Cheap money will boost inequality and geopolitical tension but not inflation
Though the lockdown in 2020 threw many workers out of work, the big fiscal stimulus, fueled by government debt and an unprecedentedly large monetary expansion, offered stimulus checks and elevated unemployment benefits to millions of Americans. In 2020, US federal spending grew by 50 percent, making the deficit share of GDP the largest since 1945, and the M2 in the economy grew by 26 percent—the largest annual increase since 1943. Such fiscal and monetary expansion prevented a collapse in consumption. After an initial fall in Spring 2020, US household consumption bounced back and grew by more than 40 percent in the third quarter.