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Saturday, July 2, 2022

Stimulus Check Payments: How Is It Hurting The Economy?

The US government made massive stimulus check payments in 2020 and 2021 to counter the coronavirus pandemic, but it turned out to be a double-edged sword.

On one hand, the stimulus check payments helped prevent the American economy from falling into a deep recession and helped send the stock market to fresh all-time highs shortly after an initial sharp selloff.

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On the other hand, they were a contributing cause to some economic ills that are only now jeopardizing the economic recovery. Here’s a look at some of the unintended consequences of the financial stimulus that some say saved the American economy.

Stimulus Check: Was Inflation Triggered By It?

In the early days of the pandemic, the economic risks were hugely tilted towards a depression. For months, workers were forced to stay home and many businesses shut down, with some never reopening. In that environment, the stimulus check was desperately needed in the pockets of individuals and businesses alike. According to the San Francisco Fed, without stimulus “…the economy might have tipped into outright deflation and slower economic growth, the consequences of which would have been harder to manage.”

U.S. Census Bureau data seems to support this, as 11.7 million people were moved out of poverty in 2020 thanks to the stimulus. But while most experts agreed the initial stimulus payments were needed, as they continued later in 2020 and into 2021, many recipients just used them to pad their bank accounts.

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A study by the Federal Reserve Bank of San Francisco estimated that the stimulus added as much as three percentage points to the inflation rate by the end of 2021, as too much money was chasing too few goods — a classic inflationary scenario.

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