[Eli5] how come the inflation level isn’t going up in the US, if the government literally gave everyone like 1000 dollars 3 times?



From what I know, the government can make cash out of thin air, but this causes inflation levels to rise. Or is everything they’re giving out just their surplus?

In: Economics

OK, I’m not sure if they gave everyone 1000, I’m not in the US, but pretty much every adult I’m guessing

Two reasons off the top of my head: inflation is more complicated than that, deficit spending is only one contributor and is apparently less of a factor than many believed. Second, in the overall budget of the US, 1.9 trillion dollars… isn’t that big a deal.

1) Fed interest rates are historically low and were so even when they shouldn’t have been.
2) The money they are giving out isn’t really in excess for most people but instead just a replacement for lost income. And it is just keeping consumer spending afloat, not causing a buying boom.
3) There might be some inflation going on with food right now, also the housing market but that isn’t because of stimulus.

Interestingly some have theorized it is possible to have a system where UBI or government spending replaces Federal Reserve credit as the main way money enters the economy.

There’s some mixed opinions but in basically all of them, you’re not going to see the effect as immediate and certainly not before most people have gotten their payments. Per [Janet Yellen](https://www.cnn.com/2021/03/14/investing/janet-yellen-inflation/index.html) at least:

>”Policymaking is about identifying and addressing risks, and the most significant risk we face is a workforce that’s scarred by a long period of unemployment,” Yellen said on ABC’s “This Week.”

>Yellen added that prices fell substantially last year when the pandemic surged and that she expects to see them move up again as the economy recovers.

>”That’s a temporary movement in prices,” she said. “To get a sustained high inflation like we had in the 1970’s, I absolutely don’t expect that. We’ve had a very well anchored inflation expectations, and a Federal Reserve that’s learned about how to manage inflation. So, I don’t think it’s a significant risk and if it materializes, we’ll certainly monitor for it, but we have tools to address it,” she added.

So basically, prices and inflation ebb and flow – even without the stimulus we likely would have seen some additional inflation once the pandemic dies down a bit and while yes, the stimulus will likely contribute as well, it’s going to be temporary. With an added note/caveat:

>”But, of course, we have to make sure that the economy’s budget is on a sustainable path and this is something that we can afford. In the longer run, we need to get deficits under control to make sure that our fiscal situation is sustainable.”

Fiat currency is controlled by the FED which is owned by shareholders. Those shareholders receive the interest from the FED loaning out fiat currency that is backed by the good faith of the people using it. People are stupid and think the FED is controlled by the gov. Those same stupid people believe the FED when the FED tells them inflation is 2%. Look at the stock market. The FED buys every single publicly traded everything every day. The do this through the plunge protection team,quantitative easing, bail out of the banks in 2008. The FED owns 9 trillion in public assets inflating the price of everything. When will the FED crash the market by unwinding the balance sheet? Or will the FED continue to scare the people into more QE so the fed can add trillions more to the balance sheet?

Very roughly:

More money means higher prices for scarce goods, goods where there isn’t enough for everyone who wants them. They get more money, they raise their bids, and only the highest bidders win.

More money doesn’t change the price of abundant goods, goods where there is more than enough for everyone who wants them. They get more money, so some people who were too broke to subscribe to a streaming service, or to pay for the signature sandwich instead of the dollar menu, now they can; but there’s plenty of sandwiches and no limit to how many subscriptions a streamer can support, so there’s no reason to bid up the price.

Inflation measurements are based on what most consumers buy, and the stuff most consumers buy is abundant.

Despite what doomsayers claim, inflation isn’t just a “print money = more inflation”.

If monetary policy is loose in an economy that is running close to capacity, then yes it will have a higher likelihood of causing inflation. In an economy with surplus capacity, demand shocks (ie COVID), additional stimulus is needed to head off deflation. In fact the Fed would dearly love to see some signs of inflation since deflation is a much worse economic situation.

At this point, it was clear that simple monetary stimulus in the form of QE was insufficient and direct fiscal action was needed to mitigate rather bad employment numbers. 1.9T is large, but the US economy is 25 trillion annually.

Some of the inflation we are having is hidden by a process called “shrinkflation.” Less product for the same unit price. Like a box of facial tissues that had 120 tissues for $1.00. The box now costs $1.02 which makes it look like inflation has gone up only 2%. But the box has 110 tissues now.

Time hasn’t passed. This current stimulus going out is being funded by hiking up taxes. Inflation doesn’t just happen over night. you can already see it creeping however in things like gas prices that have substantially gone up in the past months.

A lot of posters here are ignoring your biggest error. The money was not printed out of thin air. It already existed and belonged to the government, ie, already belonged to the taxpayers. New money did not enter the system at all, so your supposition about inflation is inherently false.

Additionally, other countries are giving out way more money. Canada, for example. We have received a total of $3200 over the past year, and not everyone even received that much. It’s pocket change.

The money was borrowed in the form of bonds, so dollars from investors were taken out of circulation to then distribute as stimulus money. Eventually the bonds will get repaid with interest.

Government spending is supposed to cause inflation, but the mechanism for how this happens is different depending on how the government is spending the money.

The usual way that we talk about the government spending money is for it to buy things. For simplicity let’s say the government is buying boats (for, like, the Navy). So, the government rolls in and says we are buying 10,000 extra boats this year! All of the stuff that goes into making boats (factories, raw materials, dry docks, and all the workers) are like “huzzah! Let’s build these boats!”

Now you come in to the boat store and want to buy that $100,000 boat you have been dreaming about…but the boat makers are booked for months with building all these govt boats. If you want your boat built, it’s gonna cost you $120,000. Bam! Inflation!

This is the government “crowding out” private sector spending, forcing prices to go up.

With the pandemic stimulus, tons of people are out of work or working fewer hours. These people used to be spending money, but suddenly had to cut back drastically. All the shops that depended on their spending are seeing huge drops in sales. The stimulus is allowing people to restore their spending to pre-pandemic levels while we wait to get vaccinated. In this case, there’s not a ton of spending that’s being displaced, or “crowded out” like in the first example.

Inflation is typically caused by more money in circulation, not more money in existence. People don’t have money to spend, so businesses don’t raise their prices. the stimulus checks are mostly being spent on bills rather than goods. I’ve read that the US dollar gained value when the market crashed in March last year, because everyone was selling their stocks to try to get cash. Since then, we’ve had some pretty rapid inflation but it has evened out to follow the usual trend.

My oil change place used to charge $40, now it’s $45. A Big Mac meal used to cost $8, now it’s $10. There’s tons of other examples. I see rising prices all around me. I’m not smart enough to know how to precisely calculate inflation like the ‘experts’, but I can see with my own eyes that my dollars are worth less than they used to be.

Deflation is the greatest threat. The Federal Reserve rate is nearly zero percent, that and the direct payments are in an effort to bring inflation up to the target of 2 percent.

Savings rates are way up, which means people aren’t spending as much as they were.

This means there is latent inflation in peoples savings.

So now there’s multiple paths that can be taken:

1 – People keep or increase their savings rates (likely until the pandemic is over) – This results on no inflation or even deflation

2 – People start spending fast, bringing their savings rates back to what they were – This results in high inflation until those savings run out

3 – People slowly start spending again bringing their savings rates to what they were – This results in low inflation over the next few years

Mostly because what the government is measuring doesn’t give an accurate depiction of the total amount of inflation.

Leakage to foreign products and to non- consumable things like buying GME stonks instead of buying food or other goods.

The money is coming from previous years’ taxes and debt to other countries. There are times where the government will print more money, know that inflation will increase, but not for the sake of the recent checks.