The Need for a New Stimulus and Why Politics is in the Way
by Christopher Levarek
“Politics is the art of postponing decisions until they are no longer relevant.”
Henry Queuille
We live in unprecedented times. The year of 2020 has felt the economic effects of what is typically a down cycle in the economy or what is called a recession. Yet, this recession was instigated by none other than the government or world economy in order to combat a pandemic, the virus Covid-19.
As government instituted mandatory stay-at-home orders, the United States economy, among others, plunged into a state of high unemployment and businesses failing due to lack of customers/demand. This required government assistance in the form of a stimulus bill which would essentially pay for a unproductive economy.
In 2008, the government was very slow to react to the crash of the economy as the weak real estate mortgage-backed securities structure crumbled to the ground. However, in 2020, they actually immediately took action by bailing out the economy with injections of capital or stimulus bills.
In fact, since September 2019, the government has pumped over $9 trillion into the United States economy, thus creating around 22% of all the USD since the birth of the nation and they aren’t done yet.
As we come to the close of 2020, a new stimulus bill is on the horizon to counter the continued economy shutdown or shelter-in-place. Today we look at why this is still necessary and the anticipated timeline of this much negotiated new bill.
Why is it Needed?
When the government put $3.4 trillion dollars into the economy back in April/May 2020 with the Cares Act, they effectively delayed the downward spiral of the economy. As unemployment grew and numbers of business void of customers had little options with the banks, the bailouts and stimulus were needed to keep the economy and those banks/businesses afloat.
In most recessions, people are simply not spending because they can’t afford to. Due to economic downturn or lessening purchase power aka. job loss, consumers prioritize essential goods and services over luxury goods and services. This means as job employment increases and consumers/businesses begin spending again, the economy can exit the recession.
However, with the pandemic, businesses and employees were/are not making a decision to stop business or customers stop spending based on not enough purchase power. Demand is simply not there because they fear for their life. People are not using gyms, hotels, restaurants and retail because they do not want to be sick.
With this in mind, we understand clearly that unless the Pandemic problem is solved, one of the only methods of keeping the economy rolling or helping those small businesses or unemployed people is by government stimulus.
Without an injection of capital from the government, the actual job unemployment of 16% in May 2020 at it’s peak would have very much eclipsed the Great Depression unemployment of 25%.
Until the demand returns, due to customers feeling safe again and lockdowns removed, we can expect that those industries and businesses listed above will continue to suffer thereby needing stimulus to remain in business.
The New Stimulus Bill
The last stimulus bill passed in April/May, known as the Cares ACT, provided around $3.4 trillion in personal stimulus checks to the United States populace, assisted business to pay employees through the PPP and granted Economic Assistance or SBA loans to businesses. Since then, unemployment has maintained fairly high 8-10% across the United States and a number of businesses have been waiting for the second government boost or bill to come.
Most assumed this bill would be long passed by now as businesses are now being forced to shut down and lay off workers in industries such as airlines with travel down by 70%. What is quickly becoming clear is that the stimulus will not be passed for another 2-4 months at a minimum. Republicans and Democrats are now caught in in the sweeping tide of the election and the new stimulus bill has become a vote grab.
Neither party will allow a stimulus bill to pass in the House and Senate, although both continue to blame the other party. In reality, the passing of bill that has more Republican flavor will help the Trump vote and the passing of a bill that has more Democratic touch will obviously help the Biden vote.
According to this recent post by CBS, the Senate has finally adjourned until November 9th after negotiations have failed thus far. This means the stimulus bill will not be decided until well into December, even January or February of 2021. Until then, those businesses and employees suffering from the repercussions of the pandemic will have to find another way.
In Final
Our economy and nation is being put to the test. So far, government bailout and stimulus has been the solution to what was initially a short-term issue. Without a new stimulus and in the coming months, many will be continue to be tested and will need to transition to new industries, jobs and leave behind the past.
This will be no quick fix for those seeking employment in the same sectors or those businesses in affected industries. Opportunity is available in recessionary times, however it requires those to go out and seek it.
Those who seek opportunity, take ownership of the situation and commit to action are sure to succeed under any condition. Invest Smart!