The COVID-19 crisis has hit the United States hard, and financial experts had differing opinions on how the pandemic stimulus payments would affect the economy. Some felt that these payments would cause inflation, essentially rendering such payments ineffective over time. Max Arias of Wharton School is studying behavioral economics, and he believes the stimulus payments were a smart move. “Essentially it’s not a stimulus but rather restitution for forced shut down of economic activity similar to the takings clause” says Max.
Max Arias of Wharton School says that it’s important to understand when and why inflation occurs. “Inflation only occurs when disposable income and aggregate spending habits of people in an economy increase, supporting higher prices for products and market wages, or when the value of a currency depreciates relative to others,” according to Max Arias of Wharton School. “This means that in order for inflation to happen, people’s spending and savings habits need to remain at the same levels they were pre-pandemic, which current data does not reflect as people’s propensity to save is increasing.” The stimulus payment wasn’t large enough for most people to create significantly different spending habits, according to Max Arias of Wharton School.
The stimulus payments were given for people to spend on basic necessities, and by and large, this is what happened. Of course, there were some outliers (like people who worked overtime due to COVID-19 and were able to pocket their stimulus money).
When considering an increase in spending due to stimulus payments, Max Arias of Wharton School says, “This likely won’t happen at least in the short run in the United States. Data already shows that macroeconomic consumption ratios are decreasing and the savings ratio is increasing.” According to Max Arias of Wharton School, people are being smarter with their money. Data shows that people are learning to save, rather than increasing their spending habits when they get a short-term increase in cash flow during a hard economic time.
Max Arias of Wharton School believes that in order for inflation to occur, people would need to significantly alter their spending lifestyles, and that just isn’t happening with the economic stimulus payments due to the pandemic. If the stimulus payments continue for an extended period of time, and are an amount large enough to create a change in spending habits, it’s possible that inflation could occur, according to Max Arias of Wharton School.
Max Arias of Wharton School says that the current stimulus payment set up (and the fact that a second payment has yet to be confirmed) means that significant economic changes are not likely to occur at this time. Of course, this could change in the future, if more payments are in store for the United States public.
In addition to the lack of spending habits change in the United States, Max Arias of Wharton School also believes that the US dollar is strong enough to keep inflation at bay for the time being. “Also, US investments are seen as safer than foreign alternatives, thus increasing the demand for dollars and supporting its exchange rate,” Max Arias of Wharton School says.
Maxwell Arias gives expert insight about the current COVID-19 stimulus payments and why they might not be inflationary.
Millions of Americans feel the pressure of the COVID-19 pandemic. Unemployment has reached levels that experts could not have anticipated, leaving many Americans without a steady paycheck. To combat this health and financial crisis, Congress passed legislation to provide trillions of dollars to American adults, businesses, and healthcare providers.
Stimulus checks were one of the main components of the federal government’s package. In essence, qualifying American adults would each get a one-time payment of $1,200. Additional funds were provided for families with children and other dependents. These payments helped unemployed or temporarily underemployed Americans pay rent, utilities, and meet other financial obligations.
However, many wondered if this sudden influx of cash would lead to a decrease in the value of the US dollar and increased inflation. Based on basic economic principles, this is a pretty legitimate concern. If inflation sees a steep increase, it will become more difficult for Americans to save for retirement and make financial plans for the future. Fortunately, Maxwell Arias thinks that Americans may not need to worry too much about inflation.
Maxwell Arias Discusses Stimulus Checks and Inflation Concerns
After receiving a degree in Economics from the Wharton School, Maxwell Arias began working as an investment associate. Maxwell Arias would then return to the Wharton School, this time as a teacher’s assistant. Additionally, Maxwell Arias has also spent time working with The Vanguard Group.
All of this experience gave Maxwell Arias key insights into the economic situation in the United States. Even as the short-term economic outlook becomes more uncertain, Maxwell Arias sees patterns that resemble other historical downturns. This, in turn, gives him relative confidence in the ability for inflation to remain low.
Regarding the current situation with COVID-19, Maxwell Arias had this to say about the potential for stimulus checks to be inflationary:
“Inflation only occurs when disposable income and aggregate spending habits of people in an economy increase, supporting higher prices for products and market wages, or when the value of a currency depreciates relative to others. This likely won’t happen at least in the short run in the United States. Data already shows that macroeconomic consumption ratios are decreasing and the savings ratio is increasing. Also, US investments are seen as safer than foreign alternatives, thus increasing the demand for dollars and supporting its exchange rate.”
