"The obvious one is fiscal policy, with governments everywhere using budgetary stimulus more actively since the pandemic. The impact of higher interest rates has been dampened in two ways. First, consumers had high levels of liquid assets (sometimes called “excess savings”) left over from the pandemic, which provided a financial cushion that protected their spending power. Second, governments have been deploying additional funds since COVID-19, such as the large energy support programmes in Europe and Bidenomics in the US (big tax subsidies that encouraged US companies to invest heavily in green energies). These funds have supported incomes and employment, even as monetary policy engineered a squeeze"
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People on here are overstating the impact of a handful of software companies and buzzwords on the larger economy.
Consumers base purchasing decisions on their monthly outlays. When interest rates go down, they can afford more in payments, so they increase their consumption until their expenses match what they can afford. A good example here is housing.
The US and many EU states provided an under-appreciated amount of stimulus during the COVID-19 lockdowns. Even when this wasn't given directly to citizens, as it was in the US, it still trickled down from businesses to labor through steady wages. It also kept the wheels of the economy greased by keeping businesses out of bankruptcy, so when the lockdowns ended, the unemployed could return to work.
The steady wages piece here is key, because the lockdowns led to a significant reduction in daily expenses. So, i.e., if you had 5K in monthly expenses that were matched by 5K in income, for a non-negligible amount of time, you had 5K in income going against 3K in expenses. Even without direct stimulus payments, this led to a significant increase in average savings.
Now that the lockdowns are over, consumers - who now have money in the bank - also happen to have access to extraordinarily low interest rates (too much money chasing too few investment opportunities). Because of post-COVID structural issues, there is also an increase in the demand for labor, so wages are also increasing. And there's the much touted structural part of all of this.
We've never, ever (at least, from the early 20th century), seen as large of a reduction in global peacetime economic activity as we did in early-mid 2020. The closest example out there is the end of WW2. We've also never seen global economic activity drop, and then rebound, in such a short period of time.
> Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion.
Getting back to your post, debt allows leverage. Consumers now have either lower monthly expenses (if they used their savings to pay off debt) or they have more money in the bank to use as a down payment. To use your example of a jet ski, a Yamaha EX at $7,200 USD can be purchased with 1K down and a 60 month repayment plan. The monthly payments will be $118 USD at a 5.2% (high) interest rate. So, the average American consumer, using only government-provided stimulus checks (3.2K per person), can afford the down payment along with almost two years of monthly payments for a jet ski before they have to start paying from their income.
Can they afford the jet ski outright? No, but consumer purchases are based on short term impulses, and the US stimulus checks, along with easy access to low interest debt, certainly pushes the equation towards consumption.
We are experiencing both. During the pandemic governments inflated the money supply to fund vaccines, cash payouts to citizens, and huge programs to keep payrolls flowing. The pandemic also increased demand on consumer goods because people were spending their stimulus checks on goods since you couldn't go out or travel. Add on the fact that there are shortages of goods because many producers were slowed down significantly by lockdowns and staff shortages.
So we have both fewer goods available for purchase and less valuable money to buy them with.
People blame stimulus spending, but the reduction in real economic output from COVID also has knock on effects.
Expensive condos etc derive most of their value as a symptom of a much larger and extremely productive economic system which got disrupted. Suddenly people start reevaluating basic assumptions and markets adjust in ways more complex than a simple boom bust cycle.
It probably did prick a bubble. But all the economic recovery measures for the pandemic may, ironically, push further out the point at which the systemic issues break the market and force resolution. Especially in the U.S., economic aid invariably ends up contributing far more to corporate balance sheets than it does citizens' wallets. I mean, what was the first response of the GOP to prospective economic issues? Cut taxes, including payroll taxes, which could have dealt a death blow to Social Security and Medicare considering how many Republicans are itching to get rid of those programs entirely.
Once COVID-19 passes I would expect more of the same. For reasons that aren't entirely understood, inflationary effects of monetary stimulus are highly attenuated, at least for the average consumer, although they clearly contribute to the ever increasing wealth of top earners, not to mention financial assets. Who knows how long we can keep going down this road.
> It’s the covid era monetary and fiscal policy that screwed us.
Citation needed ;)
But maybe it’s both. And maybe it’s complex. Maybe we’ll never know.
Housing prices and liquid asset prices seem very correlated to covid lockdowns amount wealthy people who couldn’t spend and 0% interest. Much of that asset pricing has reverted now. But stimulus checks and other often cited welfare benefits went mostly to grocery stores and supplanting income that was lost.
The rise in consumer goods prices is due to supplies chain issues like a war and sanctions on an oil producing nation and (my hypothesis) a desire for businesses to raise prices to raise profits to account for declining stock price and changing post pandemic spending patterns.
