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House gives final approval to $1.9 trillion stimulus

A flood of money is headed for the U.S. economy

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Photo (c) Malte Mueller - Getty Images
With the House passage of the $1.9 trillion stimulus package Wednesday, rivers of money are about to start flowing to individuals, businesses, and state and local governments. Some of it -- such as the $1,400 direct payments to individuals -- may get paid out quickly.

But some in Congress who voted for the massive spending bill are worried that there is so much money, government agencies may get bogged down in delivering it, resulting in frustration.

The Washington Post reports the federal bureaucracy has, at times, been challenged to deliver some Congressionally appropriated support in a timely manner. 

“Few Americans have benefited so far from the $25 billion in rental and utility assistance that lawmakers approved in December, housing experts said, and other programs to help workers and businesses pay their bills have not yet fully come online,” the Post reported.

Sen. Ron Wyden (D-Ore.) told The Post that programs have to be implemented correctly to be effective, noting that “it doesn't mean a whole lot if you can't get the benefits out so people can make ends meet."

New pressure on government agencies

The latest measure -- the sixth stimulus bill Congress has passed since the Pandemic began a year ago -- contains an increase in new child tax credits. But instead of being disbursed as part of an annual tax refund, the government plans to dole the money out to families on an ongoing basis to help with family cash-flow. 

That’s going to require some government agency to make sure the payments go out in a timely fashion. If they don’t, the blowback will likely land on members of Congress or the administration.

Economists generally agree that a massive infusion of cash into the economy was required to stave off a potential economic collapse last year. The stimulus appears to have done its job.

This week the UCLA Anderson School of Management issued an economic forecast for the U.S. predicting massive economic growth, even before any stimulus money is spent. Following the 3.5 percent decline in real gross domestic product (GDP) in 2020, the national forecast calls for 6.3 percent growth in 2021, 4.6 percent growth in 2022, and 2.7 percent growth in 2023. 

That compares to the 2.3 percent growth rate the country averaged as it recovered from the Great Recession between 2010 and 2019. The forecast expects real GDP to surpass its 2019 peak by the end of the second quarter of 2021 and to surpass the trend it was on prior to the pandemic in early 2022.

What will stimulus do to the economy?

The expected surge in economic activity as the economy reopens in the second quarter is likely to be even stronger with nearly every American receiving $1,400 and state and local governments dividing up $350 billion.

It may be no coincidence that interest rates have begun to rapidly rise in the last two weeks, setting off inflation fears on Wall Street. UCLA Anderson senior economist Leo Feler says the new stimulus package will serve as a test for how much Congress has stimulated the economy without overheating it.

"If real GDP goes above 'potential GDP' without generating sustained inflation, it will signal that we have been too modest in our assumptions about the productive potential of our economy,” he writes. 

If inflation doesn’t ignite with all this spending, Feler says it will suggest the U.S. economy has the capacity to grow much faster than it has in the past. That could mean Congress will be even bolder in the future in pumping money into the economy.

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