The percentage of that stimulus that stays in the hands of consumer for disposable income is what’s gonna determine if there will be inflation. The fed is betting most of that is used for paying bills and debt. Then what you get is asset inflation at the hands of businesses.
The budget already has a huge deficit. They'd have to cut funding to something, in order not to increase it further. Or they could add it to the deficit (which means borrowing the money), and that translates to higher inflation, pretty much, as banks create the borrowed money. Recent lowering of the interest rates by the FED also plays into this.
I think any kind of stimulus will almost certainly translate to higher inflation.
It's not necessarily bad. It's a bit of an equalizer. You give money to everyone, money loses value somewhat, but only the people who have the most money at the moment, will suffer from the inflation in absolute terms (money received vs value of savings lost).
I've always wondered why the government when doing these ~10 trillion stimulus to various industries just didn't give every person ~$30,000 during the last year spread out over the year. Probably because that would drive actual inflation.
It seems obvious to me that giant fiscal stimulus was a factor in today’s inflation to the extent that it gave households extra cash to spend once the pandemic restrictions eased up. All that spending hit physical goods at first, and now services.
Because politicians are loath to take away the punch bowl just when things are getting good, central banks usually have to do so via interest rates and money supply.
And because politicians are unlikely to increase taxes or reduce spending to mop up the extra cash, it’s likely that sustained, harsh monetary policy will be required. This policy will put the economy into recession for a time, will reset asset values, and will lead to higher unemployment.
And central banks will inevitably overshoot, because it’s nigh impossible to predict the path of the macroeconomy with much accuracy.
" ... which in turn, will cause inflation and soaring of prices of gold and other assets."
Whether they do that or not, it is not likely to cause much inflation. Funding for the scheme is meant to be taken from other, existing, programs, so the total stimulus is zero or near zero. Even if it does boost the price of some luxury items, and I am skeptical that will do so to any significant degree, that would simply reduce the consumption of said luxuries. Also, you aren't going to buy much gold with 7k p.a..
There have been predictions that the Fed would exhaust its capability to regulate the economy through monetary stimulus for years with the end result being inflation and recession. Anecdotally, over the course of my life the size of fiscal and monetary stimulus has only increased. During the 90s we would stimulate with a few points of interest reduction, then in the 2000s we had 08 leading into permanent QE through the 10's. The 2020's have seen stimulus activities far in excess of '08.
I suppose it depends on how those programs are funded/achieved. If they are funded via something that acts as monetary stimulus (just print the money to pay for it) then I imagine there would be a heavy burden of resulting inflation.
If you are referring to the Fed repo market operations, then these are short-term collateralised loans, so not really the same thing as pumping trillions in to the real economy.
A fiscal stimulus of that size would almost certainly drive demand (during a pandemic that has caused a negative supply shock) and therefore increase inflation.
Several prominent economists at Harvard looked at inflation in countries that did and didn't send out stimulus checks. The numbers ranged from 4% to 8%, with stimulus checks strongly correlating with higher inflation. The math disagrees: there was going to be high inflation due to the pandemic and the Ukraine war, but stimulus policies accounted for the majority of the damage.
From what I've read, stimulus in infrastructure building is rarely correlated with inflation, provided the new infrastructure is useful to continued growth/expansion.
It sounds like you're talking about inflation? I don't think we're near any limits on stimulus as far as inflation is concerned. It does not look like inflation is increasing at the moment, likely decreasing. We could likely continue to push out consumer stimulus until inflation percentage exceeded what we'd consider above normal year over year.
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