Beyond Relief: How COVID Stimulus Money Changed the Economy Forever

The COVID-19 pandemic marked a historic turning point for economies around the world. Governments and central banks had to act fast — and on an unprecedented scale. In the U.S., many of us still remember the $1,200 stimulus checks, but those were just the tip of the iceberg. In total, nearly $3 trillion was pumped into the economy through various relief packages aimed at helping everyday Americans, small businesses, large corporations, and even farmers weather the storm.

But as the world moved closer to normalcy, the conversation around all that extra money seemed to fade. So, where did it all end up? And more importantly, is it now playing a role in creating the economic imbalances that could lead us straight into the next recession?

In this article, we’re going to take a closer look at how that money is actually moving through the economy, the long-term problems it can create — especially when it comes to widening the gap between the rich and poor — and how those dynamics could be setting the stage for a future downturn. We’ll also explore whether there’s a smarter way to handle money printing going forward, and what’s standing in the way of real change.

Part One: How Does Stimulus Money Circulate in the Economy?

When the pandemic hit, governments around the world, including the U.S., had to act fast. The economy was grinding to a halt, and without intervention, we could have seen a financial collapse on a massive scale. The U.S. government responded by pumping trillions of dollars into the economy, sending stimulus checks, expanding unemployment benefits, and offering loans to small businesses. While these measures provided much-needed relief at the time, the big question is: where did all that money actually end up?

The pandemic excess savings are now over as shown in the chart below. We’re actually below pre-pandemic levels. So where is it really?

The short answer is, the top 1%.

Let’s break it down. Giving money to those who need it most (typically the bottom percentile of the population) definitely helps in the short term. But because of their financial pressures — high debt, lower incomes, mounting interest charges, and minimal savings — they usually end up spending all of it. And we see this clearly in the data: we’re now at negative levels of excess savings that were initially fueled by the pandemic relief efforts.

So, where does that money go? The answer is simple: essentials. People spent on things like food, medicine, child care, rent, and credit card payments, with maybe a few non-essentials here and there. But here’s the key: after that spending, much of the money ultimately landed in the hands of large corporations, owned by the wealthiest individuals. This helps explain the record-breaking highs we’ve seen in the stock market (S&P 500, NASDAQ). Many of us have been wondering how stock valuations could surpass pre-pandemic levels during a global crisis. Well, now we’re getting closer to an answer.

But that’s not where the story ends. The money that trickled up to the top 1% didn’t just sit idle. The wealthy, with their own pent-up demand, spent on luxuries like travel, while also prudently saving and reinvesting large portions of their additional income. A lot of that cash ended up right back in the stock market, further fueling its rise. So, while the stimulus initially helped everyday people stay afloat, it eventually reinforced the same wealth dynamics that were already in place, with more money concentrating at the top.

Now, the big question: how does all this affect us, the everyday people? Let’s explore that in the next section.

Part Two: The Hidden Costs of Easy Money: Inflation, Debt, and Inequality

When stimulus money flooded the economy, it wasn’t just individuals who benefited. As people spent their stimulus checks on essentials like rent, groceries, and healthcare, much of that money found its way into the earnings of larger corporations. This increase in consumer spending wasn’t limited to essential goods either — as spending rose across the board, so did inflation. The more people demand a product or service, the higher the prices tend to go, and with trillions of dollars injected into the economy over a very short time, prices naturally followed suit. This, in part, explains the surge in inflation we’ve been witnessing since the onset of the pandemic.

But the issue goes deeper than inflation. As we saw in Part One, the wealthier segments of society ended up with much of that stimulus money. While lower-income households spent most of their stimulus on necessities, the rich — who already had financial safety nets — used their windfall to increase savings and investments. The net result? Wealth flowed upwards, once again, leaving a wider gap between the rich and the poor. The stimulus, although critical for survival during the crisis, eventually exacerbated income inequality by funneling wealth back to the top.

Alongside these economic shifts, the Federal Reserve started to worry about rising inflation and moved quickly to curb it. The tool of choice? Raising interest rates, which shot up from nearly 0% to 5.25% in a matter of months — a level not seen in decades. The goal was simple: by making borrowing more expensive, the Fed hoped to reduce spending, slow down the economy, and bring inflation under control.

