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.
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