On March 27, 2020, President Donald Trump signed into law the largest stimulus bill in United States’ history. The two trillion-dollar stimulus package, known as the CARES Act, came in response to the economic disruption caused by the COVID-19 pandemic.
It has only been about a decade since the United States and the world fought the economic effects of the collapse of the housing market.
Today, many speculate that lock-down measures implemented to avoid the rapid spread of the disease will cause another recession. That’s because people are stuck at home - working less and spending less. And when companies struggle with less cash, job loss quickly follows.
But what makes this time different is the sheer speed at which the economy halted. “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes,” International Monetary Fund’s chief economist Gita Gopinath wrote.
Because this recent economic downturn stems from COVID-19, how we manage the pandemic will determine its long-term economic impacts.
Alongside critical health care efforts and the race for a vaccine, monetary policies are a powerful tool that governments can wield to ease the detrimental effects of a recession and jumpstart a quicker recovery.
As mentioned, the lockdown has decreased consumer spending. The stimulus bill seeks to counter that on several fronts.
First, and most widely known, was the cash distribution to most Americans. With extra cash in pocket, the hope is that consumers will continue to spend. That spending will provide businesses with revenue to stay open and keep people employed.
The bill also makes $350 billion available as loans for small businesses. According to the Harvard Business Review, small businesses employ “58.9 million people in the United States, about 47.5% of the total private sector workforce.” The bill allows main street businesses with fewer than 500 employees to qualify for loans which they can use to cover payroll and employee benefits. Thus, the hope is that businesses will use this cash to keep employees working. And when people are working, they are earning and spending. To provide extra incentives, the government also offered tax credits to businesses that keep idle workers on company payrolls.
The bill was only recently passed, so it’s hard to say yet whether it’s working. But Americans are getting their checks and businesses are applying for available loans.
Christian Piatt told NPR he just recently got a loan to help fund his bar and restaurant in Texas. According to Piatt, the loan helps, but it can only do so much when he is forced to remain closed. Also, many business owners are starting to realize just how many strings are attached to the loan. For example, while some loans under the CARES Act can be forgiven, 75% of the forgiven amount must be spent on payroll to qualify. This is no doubt a government play to help keep idle workers employed.
Despite the hurdles, many businesses are taking advantage of the programs. But those wanting to apply must act fast. Round two of the Paycheck Protection Program is already under way and the loan line is out the door. Bank of America CEO Brian Moynihan told CBS that his bank already had $50 billion in applications ready for the second round and JPMorgan Chase said it has 150,000 applications ready to go.
Other areas remain equally uncertain. While the market started to climb when a decision on the bill was met, the overall market is still down from pre-pandemic levels. Not to mention, unemployment numbers are still rising. Millions of Americans file claims for unemployment each week, with more than 20 million Americans are seeking for unemployment benefits since the Corona virus – erasing nearly nine years of job growth.
According to experts like Heidi Schierholz, senior Economist and Director of Policy with the Economic Policy Institute, the stimulus bill is a “huge win” but it “is not going to be enough to fight the oncoming recession.”
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