and the situation in Ukraine are other factors contributing to rising prices.
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Due to stimulus payments, which had both good and bad effects, the United States was able to escape a long-term economic depression when the pandemic first started.