Regardless of whether you believe the Coronavirus response and the ensuing panic make any sense relative to past pandemics, bailouts are now on the table. Here is what has been past by Congress and approved by President Trump already:
- $8.3 billion emergency spending bill to combat the Coronavirus. This funding includes $1.5 billion for the Centers for Disease Control and Prevention, $3 billion for the Public Health and Social Services Emergency Fund, and $2 billion that would reimburse states and local governments for money they spend related to the coronavirus. It also would include $1 billion for vaccine development at the National Institutes of Health and $1 billion for an emergency reserve fund under the U.S. Agency for International Development.
- Families First Coronavirus Response Act (FFCRA – details), $105 billion plan past with a largely bipartisan vote of 363-40. Given the clear support of this law from President Trump, it’s expected to quickly become law after it goes to the Senate. In its mission to help those affected by the coronavirus, the FFCRA does a lot of things. This includes guaranteeing free coronavirus testing, sick leave, and boosting unemployment insurance as well as food safety programs.
- Mnuchin said some $300 to 350 billion in tax payments are expected to be deferred as a result of the Coronavirus. Mnuchin said if individuals owe a payment, they can defer up to $1 million, and corporations may defer $10 million. The deferrals will be penalty-free for 90 days, he said. This is just deferred payments for now but is in a sense a free loan to businesses.
- The Federal Reserve injects $1.5 trillion to prop up crashing markets – and the start of QEX. Where all this is going at a detailed level is hard right now to calculate … but it’s big.
And this is just the beginning. Next up is a potential trillion-dollar Coronavirus bailout package. Some estimates put this as high as $1.3 trillion. Here is a video from CNBC giving a high-level view, but it is a moving target and will go through various iterations in Congress:
It looks like about half will go to industry relief that has been hurt by the Coronavirus (e.g., airlines, oil, etc …) and the rest to direct payment to individuals. Key elements of direct payment to individuals may include:
- The proposal includes sending payments directly to Americans totaling $500 billion, broken up into two tranches.
- “The first one would be $1,000 per person, $500 per child,” Mnuchin said. “So for a family of four, that’s a $3,000 payment.”
- Remember this is all fluid. Democrats may want to mean test this … so if you are middle class or higher, don’t look for your check in the mail just yet.
“As soon as Congress passes this, we get this out in three weeks. And then, six weeks later, if the president still has a national emergency, we’ll deliver another $3,000,” Mnuchin said. Some are calling this a “bazooka” bailout. So this could be another $500 billion. And do we think that this will be the only “bazooka” bailout? Most likely, the Fed has even more on the table.
I get it, Coronavirus is not Trump’s fault and not the fault of people that may lose their job or the businesses that may go under. JP Morgan is saying GDP could be down a whopping -14% for Q2. Once we get more credit risk, this could cycle further down – a financial disaster in the making. Even if you are not being financially hurt by all this and receive no bailout, one could make the argument that you will benefit by not having to live in a depression economy. Then there is an argument that says that a little help can get you over a rough spot and stop the spiral down. But this often is not the case. Overall free markets, though sometimes painful, are better in the long run.
I cringe when I see the size of some of these numbers, and this all could be just a beginning. My thoughts turn to how much of this will I get? How much did many Americans get the last time around in 2008? A big fat zero!
Let’s be clear what all this new bailout money means – currency debasement. Yes, there is no such thing as a free lunch. There will be a cost. Currency debasement will lead to increased prices but not necessarily your income (even with COLAs). For people on a fixed income, it will be a looming disaster, to say nothing of pension funding – which was already a big issue even before Coronavirus. Bailouts provide for initial help, but long term will lead to lower standards of living.
Yes, we are our brother’s keeper. But how best to keep your brother? Calamity happens to all and is unfortunate. Maybe governments should help in periods of crisis that is no fault of the population – but it must have a limit. And yes, we can and should help others on a voluntary basis.
But there is a reason they post signs at Yellow Stone National Park that say, “Don’t Feed the Bears.” Do you understand why? Educate me in the comment section of this article why I am wrong.