A Trillion Here, a Trillion There

Friday Reflections

A Trillion Here, A Trillion There
Pretty Soon You’re Talking Real Stimulus

In 2008, a crisis that started in the financial markets couldn’t be contained and ultimately created an economic crisis. Recent volatility evokes memories of that crash, but this time the roles are reversed. A public health-induced economic crisis, with millions of people temporarily unemployed and many tens of millions staying home, has spread to the financial markets.

In both cases, the path to recovery includes massive government stimulus plans and emergency policy measures aimed at the underlying cause and varied symptoms.

This week the US Senate approved a $2.1 trillion stimulus package. In a surprising show of bipartisan negotiation, the stimulus bill passed unanimously in the Senate and cleared the House of Representatives earlier today. Expectation of this stimulus helped fuel stock prices this week to an impressive rally off their recent lows. With social distancing benefits yet unknown, testing still limited, and true economic impacts unclear, we expect continued volatility in the weeks ahead.

In the financial crisis a decade ago, it took almost a year for Congress to pass TARP, and four additional months to pass the $787 billion stimulus. Currently, the speed of the response is much faster; necessarily mirroring the speed of virus transmission and efforts to stop it. The current stimulus and Fed actions come barely two months after the first diagnosed U.S. coronavirus case and are expected to be functioning within weeks.

The $2T Question

How does the new stimulus package support the economy?

• Stabilizes household incomes by sending money directly to most Americans. This $300 billion program will arrive via direct deposit (or mailed checks) in April and will help bridge mortgage payments, household bills, and stimulate spending critical to the economy. Wondering if you will receive a payment?  An easy calculator for what you can expect can be found here.
• Expands unemployment insurance to cover a wider array of self-employed workers in the modern economy, and increases payments by up to $600 per month. The bill also provides $250 billion to states to fund these surging costs, and coverage expansion.
• Extends tax filing and payment deadlines, for federal and state, to July 15th, 2020.  This cash flow relief will be critical to many businesses and households, in addition to the relief from needing to gather data and complete calculations in the critical early days of this public health crisis.
• $350 billion of loans to small businesses, which are forgiven if used to cover payroll or rent expenses. Additional loan pools target large companies and those in the most impacted industries.

Beyond these elements of fiscal stimulus, the Fed also quickly created massive monetary support for the financial system, acting dramatically to ensure liquidity in credit markets. In recent weeks stock prices were hit hard, but many bond prices also declined more than expected due to a sudden withdrawal of ready capital. Some bond markets began to recover on Wednesday; others may take longer. The bottom line here is that all markets have been trading on fear. Between the monetary support and the just-approved fiscal stimulus, though, we are hopeful that markets become less volatile as public health issues also stabilize in the coming months.

Monetary policy and fiscal stimulus offer crucial support for economic stability while efforts continue on the public health front. Many efforts are already underway to support our entire health care system, including innovation such as GM stepping up to produce ventilators and Bacardi re-tooling to begin producing hand sanitizer. We need progress toward widespread and relevant testing, some success in “flattening the curve,” and progress in the arena of treatment and vaccines for COVID-19. Ultimately, those things will allow a framework to develop for bringing the US economy back to full activity – offline as well as online.

Meanwhile, if you want to set up a conversation or have questions about your specific situation, please be in touch.