Here’s How the Fiscal Stimulus Money in 2021 Changed Everything

The $1.9 trillion American Rescue Plan was one of the biggest wealth transfers ever.

In the first six months after President Biden signed the bill into law, $700 billion was moved from government coffers into people’s bank accounts.

Indirect payments to individuals and families totaled over $450 billion.

170 million EIPs worth $400 billion

More than 106 million CTC payments costing almost $46 billion

More than $1 billion in Emergency Rental Assistance

Not to mention the $240 billion the Treasury allocated to states, territories, localities, and tribes for pandemic relief and stimulus projects. A tremendous effort and spending would inevitably have a significant influence on the economy as a whole.

Here’s what we learned in 2021.

The Stimulus Boosted a Recovering Economy

The stimulus prompted a surge in economic activity in the six months after President Biden’s signing of the American Rescue Plan, according to the Treasury. According to the Treasury’s six-month report, 3 million jobs were generated, with 765,000 added in the final three months of 2021.

The Treasury attributed most of such increase to business-support stimulus initiatives rather than direct cash payouts. The Employee Retention Tax Credit allowed firms up to $28,000 per employee to keep them.

All that money went into two streams, and prices rose.

Money from checks and direct deposits offered millions of Americans greater spending power. The wave of consumer demand prompted prices to climb during the spring and summer, and that inflation continues to sting the Christmas shopping season in 2021.

Why is less discussed.

The epidemic caused a huge shift away from face-to-face services and toward tangible commodities. Despite the millions of immunizations delivered throughout the country, the Economic Policy Institute claims that this dynamic did not alter when the checks began coming in March.

As billions of dollars flooded into the products industry, prices rose, putting strain on transportation and logistical operations. This strain hindered global supply lines, driving up prices and destroying any possibility of inflation abating.

Savings soared

In the spring of 2020, when unemployment was as high as national uncertainty and economic concern, three out of four Americans spent their first CARES Act stimulus check on home needs.

The Peter G. Peterson Foundation reports that towards the end of the year, just 22% of recipients had to use their checks for pressing necessities. By March 2021, the American Rescue Plan had made the largest direct payments ever, which more than four out of five beneficiaries could use to pay off debt or save for the future.

Household savings increased from 12.7 percent in March to a record-high 32.2 percent in April, according to Time’s Next Advisor. The previous high was 17.3% in May 1975.

It wasn’t simply savings. The 2021 Planning & Progress Study by Northwestern Mutual revealed a 13% increase in retirement savings. But the good news was marred by bad news. By the end of August, CNBC and Oxford Economics reported that the rich held the majority of America’s $4 trillion in savings.

Corporations also did not do badly.

Despite the huge increase in savings, the stimulus payments prompted a consumer spending boom. All that expenditure benefited the sellers, of course.

Strong demand and increasing prices boosted US company earnings in the second quarter of 2021. Reuters reports that after gaining 5.1 percent in the first quarter, corporate earnings climbed 9.2 percent in Q2 to a record $2.8 trillion.

Economy-wide shockwave The US economy came back to life in the second quarter, with GDP growing 6.6% after gaining 6.3% in the first.

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