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Why doesnt the government just print a bunch of new money and mail it out to everyone?
What are the risks and downstream effects of sending out government stimulus checks?
GOBankingRates unpacks why government stimulus checksmight actually harm the economy in various ways.
Inflation
When more money floods into the economy, it boosts demand without boosting supply.
That leads to higher prices, also known as inflation.
Government stimulus checks immediately inject more money into the economy.
Workers wages have still not caught up with the price increases resulting from the last bout of inflation.
Another hyper-inflationary environment would be disastrous for the average person.
To keep a lid on currency supply, it borrows money, as well.
So, more government spending means more government debt.
One of the Federal Reserve (Fed)s few tools to fight inflation is raising interest rates.
It effectively pumps the brakes on the economy, making it harder forbanks and businessesto borrow money to grow.
The economy slows too much and faceplants into a recession.
The Fed keeps an eye on slowing economic growth or even contraction, while raising rates.
But sometimes the economy shifts faster than they expect and tumbles into a recession.
So yes, stimulus checks do offer an initial shot of steroids into the economy.
And thenall the negative side effectsbecome clear, including higher recession risk after the initial rush.
Pinched Housing Market
Higher interest rates make it more expensive for homeowners to borrow, as well.
That cramps homebuying activity, which further dampens the economy.
TheNational Association of Realtorsestimates that each home sale generated $124,800 in broader economic activity last year.
Higher mortgage rates also keep many homeowners feeling locked in their current homes.
That in turn leaveslittle housing inventoryfor first-time homebuyers and keeps home prices artificially high.
Who needs a demanding boss if the governments handing out free money?
It happened in the midst of stimulus checks flooding the economy during the pandemic.
Dubbed the Great Resignation,The Washington Postreported on this effect back in the days of free-flowing stimulus checks.
Free money isnt actually free.
But after the party comes the hangover, which the U.S. has suffered through over the last two years.
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