How Stimulus Money MisManagement Could Lead to Stock Market Crash by 15%

By Prattiba JaiSri On Oct 27, 2021

Stimulus federal aid has been vital to Americans’ welfare throughout the pandemic. These checks issued by the federal government helped residents get back up on their feet financially.

However, inversely, this could also potentially make the stock market plunge, says some experts.

They are pointing to the fact that the U.S. has experienced higher price spikes than other developed countries at the same time it has passed much bigger stimulus packages.

The massive amount of stimulus money being sent to Americans — combined with pent-up demand for goods and services as COVID-19 restrictions eased — was the starting point for so much market inflation in the past year.

According to Scott Minerd, global chief investment officer for financial firm Guggenheim, said that the stock market could drop 15% by November, according to a report by Business Insider.

He blames the economic stimulus, noting that the central banks have “no exit plan.”

Michael Burry of The Big Short, along with investment experts Leon Cooperman and Carl Icahn have also warned against the Fed overstimulating the economy.

On July 15, the families of 60 million American children received their share of a $15 billion fortune, compliments of the U.S. Treasury and the IRS. It was the first round of payments for the new-and-improved Child Tax Credit (CTC).

The credit is not new, but President Joe Biden’s American Rescue Plan, passed in March, expanded the CTC from $2,000 to $3,600 per eligible child and made it payable in advance for the first time in history.

Most eligible taxpayers receive monthly payments of up to $300 per child, as half the total credit can be paid in installments with the second half delivered later as a tax credit. Many other families have opted to take the whole credit at tax time.

For millions of Americans, the obvious benefit is a monthly injection of cash with more to come when taxes are due.

But the CTC — and the other direct-payment stimulus programs that came out of the pandemic — is not an advantage for the entire economy and benefits even those who don’t have children.

According to the Center for American Progress (CAP), the CTC had always left the poorest families behind because it wasn’t fully refundable.

Biden’s stimulus package has also been blamed for rapid inflation in 2021, with a tight labor market, an increase in demand for goods and services as lockdowns ended, and supply chain challenges creating “the perfect storm for inflation”.

Keep up with more news on the economy here at the East County Gazette.