Editor’s note (January 12, 2022): This article has been updated with the inflation figure for December
AMerrick Fiscal The enormity of the epidemic has fueled not only economic growth but also a vibrant hip-hop niche. In the last two years, musicians have released less than 30 songs, known as steamy, citing government stimulus checks. “Yes, check, I need a steamy. S.–T.–I– Double M.–AndTell them, “The video that wrapped Curtis Roach on a flashy track seems to confirm the worst fears about how the money was spent. Mr Roach fanned himself with dollar bills and sprayed them at parties. But a close listen is a conservative trend. “Generational wealth, it’s here … save some for the rainy days behind you, never relax.”
The question of how Americans have spent and significantly saved money over the past two years is a big one in today’s economy. In the spring of 2020, when millions of people lost their jobs overnight, there was a reasonable estimate that there would be personal financial loss. Instead, government handouts, benefiting from more liberal unemployment than steam, have boosted incomes. Moreover, because people are at home, their spending has fallen below normal levels.
The result was a piggy-bank boom. The Americans saved about $ 2.5trn, saving more than the pre-Covid trend (see Chart 1). Excess revenue is responsible for two-thirds of the stockpile, whereas lower-than-expected expenditure refers to the other third, according to estimates. Economist.
This accumulation of cash could, in theory, provide a pillar for the economy next year as policymakers withdraw support. Annual consumer price inflation has been at a four-decade high, reaching 6% in December, and the Federal Reserve has indicated it wants to raise interest rates soon. Some economists expect a four-fold increase this year. Monetary policy is also becoming more trivial. Many benefits top-up expires in the fall. The inability of the Democratic Party to pass President Joe Biden’s “Build Back Better” program so far will lead to further cuts.
Will the extra savings blunt the impact of all these policy tightening? There are reasons to be skeptical. If the $ 2.5trn is evenly distributed across the country, the amount for each American would be about $ 7,500 more than the combined total of three rounds of stimulus checks. In reality the distribution is far from equal. In the previous decade of Covid-19, the richest 1% of Americans had almost twice as much cash and checkable bank deposits as the lower 50%. The epidemic has made it even worse: the top 1% is now four times more than the bottom half. While the government has directed its assistance to poor Americans, the super-rich have won far more rewards, thanks in large part to the increase in the value of wealth.
This is important when trying to assess the potential impact of additional savings. The rich usually spend less on their income. The extra cash in their hands is more likely to go into the investment account than to buy groceries.
Another damper may be the nature of the economic recovery. In a study last year, Martin Beraza and Christian Wolf of the Massachusetts Institute of Technology showed that recovery from a recession where cost reduction is focused on products is stronger than cuts centered on services. The demand for paint-ups is that smartphones can be left in the flood. In contrast, the demand for beach vacations returns more slowly: vacationers can stay in one place at a time. This suggests that as the epidemic wears off, the flow of savings to services such as travel and leisure may slow down.
A final concern is high inflation. Which consumes both wealth and income. Consistent with rising prices, wage growth in the U.S. has become sharply negative over the past half year. Similarly, the actual value of savings looks somewhat less impressive due to declining purchasing power.
Although the story does not end there. Surveys by the Fed’s New York branch indicate that stimulus recipients have saved about one-third in cash and used the other third to repay loans. This helps explain why family balance-sheets are healthier today than before the epidemic, regardless of their income level (see Chart 2). In this way they have the opportunity to borrow and spend more.
It could have already happened. Consumer debt rose to 40 40 billion in November, the highest on record, as credit-card use soared. Some observers saw that as a sign that the family was strapped for cash. Bank of America’s Alex Lynn disagrees. “Increasing credit-card spending could be a function of greater re-employment in the economy,” he said. “Americans prefer to use their credit cards to collect points for travel or restaurants, and this is not necessarily a sign of danger.”
The loss of inflation could also be tolerable, especially if the Fed tightens, and supply-chain improvements bring prices back under control. Wage growth has been strong for low-income people, the most risky group for actual spending power reduction. According to the Atlanta Fed, annual nominal wage growth for lower-quarter earners reached 5.1% in November, as opposed to 2.7% for the top quarter.
Overall, Americans saved about 6.9% of their income in November, down from an average of 7.4% in the five years before the epidemic. Yet if some people are drowning in their extra savings, this is exactly what should be seen. This is also a key reason why most forecasters think the economy will grow by about 4% this year, which is a strong momentum in the face of headaches.
And it just struggles with the changes that enable many recipients of extra cash. On another hip-hop track, Renee the Entertainer sings of a woman who splurged on hip-enhancing methods: “She spent time on steamy / loot in Miami.” Renee, whose real name is Maria Pizarro, actually uses it to mean something that is arguably the most productive use. “I used them to get more reliable cars,” he says. Although Mrs. Pizarro dreams of a music career, the car has made her less glamorous career easier. This allows him to drive to work in an Amazon warehouse. 3
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This article was published in the print edition of the section “Life After Steam” in the section on Finance and Economics.