In short, the United States is in a better financial situation to withstand the damage caused by the Coronavirus pandemic. While stimulus checks have given consumers greater spending power, much of this spending has gone to essentials like rent, food, and groceries. Americans who have not lost income due to COVID-19 are choosing to set aside their stimulus checks for a rainy day. All of these factors will likely cause inflation to remain at normal levels.
Maxwell Arias has a simple plan to have China pay for their role in the COVID-19 global pandemic.
Exactly who is Maxwell Arias? Many players have given their opinion on how to recover from this crisis. Maxwell Arias, a soon to be Wharton School of Business graduate chimes in, as well. However, all must be wary to heed the advice of New York governor Andrew Cuomo. To date, Andrew Cuomo’s state has been the hardest hit by this worldwide outbreak. He gives daily caution via a special report to all viewers to understand that the country is only at half time when it comes to the pandemic. There are so many questions yet to be answered when it comes to this novel coronavirus. That being said, it is refreshing to hear a new voice, in the person of Maxwell Arias, from this prestigious arm of the University of Pennsylvania.
Maxwell Arias is set to graduate in May of 2020. Unfortunately, due to the outbreak, his graduation ceremony will look very different. Undoubtedly, his point of view takes this reality into account. With a Bachelor of Science in Economics and a minor in Biology, Maxwell Arias has a unique vantage point for his perspective. How Economics and Biology meet is exactly where the world finds themselves currently. It will take years, if not decades to recover economically from our current and particular set of circumstances. Similarly, on the medical front, we are not where we need to be in terms of understanding COVID-19. As a result, a fresh young voice is a welcome authority. They are inheriting an unprecedented economic and biological situation.
Maxwell Arias Feels that China Should’ve Acted at least Three Weeks Earlier then Reports Indicate
Citing a Yale-sponsored study, Maxwell Arias asserts that 95% of the spread of the virus could have been mitigated with China’s earlier distribution of information. The current US debt to China is $1.1 trillion. Taking into account the immeasurable loss of life along with the unimaginably exorbitant financial fallout, Maxwell Arias posits that US debt to China should be adjusted to reflect the country’s negligence:
“The COVID 19 crisis has validated longstanding suspicions across the political aisle that the authoritarian Chinese government is the preeminent threat to the United States and global commerce. China’s policy of fabricating the economic and public health data shared with the world to project a facade of strength has birthed the greatest economic downturn in recorded history. The US, along with the global community, should demand reparations from China– both to deter future criminal dishonesty and to partially offset the massive expenditures undertaken to keep economies on life-support during lockdown. Reparations should come directly out China’s war chest of foreign debt. China is the largest holder of US treasuries with more than 1.1 trillion dollars worth. Some politicians such as Senator Marsha Blackburn of Alabama have suggested a write down of US liabilities to China to $0. She has asserted that: ‘We don’t need to be sending them one thin dime because of the trillions of dollars they have cost our economy’
Indeed it is true that the 1.1 trillion in outstanding debt is dwarfed by cost to the US government, which has already exceeded 2 trillion USD in stimulus spending, with an additional 3.5 trillion expected to be spent by the federal reserve to support the financial system according to Morgan Stanley. Unfortunately, for the time being, The US’ economy and financial system is too interconnected with China’s to take such drastic action. It could set a precedent for all governments across the world to default on their debts to China, plunging the world and the US into a deeper depression. China could also nationalize US assets in response. Instead, foreign debt held by China should be restructured to become 0 interest rate, non-collateralized loans with maximum optionality to defer payments and extend maturities.”
Maxwell Arias Postulates that the GDP Will be Exceeded by the Debt from COVID-19
According to Maxwell Arias, a situation like this has not occurred since World War II. Stimulus spending has exceeded $2 trillion already. Maxwell Arias uses Morgan Stanley’s estimates to assert that the federal reserve will spend a little less than 3 trillion to undergird the financial sector. He raises this argument to underscore the fact that China has a huge debt to pay to the US. The young wunderkind sites the 16,000,000 + unemployment claims of recent weeks as well as the small business administration loan program running into immense difficulty. 39 states are still experiencing lockdown status on some level. Huge structural mainstays like the postal service are suffering, as well. Instead of the US government hiking taxes or pulling levers, restructuring our debt to China will go far.