It is evident that America continues to suffer from the coronavirus-induced recession. Too many people have died, too many companies have closed and too many people have lost their jobs.
We have been in this pandemic for 10 months and even with vaccines available we still cannot see the light at the end of the tunnel.
What is less obvious is that this recession is different from the textbook economic slumps that the public witnessed every few years. The same goes for the Great Recession in 2009, and there is a Federal Reserve chart showing exactly what is different.
A recession is a slowdown in business. That means fewer jobs, less spending and less money available. But in the past decade America has been awash with a staggering amount of cash that has not been spent.
The Motley Fool investment website recently posted a comment titled “The Important Chart in Economics.” It has been pointed out that the amount of cash in American checking accounts hit record levels in the past year, and warns that a return to normal and spending more money could trigger both economic growth (good!) And inflation (good! ). Bad!).
The numbers from a chart from the Federal Reserve Bank of St. Louis are truly amazing. The graph shows that between 1990 and 2008, the amount of money on checking accounts was typically between $ 500 billion and $ 800 billion. But when the Great Recession hit, that number decreased – and has not stopped.
The Federal Reserve has poured huge sums of money into the financial system to prevent economic disaster. It worked, but deposits to checking accounts – a useful measurement as they are instantly accessible to the account holder – rose from $ 778 billion in January 2009 to $ 2.2 trillion in January 2020.
In other words, the amount of readily available cash Americans have almost tripled in just 11 years. But if you think this is a big jump, the 2020 spike is a shame.
The Fed reported that there was a staggering $ 4.7 trillion in checking accounts as of December 26th. This is more than double in just 12 months.
Motley Fool writer Morgan Housel said this graph explains a lot of things that are going on in today’s economy.
“One is a partial explanation of why the stock market has done so well over the past year. A lot of money flows into the system, ”wrote Housel. “It also helps explain why some sectors are thriving while others are in a depression. A lot of money stands still, is made by people in one sector (e.g. technology) but not spent on services in another sector (e.g. restaurants).
“It also shows how big the stimulus packages were over the past year.”
Frankly, it also shows how much of the stimulus money has been misdirected. Otherwise, there is no way that bank accounts can be twice as large.
Policy makers need to know that future pandemic aid must be diverted, but they are talking about giving an additional $ 1,400 to each American adult regardless of their needs.
Looking ahead, this graph means there is pent-up spending of $ 2 trillion or more, just waiting for a more normal business climate. Additional stimulus packages can increase this amount.
This makes it clear that at some point, but not soon enough, there will be a gigantic economic recovery. We just have to wait for it.
Risk is the basic economy that says too much money chasing too few goods is a recipe for higher prices.
The rapidly growing government debt, which rose from $ 5.6 trillion in 2000 to $ 27 trillion in 2020, will continue to grow under President Joe Biden. The country has spent too much for years, which could affect our stability.
Jack Ryan is the editor of