It has been a roller coaster ride for the low and moderate-income earners in America for the past 2 years. The start of the pandemic left them in a state of panic when businesses shut down and millions suddenly were faced with the specter of poverty for the first time in their lives. The federal administration reacted promptly and saved millions from certain poverty with a series of stimulus checks over a year and a half.
Things turned around in the last two quarters of 2021. But then inflation began to rise and reached record levels at the turn of the year. People who had managed to save a part of the stimulus check payments saw it disappear as they were forced to dip into their savings to pay for the high prices.
Prices of gasoline and other essential commodities rose sharply and in many cases doubled in two years. This kind of downturn in the economy is alarming for people who are forced to go through it. People were paradoxically in a much better situation during the pandemic as the federal government had their back right to the end.
The low and moderate-income groups are ironically worse off financially now even though the pandemic was then at its peak, the economy was going into a tailspin, and unemployment rates rose to record levels.
This respite during the pandemic also allowed many people to pick up new skills and qualifications. But even a healthy increase in wages has meant nothing due to inflation. People have gotten poorer this year as even the high wages are reflected negatively given the rise in prices.
The dismantling of the federal support structures has brought about a sense of despondency. The unemployment stimulus checks were the first to go followed by the enhanced child tax credit stimulus check. People who for the first time in their life had the power to buy freely and also save a part of it found that they were worse off than they were before the pandemic. They are again stuck in a rut.
Early Signs Of Recession Emerge With The End Of The Federal Stimulus Checks
Critics and the opposition blame the federal administration under President Biden for the severe damage suffered by large sectors of the US economy. But unexpectedly, compared to before the pandemic, Americans still have lots of cash, though significantly less than they had throughout the last two years. But with prices sky-high, it doesn’t amount to much.
The last two years saw consumer spending explode as $6 T was pumped into the economy. But the economy appears to be headed downwards as early signs of recession emerge. There are early indications of a decline in business growth, a sorry decline from the staggering growth of last year. The Federal Reserve has also been forced to go for a rise in interest rates to curb the rapid growth of inflation.
The temporary stability offered by the Federal stimulus checks and other federal support measures evaporated and along with it the temporary but extraordinary degree of financial stability for millions of citizens. There is much more money in the hands of people, but it amounts to little in the face of the unprecedented rate of inflation.
People have become more careful and have cut back on the unbridled purchasing spree of 2021 when they were flush with funds. People are more careful now than ever. The stock market has also continued its downward movement. The new-age economy of cryptocurrencies has also taken a hard hit, pulled down by the negative sentiments in the market.
Businesses That Benefitted From Stimulus Check Support Face Another Downturn Which Could Prove Worse Than The Pandemic
Small businesses had benefitted from the stimulus check support as billions were directly given as small business loans to prevent them from shutting shop. This prevented unemployment to a great extent.
But the boom crested by the end of 2021 and is struggling to pass on increased costs to their customers. It has meant a squeeze on margins. The percentage of small businesses facing tough times has seen an upsurge and the situation is the worst in the last 50 years.
After The Reprieve Afforded By The Stimulus Checks, Americans Fall Into Debt Again
Many Americans used their stimulus check payments to pay off their credit card and other high-interest debts. Credit card debts saw a marked fall in 2020 and 2021 and people had a healthy bank balance in most cases to fall back on. But it is again back to the paycheck-to-paycheck days for most families. They are not prepared to face an economic emergency if it arises.
Credit card debts rose sharply in April 2022 according to the latest reports released by the Federal Reserve. Revolving credit card debt rose from $1,023.06B in March 2022 to $1,040.7B in April, the rise has been relentless since the stimulus checks stopped. It had dropped significantly to $911.1B in the first quarter of last year.
Non-revolving credits which include school and car loans have also increased. The total borrowing climbed to 10.1% in April calculated on an annual basis. Total credits also rose to $38.1B from March, Fed figures reveal.
States Step In With More Stimulus Checks
As the federal government turns its focus away from direct stimulus checks and concentrates more on infrastructure development, several states have been forced to step in to support their residents to cope with the rising rates of gasoline, essential items, rent, and utilities. It has helped as most states are flush with funds after a booming economy in 2021 replenished their reserves.
The funds sent by the federal administration under the American Rescue Plan Act have further made it easier for states to pledge generous stimulus checks.
Maine is among the first states to legislate on sending a stimulus check to around 858,000 of its residents. An $850 inflation relief payment is already being sent to residents who have filed their 2021 income tax returns.
Millions of Californians will also get inflation relief payments as early as October with families getting up to $1,050 under a $17 B inflation relief package. The payments will be given to residents based on their earnings. Thus while residents earning $75,000 or less will get a $350 stimulus check, families with earnings above $250,000 will get $200. Dependents will also get an additional $350 stimulus check.