Increased Inflation Worsened by Covid Stimulus Checks!

A year of COVID-19 lockdowns has lessened, and pent-up demand for products and services has collided with persistent supply chain snafus.

But inflation is currently greater in the US than anywhere else. So what? To fund COVID-19 relief operations, the US government borrowed and spent trillions of dollars,

which inflated the money supply and overheated the economy, according to a new paper from four economists at the Federal Reserve of San Francisco.

“Historically, the US and other developed nations’ inflation rates have tracked closely,” the economists write in a new report. “However, since early 2021, US inflation has outperformed other developed economies.

Measures to mitigate the economic impact of the epidemic may have contributed to this disparity.”

The annualized rate of inflation in the US was 7.9% in February (March statistics will be revealed next week). OECD figures show that similar nations like France (3.6%), Germany (5.1%), and the UK (5.5%) have much lower inflation rates.

However, this is mainly to the influence of outliers like Argentina, where prices have risen by 52% in the last year.)

The worldwide price data for February show a troubling trend. The Pew Research Center stated in November 2017 that US prices were rising faster than practically anywhere else.

It rose 3.58 percentage points between the third quarter of 2019 (the last complete quarter before COVID-19 was detected) and the third quarter of 2021, more than all but two of the 46 countries studied.

Increased Inflation

Of course, governments everywhere spent substantially to combat the pandemic, but few gave cash directly to civilians as the US did. American consumers’ “inflation-adjusted disposable personal income” (extra spending cash) has risen sharply over the previous two years,

according to four Federal Reserve experts. “US families had considerably greater growth in disposable income than OECD peers in 2020 and 2021,” they write.

During the epidemic, the Committee for a Responsible Federal Budget, a non-profit organization dedicated to reducing deficits, made three rounds of direct payments to American households totaling $817 billion.

In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act approved the first wave of $1,200 stimulus payments per individual. In December of that year, another set of $600 checks was issued.

To counteract this, the Biden administration pushed through $1,400 checks in early 2021 as part of the American Recovery Plan, approved by Congress in March.

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Despite the fact that each batch of direct checks had slightly different criteria, most of the $817 billion went to people who had never lost jobs and were well above the poverty level.

Only households with a combined income of up to $160,000 were eligible for the final round of direct payments, which began in early 2021.

This is the Congress’s harvest. It’s chasing the same quantity of products. That’s a textbook recipe for inflation. By the fourth quarter of 2021, the four economists conclude, “US income transfers may have led to a 3% increase in inflation.”

Of course, this isn’t new. One of Obama’s top economic advisers, Larry Summers, warned about increasing inflation almost a year ago.

Summers cautioned in a Washington Post op-ed that passing another stimulus bill in the spring of 2021 “would set off inflationary pressures of a generation.”

Other renowned economists, including a former IMF head, issued similar warnings. We are here because the Biden administration and Democrats in Congress did not listen.

The Federal Reserve’s analysis is valuable since it does not aim to predict the future but rather examines past data to determine what actually occurred. Putting more money in Americans’ pockets and bank accounts made inflation worse.

To be fair, experts say a weaker reaction to the pandemic may have produced different economic suffering. In their words, “the economy could have slipped into deflation and weaker growth without these spending measures.”

It’s important to recognize that the grass isn’t always greener on the other side of the current American inflation crisis.

And yet, the federal government — from the White House to Congress and the Federal Reserve — has a part in this problem. The world is experiencing rising inflation, but American policymakers have added to the fire.