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How Much Free Money Stimulus Still Hasn't Been Spent?

Here's the inflation question of the day: How much free money is still on deck, waiting to be spent?
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Income and spending data from the BEA, chart by Mish

Income and spending data from the BEA, chart by Mish

Chart Notes

  • SAAR stands for seasonally-adjusted annualized rate. 
  • The three rounds of free money stimulus in April of 2020, January of 2021, and March of 2021 are clearly visible.
  • Stimulus generated inflation. But how much still isn't spent?

More Complicated Than It Looks

The question is not as straight forward as it looks. The gap between spending and income isn't constant. 

Free money that goes to bottom rung households tends to immediately get spent. The higher the rung, the more the savings. This is complicated by the fact that most of the money was supposed to go to lower tiers, and further complicated by corporate fraud, especially in round one. 

More importantly, personal spending does not count mortgage paydowns, stock market or Bitcoin purchases, capital expenses for businesses, drug money, other illegal uses, or money sent to relatives overseas. 

This is not the same as the sideline cash fallacy where cash is allegedly headed for the market, an impossibility.

Although someone must hold every dollar, those on the low end of the economic rung will spend stimulus savings, sooner rather than later, and that supports overall consumption, for now.

A Stab at How Much Hasn't Been Spent

  • Looking just the peaks, about $1 trillion (unadjusted, and not annualized) is still on deck.
  • On a summation approach over two years, estimating a constant gap of about $2,000 SAAR between spending and income, about $2 trillion (unadjusted, and not annualized) still hasn't been spent.

The numbers do not factor in mortgage paydowns, stock market or Bitcoin purchases, capital expenses for businesses, drug money, other illegal uses, or money sent to relatives overseas.

Three Rounds of Fiscal Stimulus

  • Round one (Cares Act) was $2.2 trillion
  • Round two (Consolidated Appropriations Act) was $900 billion
  • Round three (American Rescue Plan) was at $1.9 trillion. 

Those were total packages however. 

The Peterson Foundation reports direct checks were $292 billion in round one, $164 billion in round two, and $411 billion in round three.

There was $850 billion of direct payments to taxpayers with the biggest and most unwarranted round the last.

Spending data suggests free money, at least most of direct payments, already did enter the economy. 

However, that does not factor in unpaid rent via eviction moratoriums or SNAP (Supplemental Nutrition Assistance Program), formerly Food Stamps, which I will address in a separate post. 

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So yes, there still could be a pile of unspent stimulus savings, possibly much higher than my $2 trillion summation estimate, again with my caveats on investments, sending money overseas, etc.  

Four Measures of Inflation

CPI data from the BLS, PCE data from the BEA, chart by Mish.

CPI data from the BLS, PCE data from the BEA, chart by Mish.

CPI Rips Higher to 8.5 Percent From a Year Ago, the Most Since 1981

For discussion of the above chart, please see CPI Rips Higher to 8.5 Percent From a Year Ago, the Most Since 1981.

In addition to the free money and rent eviction moratoriums, there was also a huge shift in demand preferences from services to goods.

Supply chain disruptions further added to the inflation problems. 

The entire time, the Fed kept its foot on the gas with absurdly low interest rates and QE at nosebleed levels until March of 2022 despite clear bubbles in housing and equities.

Forget About a Soft Landing, What's the Shape of the Hard Landing?

Noted!

Bear in mind that James Bullard, St. Louis Fed President, won my Hoot of the Day award for his post "Fed is Not Far Behind the Curve"

Things are totally out of control and the more free money that is still on deck, the more the Fed will hike and the more the stock market will collapse.

So, forget about a soft landing. 

The correct question is What's the Shape of the Hard Landing?  

This post originated at MishTalk.Com.

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