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Here's how the government printing money to avoid a financial meltdown impacts your wallet

'The economic outlook remains uncertain.'
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Posted at 11:52 AM, Feb 07, 2022
and last updated 2022-02-08 10:43:18-05

(WXYZ) — All shoppers we encountered wanted to talk about the rising cost of goods, everything from lumber to clothing to food.

The Bureau of Labor and Statistics put together a chart showing how much consumer prices increased from December 2020 to December 2021. Food up 6.3%, energy 29.3%.

What is causing such inflation? Economists point to the pandemic impacting supplies, government stimulus, low-interest rates.

There is also something many people don’t know about.

It is called quantitative easing. Here is what happened: When the Coronavirus hit, shutting down our economy in 2020, we faced a potential financial meltdown. So the Federal Reserve started shoveling trillions of dollars into the economy. And it worked, preventing that meltdown.

Oakland University Economics Professor Zeina Alsaman says the Federal Reserve basically printed money and used it to buy assets, such as bonds or mortgage-backed securities.

"They use quantitative easing to fight recession or high unemployment," said Alsaman.

You can see how dramatic the buys are when you look at the below chart. The Federal Reserve’s balance sheet has more than doubled to almost $9 trillion since the pandemic started.

Morris Pearl is Chair of the Patriotic Millionaires, high-net-worth Americans calling for higher taxes on the wealthy to decrease inequality.

"They have been making mortgage payments lower so more people could buy houses," said Pearl.

He says quantitative easing helped many in the middle class by boosting the economy and lowering mortgage rates.

But not everyone agrees.

Danielle DiMartino Booth is the CEO of Quill Intelligence, a research and analytics firm and a former analyst for the Federal Reserve.

"The reason it has become so controversial is it has done a good job of widening the inequality gap," said Booth.

She wrote the book: FED UP: An Insider’s Take on Why the Federal Reserve is Bad for America.

Her book criticized quantitative easing for disproportionately benefiting the wealthy.

"They can borrow to buy more real estate. They own the most stocks in the country, so they benefit to the greatest extent," she said.

Booth added, "Now we're at the point where you have too much injected into the economy. Inflation has taken off, and that is the most regressive of all taxes."

Last month, Federal Reserve Chair J Powell said the Federal Reserve will stop adding to its bond portfolio in March, admitting he is not sure how the market will respond.

"The economic outlook remains uncertain. Making monetary policy requires humility," said Powell.

"We’ve never had American portfolios with such concentrated positions in the stock market," said Booth.

Alsaman said, "There will be some uncertainty as a result"

Managing Director at Spickler Wealth Management, a Merrill Lynch
Office in Bloomfield Hills, Missy Spickler, tells clients who rely on their savings to have a bit more cash on hand.

"Stay invested through any of these bumps. You don’t want to be in a position where you are fully invested and then you need money at the worst time. So I try to tell everybody, 'let's keep money on the sidelines either to live on or recommit at some later date,'" said Spickler.

To make sure you don't have to dig out of your own financial mess, it is a good time to talk to a financial advisor. Depending on how old you are and what your plans are, everyone is going to have a different course of action.