The US House of Representatives has passed a new economic bailout plan worth $1.9 trillion to financially support the families and enterprises affected by the novel coronavirus pandemic.
This is the third bailout plan the US has rolled out since the outbreak of the novel coronavirus in the country. These bailout plans are worth a total of around $5 trillion. The fund was mainly paid by the Federal Reserve in the form of national bonds. In other words, it is tantamount to the monetisation of financial deficits, injecting huge amounts of liquidity into the market, raising stock prices and prices of other kinds of financial assets in the US.
Fearing inflation, the return rate on the national debt of the US has soared quickly. It is very likely that the US economy will enter a phase of inflation.
In other words, to maintain social stability and the growth of the economy, the US is printing currency notes without thinking of the consequences. Such large scale launch of currency notes might have strong spillover effects.
At the same time, it is estimated that in the foreseeable future the US will spend $3 trillion on upgrading its infrastructure facilities, which will unavoidably push up the prices of staple commodities.
Although the US wants to shorten the income gap through these stimulus packages, they will actually further widen the income gap in the country, as asset prices grow faster than wages. It is always the poor people who bear the brunt of inflation as their spending power can be seriously eroded.
Meanwhile, raising the minimum wages and the tax rate will further weaken the growth of investment and employment, leading to the emergence and co-existence of a sluggish economy and high unemployment rates.
If the situation continues to evolve in this manner, the turmoil in the financial system, and the global inflation might directly threaten the stability of the world economy, particularly of China.
Therefore, China should take precautions to prevent the already rising inflation pressure from depressing its consumption, which has been on a difficult recovery path.
CHINA DAILY/ASIA NEWS NETWORK