Relief USA - Two Trillion on the Way (#115)
The World’s largest economy is about to become the epicenter of the Corona Virus Epidemic. In a sense, it’s about to catch its worst-case-ever of the ‘flu-like’ (Corona Virus), making it sicker than it has ever been, and perhaps ever in history. And though the Corona Virus has been compared frequently to the regular flu that inflicts millions around the World every year, the Corona Virus is in fact quite different, as it is far more contagious and multiple times more lethal.
It is for this reason that the three arms of the American government, the House, the Senate and the Executive, are on track to pull together and sign a massive rescue and support Bill, totaling a record busting 2 Trillion dollars, that will flood money into all aspects of American life and business, that are now starting to stall and stop - a 2 Trillion dollar injection that will keep America alive, if not exactly well, and not exactly sure till when.
After days of intense negotiating, the bipartisan Bill, currently Senate approved, led by Republican Senate Majority Leader Mitch McConnell, the Democrat Senate Majority Leader Chuck Schumer, and Secretary of the Treasury Steve Mnuchin before it all heads towards delivery to President Trump for his signature; which by all accounts is sure to happen.
A 2 Trillion Dollar Bill of such scope and complexity, negotiated in such record time, is truly an accomplishment by all concerned in government, in spite of the accusations of partisan bickering and political posturing etc. that has become de-rigor by all sides in the negotiations in the current political climate. And when signed, this 2 Trillion Dollar Package will go a long way to assuage the fear and uncertainty gripping America today, and relieve a lot of the coming pain.
Being such a massive piece of legislation, with previously unthinkable numbers attached, there are bound to be some mistakes and missteps, but all in all it will be a giant stride towards stabilizing a severely shaken and stirred country.
If the Corona Virus runs its course in the US according to the current predictive medical models, then the worst is still to come, both in people getting sick, and in the growing economic cost. And to repeat medical and other experts, this crisis may just be getting starting. If so, then perhaps even a 2 Trillion Dollar Bill may not be enough to stem the damage that is still to come, especially to the stalled & stopped ‘World’s Largest Economy’. And as no economy these days is an island unto itself, but is a part of an extensively integrated whole, the adverse economic impacts first made obvious in China, and now rippling across the World, are going to slosh back and forth between all countries and economic zones, greatly affecting the individual and global economies.
It is safe to say that after the Second World War, this is no doubt the single greatest challenge faced by the World, where no country, no matter how big or small, and no people, no matter how rich or poor, are going to escape the very significant personal and national damage caused by this virus in the coming months. And exactly what that damage is going to be is still highly uncertain.
One this is clear – the impact in terms of infections and lives lost, and in terms of economic output, is going to be unlike anything we have ever seen in our lifetimes.
Just a few weeks ago, the mention of the word ‘Recession’ brought jeers from most. Now, the word ‘Depression’ merely raises a quizzical eyebrow, if that.
But if the brief lockdown of China is any indication, the economic hit to the World and to the US in particular, is going to almost catastrophic.
China’s 2020 GDP is now projected to shrink to 2.6% from the pre-Corona Virus estimate of 6.1%, by the very credible CICC (China International Capital Corporation), considered the most prominent investment bank in the country. Its chief economist is reported by South China Morning Post, to have stated, “China’s steps to ease policy, whether monetary or fiscal policies, are so far insufficient.”
Other Western based Investment Banks have projected even lower GDP estimates for China in 2020, some projecting growth for the year to be as low as 1.5% to 1.3%, post-Corona Virus Crisis.
It would seem that just because the Corona Virus is brought under some kind of control, where daily infections are not increasing, and the country starts on the path towards normalcy, it does not mean that everything springs back to place as before immediately.
As Chinese people and workers are finding out that even as restrictions are starting to ease, and the Chinese government encourages businesses to restart operations, their former companies and jobs may not necessarily be there.
Of all the small medium-sized enterprises (SMEs), which comprise almost 99% of China’s enterprises, and generate approximately 80% of all the jobs in China, over two-thirds had cash-flows of less than three months (one-third had less than one month’s) after the worst of the Corona Virus shut down. And, as the uncertainty of business resuming was as acute as ever - as by now the World was infected and shutting down, and export demand was failing - a lot of SMEs were simply not reopening, rehiring, or being able to pay their former employees well after two months of lockdown.
In the West, Europe is the hardest hit now, with Italy and Spain seeing the most cases, and suffering the worst death rates.
America is just starting to shut down in certain States. This means that if the US has to go into a greater level of lock down from here, to slow the spread of the virus, then we are looking at a contracting Global Economy that may well shrink well past May and June, and possibly into the end of the year.
Keeping in mind that the peaking of the viral infection rate does not mean a swift return to normalcy, but more probably means a protracted period of recovery for the worst hit economies, which could go well into 2021.
In such a case, and with the early missteps of the Trump administration delaying critical defensive actions (and more possibly to come, such as the ‘filled Churches by Easter’), the United States could face a protracted and painful recovery period during which a 2 Trillion rescue package may not be enough – in spite of it being ‘unprecedented in size’, in history. But for now it’s good news and the Markets celebrated it, albeit it hasn’t been fully passed yet.