The covid shock was managed because almost every government switched to expansionary fiscal and monetary policy to keep unemployment down. Interest rates have gone up massively, and Covid relief payments have dried up.
You're conflating the pandemic with the pandemic stimulus. The savings rate shot up among the classes that remained employed but whose expenses fell through the floor. These people got little of the unemployment benefits, and many were also above the threshold for the stimulus checks.
I think the author refers to increasing economic activity, employment and consumption. The article is quite poorly written, mostly a range of statements about how Keynes was wrong because I think so. The way out of the COVID crisis has been largely Keynesian for most countries (including the US). Without this boost to counter externalities such as a global pandemic, the impact to unemployment would have been much greater.
The number of people who are homeless, in medical debt, and unable to work or make any money due to limited skillsets and COVID is astounding. These people need some type of immediate help, and if they don't receive it, the effects will be far more detrimental than the effects of fiscal stimulus.
And I think you're confusing monetary stimulus with fiscal stimulus.
> It doesn't matter how the money is distributed, it tends to inflate asset prices
For the US, that's not true. The US Dollar is the world's reserve currency, and the Fed isn't worried about inflation, but a lack of money supply. The pandemic has led to a huge demand for safe assets, including Treasury bonds, which has led to incredibly low interest rates on Treasury bonds, and a stronger dollar. See, for example, this article: https://www.washingtonpost.com/business/2020/04/05/what-2-tr....
Many people made a lot of money during the pandemic whether by stock or government handouts. American savings rates soared during the pandemic. Many view this as a success of the child tax credit. That's one view. The alternate view is that COVID shutdowns depressed the availability and desirability of goods and services. Why keep up with the Joneses if you never see them? Entire industries were deemed dangerous and demand dropped...
Once things reopened, people started spending their savings. It's not that the tax credits and bailouts reduced poverty. It's that not having anything worth buying made people save their money instead.
But once things became available again, there was suddenly a lot more money chasing smaller numbers of goods (it takes time for production to ramp up). This leads to higher prices, and inflation.
As this goes on, people start demanding higher wages to keep up with price growth. Once that happens, price growth is fixed. No one's going to accept to a pay cut.
Right but that is a result of stimulus, and an increasing deficit, giving people (international economic agents) less faith in the value of the dollar. Sure, these things are related to the economic effects of the pandemic, but I was trying to focus on the longer term effects of the economic relief that's being done and less about the semantics of whether we should have done stimulus to deal with the pandemic (which seems like a reasonable thing to have done).
maybe stimulus funds could be complicit, but i have a gut feeling that a lot of people have learned to live without steady employment, or even lost possesion of assets requireing regular infusions of cash in order to be possesed
no citations, just a gut feeling. i know anecdotaly there is more self sufficiency in my area than previous to covid times
The economy is impacted by people not spending as they were pre covid due to the desire to both avoid contracting the virus in locations they would have previously frequented as well as people saving more in fear of a weakening economy.
My savings rate has increased significantly since Covid as I am barely eating out at all due to the risk of contracting Covid via restaurants as well as worrying that the economy could get much worse and wanting to be prepared. I am just an average person so I would assume that there are many hundreds of thousands of people doing the same as me, thus the economy contracts.
My state is essentially not shut down at all, so very little impact is due to government regulations and almost all of it is due to personal spending choices. The less restrictions in place, the more the virus spreads and the less money I spend.
The economy is highly dependent on people spending and many people dont want to spend right now.
That's a remarkable claim - namely that the GDP hit was primarily due to supplemental unemployment, rather than to a collapse in consumer demand across many sectors as a result of the pandemic.
You'll understand, of course, that I'm going to need something more than your unsupported assertion to be convinced that this is the case.
From what I understand debt as a percentage of disposible income has gone down during the pandemic. [1]. personal savings rates have also increased significantly[2]. I think people are underestimating the benefits of the pandemic assistance (particularly in the form of increased unemployment insurance)
It's standard Keynesian monetary policy. There's bound to be some impact on the economy from the coronavirus, but sudden shocks to the system cause the economy to overreact, and far more people get thrown out of work. If the government overstimulates, then you get inflation, but in a crisis unemployment is a bigger problem.
"The obvious one is fiscal policy, with governments everywhere using budgetary stimulus more actively since the pandemic. The impact of higher interest rates has been dampened in two ways. First, consumers had high levels of liquid assets (sometimes called “excess savings”) left over from the pandemic, which provided a financial cushion that protected their spending power. Second, governments have been deploying additional funds since COVID-19, such as the large energy support programmes in Europe and Bidenomics in the US (big tax subsidies that encouraged US companies to invest heavily in green energies). These funds have supported incomes and employment, even as monetary policy engineered a squeeze"
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People on here are overstating the impact of a handful of software companies and buzzwords on the larger economy.
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