No federal deal yet: What are the consequences of no stimulus?
Friday, October 09, 2020
Discussions for a new relief/stimulus bill fell apart this week, apparently. It began with tumult, as President Trump, infected with COVID-19 and taking a cocktail of drugs including hormone-altering steroids, tweeted on Oct. 6 that federal aid for the economic harm from the pandemic will resume after the Nov. 3 election. He then reversed that position, muddying the waters.
Meanwhile, House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin discussed a stand-alone bailout of air carriers facing financial distress and making thousands of job cuts. Further, the president has mentioned a separate round of $1,200 stimulus checks for individual Americans.
Additional Paycheck Protection Program loans for small-business owners are possible, according to the president. It is unclear, though, what the prospects of such aid is amid the rhetoric on and off Twitter for a new economic recovery package before the Nov. 3 election.
Much is uncertain, which is not what businesses and investors cheer. One consequence of Washington failing to deliver more federal aid to businesses and the households that patronize them will be a deeper weakening of consumer purchasing power across the U.S. Unfortunately, that process which characterizes economic recessions is underway.
According to the Economic Policy Institute, the ending of weekly $600 jobless benefits in late July cut personal income by $667 billion, expressed on an annual basis, in August.
“One way to scale this impact is to express it as the equivalent of an across-the-board pay cut for all U.S. workers — in these terms it can be thought of as an economy-wide 7.1% pay cut,” writes the EPI’s Josh Bivens. “In September’s data, when the full $600 is completely gone from personal income data, this will rise to closer to 10%.”
At the beginning of October, Small Business for America’s Future, an advocacy group based in Washington, D.C., conducted an online survey of 1,511 small-business owners from its national network. The findings are alarming, as mom-and-pop shops’ hiring steered the U.S. economy out of the Great Recession in mid-2009.
“The pandemic continues to hit small business owners hard, with 15% saying their businesses can only survive through October without further federal relief and 34% saying they can only make it to the end of 2020. More than half, 52%, “say that Congress should pass a new economic relief package.”
Meanwhile, COVID-19 has hammered down the tax revenue of state and local governments. Their need for relief/stimulus from Washington looms large. Without that cash infusion, there will be service cuts and price hikes. Such an outcome will also slow growth in the private-sector economy.
Jerome Powell heads the Federal Reserve Bank. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” he said on Oct. 6. “Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth.”
The clock is ticking in the nation’s capital.
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