For years we have read that it was important for the Federal Reserve and the major central banks to push the limits of monetary policy to boost growth and jobs. Monetary policy stood at the forefront of all recovery plans. In 2008, quantitative easing seemed enormous, but the subsequent incremental plans have made that stimulus package virtually irrelevant.

Since 2008 each new government spending plan had to be larger. If it was not at least a couple of trillion dollars, it did not even make the headlines. As for monetary policy, limits were surpassed almost every five years. Negative real and even nominal rates, trillions of new money supply, and different purchase programs that included private debt and even, in the case of Japan, exchange traded funds (ETFs).

Since the pandemic started in March 2020 until May 2020, central banks and governments had unveiled more than $15 trillion of stimulus, equivalent to 17% of the global economy, according to Reuters. In only three months. It was called “the monetary bazooka”. However, once the reopening of the economy was fully in place, most of these plans continued. Central banks alone added $9 trillion to their balance sheets to reach a combined $24 trillion size, according to Bloomberg. This, added to the fiscal response, which McKinsey called “the $10 trillion rescue” made the already astronomical figure of combined fiscal and monetary stimulus mentioned before rocket to more than $20 trillion in barely nine months.

The monetary and fiscal bazooka has backfired massively. It was so large that now policymakers are surprised at the aggressiveness of market reactions to small rate hikes. But it is normal. The leverage and excess built in portfolios and investors’ bets is enormous and most market participants see how growth estimates plummet and inflation expectations soar. Stagflation is now more than just a distant risk.

The World Bank has clearly mentioned the risk of stagflation as global growth is expected to slump from 5.7 percent in 2021 to 2.9 percent in 2022, a figure that is massively below the 4.1 percent that the bank had anticipated in January. It has slashed the expectations of United States GDP growth by 1.2 percent for 2022 and 0.2 percent in 2023 from their January prediction. For the euro area it is even worse as the recovery was also slower, with a slash in GDP growth expectations of 1.7 percent and 0.2 for 2023 from the January outlook.

As for inflation, estimates just soared. The percentage of countries with inflation above target rose to 90% in developed economies and 75% in emerging and developing, according to the World Bank.

S&P Ratings has also warned recently that the global food shock may last years, not months.

Now, after the largest stimulus plan was implemented, the boomerang effect is evident. Higher inflation and weaker growth. But neither central banks can normalize quickly enough due to the risks of a market and sovereign debt contagion, nor governments want to reduce spending. So, demand destruction is likely to be the only option to curb inflation.

In the United States, demand destruction is now tangible. Real wages are falling in all income groups, as Jason Furman, professor of Practice at Harvard, points out. The University of Michigan’s consumer sentiment index fell sharply to a record-low reading of 50.2, down from a May reading of 58.4, while consensus expected a 59 reading, according to MarketWatch.

It is too late now. The damage to the global economy is too large and now mainstream economists are only finding ways to justify the disaster by blaming everything except the excess of government and central bank stimuli of 2020. This does not mean that some targeted measures should not have been implemented. As we mentioned in this column, a supply shock should have been addressed with supply-side measures, lower taxes and specific programs for small businesses and low-income families. The enormity of the problem created will likely take months to solve.

Governments do not want to cut spending, and central banks’ rate hike plans still leave them significantly behind the curve and far from normalization, so the “demand correction” is likely to come from the private sector, starting with consumers losing wages in real terms and their savings. With 8% inflation in the United States and Europe, workers with a salary are losing close to one month of wages every twelve months.

Like all stimulus plans, the backlash will be suffered by the middle class and the same families that governments aimed to protect with massive money printing. Monetary policy does not solve structural problems, fiscal policy may have worsened them.