In the first quarter of 2020, the all-powerful central bankers responded to the first wave of the COVID-19 pandemic and unleashed the stimulus check that was far larger than the one after the 2008 financial crisis. This intervention empowered Congress to pursue a path of financial largesse without having to worry about the national debt. The Fed kept buying government bonds as fast as the Treasury could issue them. It was a period of only spending without taxation.
But the successive stimulus checks and other government largesse have exhausted the treasury and the magic has evaporated. Even as the economy expanded, by the second quarter of 2021, the GDP was higher than before the pandemic, an admirable recovery than after the crisis in 2008, but it would ultimately fuel inflation in the first quarter of 2022.
The Successive Stimulus Checks Took Its Toll On The Economy
The initial stimulus check posed no problem as the inflation rate that excluded volatile energy and food prices stood at 1.4%. it was below the desired target of around 2%.
Even as the American Rescue Plan Act was introduced at the end of the first quarter of 2021, core inflation slowly rose to 6.1%, way above what the Fed had targeted. But this was termed transitory by the Fed. They blamed it on external issues like the fear of COVID-19 that was stopping workers from joining the workforce and the shortage of car parts that was put down to logistical issues.
The first quarter of 2022 saw inflation spiking to an unprecedented level of 8.5% in March 2022. It has stayed above 8% for the past two months, the highest ever in the past 40 years.
With the federal administration gridlocked with the opposition Republicans, it was up to the states to save their residents from the effects of the inflation.
Gasoline prices in California are the highest at the moment. Even when the national average stood at $4.24 to the gallon, car owners in the Golden State were paying an average of $5.90. California was the first off the mark with its inflation-linked stimulus checks, with a new proposal by Governor Newsom that would see the state government try to ease the pain of drivers with a gas subsidy of up to $400 per vehicle through a gas stimulus check.
The Governor’s plans would be a $400 gas card per car to residents of California subject to a maximum of two cars per family. There is no income limit to the proposal.
The plan would also pause a 3% hike in the gas tax of the state and is scheduled to come into effect in July 2022. Extra funding for free public transit for residents who do not own cars would also help offset any rising cost of transportation.
Two identical proposals are being put up in the state legislation. Each is slightly different than the other in its implementation of the stimulus check payments and the residents who would be eligible for the stimulus checks.
All three plays are being sponsored by the Democrats, and also are in control of the legislature and the governorship. It appears that some sort of compromise will be arrived at to bring relief to the drivers.
Minnesota and Kansas have come up with identical proposals for their legislators.
Residents of Delaware are also to get a $300 stimulus check with the passage of legislation a few weeks back. It has created the Delaware rebate program that will give out a one-off payment of $300 to every resident who has filed their income tax return for 2020.
This is the first time that the state has offered its residents a rebate with Governor John Carney signing the bill into law only last week.
The program will benefit every resident of Delaware. Even those who did not earn enough to pay taxes in 2020 and seniors will also qualify for the state stimulus check.
The stimulus check will in all probability be sent by mail to the last address entered on the income tax return, as revealed by the official website of Delaware.
Lawmakers in Indiana have approved an expanding tax refund of $125 this spring under the automatic taxpayer refund laws of the state.
Such payments are going gout after there has been a significant rise in tax collected by the state for 2021 and supplemented by the COVID-19 federal relief funding under the American Rescue Plan Act.
The Indiana legislature voted 88-0 on Thursday, joining the state Senate in approving the bill that would modify the law to enable 450,000 people who do not earn sufficiently to pay taxes to the state.
Those payments will go out through direct deposit or mailed through the US Postal Service.
Eligible residents of the city of Chicago will have to apply to receive a month’s transit fund worth $50 and a gas card of $100. The city is set to issue as many as 50,000 prepaid gas cards and 100,000 prepaid transit cards. Over 75,000 of these transit cards will be allocated and will be based on geographic data, selecting high CTA-utilizing residents of low-income neighborhoods.
Residents living in the south and west neighborhoods will receive 75% of the gas cards while the rest will go to other poor areas of the city.
Citizens Dip Into Saving To Sustain Lifestyle
Citizens are saving less to keep up with the high inflation rate, and economists say that this trend will slow down in the coming months. Americans built up trillions in saving during the pandemic. And now as prices are on the rise at the fastest pace in over 4 decades, they have been forced to draw from their saving to keep up with their spending.
There was a rise of 0.9% in consumer spending in April, with American spending on sports events, flight tickets, and other non-essential expenses. Auto sales have also zoomed as buyers have purchased cars at a high pace following months of shortage.
There has also been a marked rise in income, an upshot of the robust employment market, and the fastest wage rise in decades to induce people to join the workforce.
Thus, despite the inflation, Americans are using up their saving to sustain the existing lifestyle, something unsustainable in the long run. Economists believe that low-income households would have already spent their savings as high prices of groceries and gasoline take a heavy toll on the economy.