Finance & economics
Life after stimmy
Will households, pandemic savings stash keep the economy rolling?
America's fiscal largesse during the pandemic has fuelled not just economic growth but also a lively hip-hop niche.
Over the past two years musicians have released no fewer than 30 different songs referring to the government's stimulus cheques, known as stimmies.
"Yeah, check, I need a stimmy. S-t-i-double m-y, tell 'em gimme',” raps Curtis Roach in one snappy track.
The video seems to confirm the worst fears about how the money was spent.
Mr Roach fans himself with dollar bills and sprays them about at parties.
But a closer listen reveals a conservative streak that would do fusty financial planners proud.
"Generational wealth, that's where it's at…save a lil' bit for the rainy days on yo' back, never slack."
The question of how Americans spent and, crucially, saved money over the past two years looms large over the economy today.
In spring 2020, when millions lost their jobs overnight, a reasonable assumption was that personal finances would suffer.
Instead, government handouts, from the stimmies to more generous unemployment benefits, propped up incomes.
Moreover, as people stayed home, their spending fell well below normal levels.
The result was a piggy-bank boom.
Americans have accumulated some $2.5trn in extra savings compared with the pre-covid trend.
Higher-than-expected incomes account for two-thirds of the stockpile, while lower-than-expected expenditures explain the other third, according to calculations by The Economist.
This stash of cash could, in theory, provide a pillar for the economy over the coming year as policymakers withdraw support.
With annual consumer-price inflation running at a four-decade high—it hit 7% in December—the Federal Reserve has signalled that it intends to raise interest rates soon.
Some economists expect as many as four rate increases this year.
Fiscal policies are also becoming more parsimonious.
Many of the benefit top-ups expired in the autumn.
The Democratic Party's inability thus far to pass President Joe Biden's “Build Back Better” programme will lead to further retrenchment.
Will the extra savings blunt the impact of all this policy tightening?
There are reasons to be sceptical.
Were the $2.5trn shared equally across the country, it would amount to about $7,500 for every American—more than the combined total of the three rounds of stimulus cheques.
In practice the distribution is far from equal.
In the decade before covid-19 the wealthiest 1% of Americans had, in aggregate, about twice as much in cash and chequable bank deposits as the bottom 50%.
The pandemic has skewed this further: the top 1% now has four times as much as the bottom half.
Over the government directed its assistance towards poorer Americans, the ultra-rich reaped far greater rewards, thanks in large part to soaring asset prices.
That matters in trying to assess the potential impact of excess savings.
The wealthy typically spend a low share of their incomes.
The extra cash sitting in their hands is more likely to go towards investment accounts than grocery purchases.