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Fed Study: Stimulus Checks Worsened Inflation

 

"A trillion here, a trillion there, and pretty soon you're talking real money." (with apologies to Sen. Everett Dirksen


Article by Rick Moran in PJMedia


Fed Study: Stimulus Checks Worsened Inflation

Four economists at the Federal Reserve say the high rate of inflation in the United States compared to the rest of the world is due to the COVID-19 stimulus checks given to Americans during the pandemic. The direct payments to American citizens enlarged the money supply enormously and overheated the economy.

Larry Summers, the Harvard economist and former Treasury Secretary, has been warning about this almost since Joe Biden took his oath of office. Summers believes that massive government pandemic spending — including stimulus checks — has put too much cash into circulation while the pent-up demand from the pandemic isn’t catching up to supply.

Supply chain bottlenecks don’t help. But how bad would they have been if far more modest and targeted pandemic relief had been proposed?

Now we have the war in Ukraine effectively shutting off one-quarter of the world’s supply of grain.  Food prices are going to skyrocket, and it’s going to hurt everyone.

But why is it so much worse here?

Reason.com:

“Inflation rates in the United States and other developed economies have closely tracked each other historically,” the economists write in an analysis published this week. “However, since the first half of 2021, U.S. inflation has increasingly outpaced inflation in other developed countries. Estimates suggest that fiscal support measures designed to counteract the severity of the pandemic’s economic effect may have contributed to this divergence.”

Inflation in the U.S. hit an annualized rate of 7.9 percent in February (data for March will be released by the Bureau for Labor Statistics next week), a 40-year high. Meanwhile, inflation in similar countries like France (3.6 percent), Germany (5.1 percent), and the United Kingdom (5.5 percent) is significantly lower, according to data from the Organization for Economic Cooperation and Development (OECD), a consortium of 38 rich-world governments. (Across the OECD as a whole, the average annual inflation rate is about the same as the U.S., but that’s due to the influence of outliers like Argentina—where prices are up over 52 percent in the past 12 months.)

Prices in the Unites States are rising faster than almost anywhere else. “Throughout 2020 and 2021, U.S. households experienced significantly higher increases in their disposable income relative to their OECD peers,” the economists write.

In fact, the U.S. inflation rate climbed by 3.58 percentage points — a larger change from the third quarter in 2019 to the third quarter of 2020 than in all but two of the 46 nations included in the study.

About $817 billion in direct payments to American households were delivered in three rounds during the pandemic, according to the COVID Money Tracker run by the Committee for a Responsible Federal Budget, a nonprofit that advocates for lower deficits. The first round of stimulus checks was worth $1,200 per person and was approved as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. Another round of $600 checks was distributed starting in December of that year.

But the big blow came in early 2021, when the Biden administration pushed through a round of $1,400 checks as part of the American Recovery Plan, passed by Congress in March 2021.

Recall that most of that money ended up in the pockets of people who never lost their job and who were living well above the poverty line.

It’s not like Biden and the radicals weren’t warned this was going to happen. Larry Summers wasn’t the only economist to see it before it happened. It was entirely predictable, and before prices go down, there is going to be massive economic pain and dislocation.

All because the radicals were too arrogant to listen to people telling them they were nuts if they thought there was no price to pay for their wild spending.

 

https://pjmedia.com/news-and-politics/rick-moran/2022/04/09/fed-study-stimulus-checks-worsened-inflation-n1588317







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