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IPFS News Link • Economic Stimulus

Taking Away The "Punch Bowl": Risk Of Hard Landing In Consumer Spending

• Zero Hedge - Tyler Durden

Submitted by Joseph Carson, former chief economist at AllianceBernstein

With each passing day, the failure of Congress and the Administration to reach a deal on extending fiscal stimulus creates a bigger and bigger hole in consumer cash flow. So far investors have brushed off the stalemate. But that's a mistake.

That's because the federal stimulus payments that flowed to people in Q2 was the largest on record. Removing the "punch bowl" of stimulus entirely or even in half raises the risk of a hard landing in consumer spending.

Boom To Bust

According to the Bureau of Economic Analysis (BEA), special federal payments to individuals and small businesses (proprietors) in Q2 boosted personal income by $ 3.2 trillion annualized. That figure includes direct stimulus payments, an increase in unemployment compensation to a broader group of workers, and forgivable loans to small businesses (proprietors) that are included in the personal income data.

The actual boost to consumer cash flow was even larger because millions of renters and homeowners were allowed to forgo monthly rent and mortgage payments.

So how big is $3 trillion in federal payments to people? It's humongous.