One of the most daring experiments in the history of the American social safety net was the roughly $5 trillion in COVID-19 stimulus expenditure.
Proponents of the legislation that authorized the assistance argued that an immediate and massive influx of cash was required to keep the economy viable during one of the most destructive public health crises in modern history.
Economic Effects Of Unexpected Income
Its detractors called it a waste of money that would bury the country in debt, cultivate a culture of dependence, cause steep inflation, and make a recession more likely.
The opposing parties continue to disagree on the wisdom of post-pandemic stimulus spending, but one thing is beyond dispute: Its impact on individuals, households, and the economy as a whole has been proportional to its cost.
The pandemic stimulus packages had macroeconomic effects that affected the stock market, the national gross domestic product, unemployment, and inflation.
Extreme stock market volatility was a manifestation of the dread and uncertainty that characterized the beginning of the pandemic.
The Dow lost 37% of its value and the S&P 500 lost 34% between February 20 and April 7, 2020. The Dow fell 7.79%, 9.9%, and 12.2% on the market’s three worst days, March 9, March 12, and March 16.
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Asset Price Inflation And Market Bubbles
The sell offs were severe enough to activate emergency NYSE circuit breakers that halted all trading, a safeguard the SEC installed after the crisis of 1987 to prevent another market collapse.
However, the arrival of the initial stimulus payments rekindled the optimism of investors. The aid payments, however, quickly swung the pendulum in the opposite direction.
Branson Knowles, a certified financial analyst and the current director of US digital banking at Top Mobile Banks, stated that these measures may have indirectly inflated asset prices as people invested their stimulus checks, resulting in concerns about possible market bubbles.
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