COVID-19 is slamming the economy. Businesses are shuttered across much of the country, millions of people have already lost their jobs, and retirement nest eggs have evaporated. But while things appear bleak, government at all levels is stepping up in a big way and will significantly cushion the economic blow.
The Federal Reserve has broken glass, quickly adopting policies used during the financial crisis more than a decade ago. The interest rate it directly controls is back effectively to zero, and the Fed has restarted its policy of buying Treasuries and other bonds to bring down all other interest rates.
Mortgage rates are as low as they have ever been. If you haven’t already refinanced your mortgage, you should get online and see if it makes financial sense for you. It probably will.
The Fed has also resurrected various emergency methods of providing funds to the global financial system. While this is deep into the plumbing, it is critical to ensure that credit continues to flow to hard-pressed businesses and households. The financial system’s pipes are sprouting leaks, but so far the Fed’s efforts have kept them from busting apart.
The Fed will need to do more, particularly on helping banks and other financial institutions manage the flood of delinquencies and defaults that are likely coming on their loans. Many banks are already giving borrowers forbearance on their debt payments, something you should also investigate if you have lost your job or pay.
Congress, admirably, has also kicked into gear, quickly agreeing to three rounds of financial support to the economy. During the financial crisis, it took months for policymakers to get it together and pass the fiscal stimulus package that ultimately ended that severe downturn. They understood they had only days to get it together this time.
The latest measure is the massive $2 trillion rescue package. This is almost 10% of the nation’s GDP, about double the size of the fiscal stimulus that helped quell the financial crisis.
This package is largely focused on the right things. That is, providing immediate cash and credit to families and businesses. Close to one-half of Americans live paycheck to paycheck and have almost no savings for an emergency. Without a job, or with lost hours and pay, these families have no prospect of paying their rent, let alone money for utilities or even food.
Most lower- and middle-income Americans will get a check from the government in a few weeks, and unemployment insurance benefits have been significantly increased. Who qualifies for unemployment benefits has also been expanded, so even if you are unsure whether you qualify, you should apply anyway.
Most small businesses – those with fewer than 500 on the payroll and that employ nearly half of all workers – also have little to no cash cushion. With no cash coming in and little access to credit, these businesses have no choice but to lay off workers, stop paying bills, and prepare for bankruptcy or liquidation if they aren’t able to restart their operations soon.
To help small business, lawmakers have significantly increased the money the Small Business Administration can provide. Getting a loan from the SBA historically hasn’t been easy, but if you are a small-business owner, being persistent and diligently navigating the bureaucracy has a much better chance of paying off now.
Most encouraging is that there is no debate whether we should use all of the government’s resources to fight the virus and its economic fallout. The fiscal costs are mounting rapidly, and we are paying for them by racking up massive budget deficits and debt. But policymakers understand this is a political battle for another day.
To be sure, policymakers could still mess up. President Donald Trump is openly flirting with the idea of ending the lockdowns and reopening businesses by Easter. His logic seems to be that the lockdowns are killing the economy and that letting that happen is worse than the hospitalizations and deaths that would result if everyone got back to work and the virus spread more.
The epidemiologists uniformly think this is a bad idea. This would also run counter to the restrictive quarantines implemented by China, South Korea and other Asian nations, and that appear to have worked. Those economies are quickly getting back on the rails. Many state governors and mayors likely won’t go along with the president even if he decides he wants to reopen in a few weeks. But the resulting confusion would be counterproductive. Hopefully, the president listens to the scientists and other experts.