However, this sharp rise in interest rates had severe consequences. For example, homeowners saw their mortgage payments skyrocket. A 30-year mortgage on $300,000 at 2.5% would have cost about $1,200 per month, but with rates now hovering around 7.5%, that monthly payment has nearly doubled to $2,100. And it wasn’t just mortgages — credit card rates also hit record highs, with the average interest rate jumping from 15% to around 21–22%. For those already struggling to make ends meet, these additional financial burdens have made everyday life even more difficult.

What this means is that while the stimulus helped those in need temporarily, the long-term effects are more complicated. The combination of higher debt costs and rising inflation has created a deepening deficit for lower-income households, further widening the gap between the rich and the poor. Wealth concentration is inherently deflationary — the more money is held by a few, the less it circulates throughout the economy. This lack of circulation makes the economy more fragile and prone to recessions. It’s not just about inequality; it’s about how concentrated wealth leaves the system vulnerable to future downturns, as we’ll explore further in the next section.

Part Three: The Widening Rich-Poor Gap and Its Role in Recessions

The growing divide between the rich and everyone else isn’t just a social or political issue — it has serious economic consequences, especially when it comes to the risk of a recession. A healthy economy relies on consumer spending to drive growth, with everyday people buying goods and services. But here’s the catch: people with lower incomes tend to spend most of what they earn just to cover basic necessities like rent, food, and healthcare. In contrast, the wealthy don’t need to spend as much of their income. So, when wealth becomes increasingly concentrated at the top, less money flows through the economy, slowing down growth.

To make matters worse, wages for most people have barely budged in recent decades, even as the cost of living — especially for essentials like housing, healthcare, and education — has skyrocketed. This is the problem of wage stagnation amid rising costs. The rich, on the other hand, typically own assets like stocks and real estate, which have only gone up in value. As the prices of these assets inflate, we’re left with wealth inequality and asset inflation, where the wealthy get wealthier while everyone else struggles to keep up.

At the same time, many households have been relying more and more on debt — from credit cards to mortgages — just to maintain their standard of living. And now, with debt and the rising cost of borrowing due to higher interest rates, people are finding it harder than ever to pay off what they owe. When wealth is concentrated in the hands of a few, and the rest of the population is struggling under the weight of rising costs and debt, it creates an unstable economy. This wealth concentration leads to economic fragility, making recessions more likely because the economy becomes overly dependent on the spending and investment decisions of the wealthy. If they pull back, the whole system suffers.

“History has shown us that extreme wealth concentration — like during the French Revolution — can not only destabilize economies but entire societies.”

Part Four: Is There a Better Way to Print Money?

Printing money isn’t necessarily bad — it was critical in keeping economies afloat during the pandemic. But when we look at the long-term consequences like rising inequality and inflation, it’s clear that the distribution of stimulus funds needs improvement. One way to address this is through increased taxation on the wealthy during crises, helping to offset the fact that they often benefit disproportionately. However, there are other approaches too. For instance, targeted stimulus distribution can direct funds to the lower-income groups or hardest-hit sectors, ensuring that money reaches those most likely to spend it. Similarly, implementing Universal Basic Income (UBI) during crises can provide financial security to everyone, stimulating broader consumption and reducing inequality.

Other strategies include progressive social programs like expanded unemployment benefits, job creation programs through public works, and debt forgiveness or relief to ease the burden on struggling households and businesses. Additionally, strengthening labor rights and increasing wages can combat wage stagnation, giving workers more spending power, while public investment in education and training helps people adapt to changing economic conditions. Finally, encouraging broader asset ownership through homebuyer programs or stock market participation can help reduce wealth inequality over time by giving more people access to wealth-building opportunities. These strategies can make economic recovery more equitable without relying solely on taxing the rich.

Suggested Readings

1. Pandemic Savings are Gone! What next for the US consumer?
2. How does money supply affect inflation? — Investopedia
3. The Impact of COVID-19 on Labor Markets and Inequality — US Bureau of Labor Statistics
4. Progressive Wealth Taxation — Brookings Research