There is little doubt that 2020 will not soon be forgotten by the American public. The 2019 coronavirus disease pandemic (COVID-19) has left an indelible mark on society, with nonessential closings that have cost more than 20 million Americans their jobs, and the death toll in the U.S. It has increased more than 125,000.
It was this unprecedented physical and financial shock that forced Congress to pass, and President Trump to sign, the Coronavirus Aid, Relief and Economic Security Act (CARES) on March 27.
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The CARES Law threw a lot of money at an unprecedented problem
Priced at $ 2.2 billion, the CARES Act is the most expensive piece of relief legislation ever enacted. Without going into the minutiae, it provided $ 500 billion to struggling industries and nearly $ 350 billion for small business loans, awarded $ 100 billion to help hospitals combat the coronavirus, and allocated $ 260 billion for the expansion of the unemployment benefits program.
But what the vast majority of Americans will remember about the CARES Act is whether or not they received a direct stimulus payment after it was passed. This is because the CARES Act distributed $ 300 billion in stimulus money to American workers and seniors. During the first week of June, the Internal Revenue Service had sent some 159 million Economic Impact Payments, totaling $ 267 billion.
Unfortunately, throwing too much money into the problem has not been the foolproof solution Washington DC hoped for. An additional round of funding was needed to support small businesses, and lawmakers have been increasingly pressured to come together to pass a second round of stimulus, with the intention that the American public will receive more cash. .
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Yes, there is likely to be a second stimulus package. Here’s why
The prevailing question was: “Will Congress pass another stimulus package?” And if so, when?
To answer that question, I think another round of stimulus is coming, and it will be approved before the end of July. Here are five reasons why you should expect a bipartisan stimulus bill sometime this month.
1. The first round of encouragement did not do enough
The most obvious reason for a second round of encouragement is that the CARES Act simply did not do enough on an individual basis. Although the CARES Act helped rescue problem industries, such as airlines, an April Money / Morning Consult survey found that 74% of respondents had spent, or expected to spend, their stimulus money in four weeks or less. Although the economic impact payments received were very necessary, in some cases, they did not even cover the expenses of a month for the recipients.
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2. Enhanced unemployment benefits are scheduled to end after July 31
Another reason why a second round of direct stimulus is likely is due to the imminent end to improved unemployment benefits.
As noted, the CARES Law allocated $ 260 billion to expand the unemployment program for a period of four months (from April to July). This expansion took the form of an additional $ 600 a week in payments to approved unemployed beneficiaries. For some unemployed Americans, this additional $ 600 a week has been the difference between making a living and not putting food on the table or keeping a roof over their heads.
If the enhanced unemployment benefits are allowed to expire later this month, there is a very good chance that we will see an increase in the amount of delinquencies on mortgage, rental and car loans starting in August or September.
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3. A second wave of infection is slowing down the recovery process.
The slow recovery from non-core business closings and the increasing likelihood of a second wave of infection also make a second stimulus package likely.
Despite the “record” growth in retail sales in May, most industries have faced a drop in revenue from 20% to 60% before the COVID-19 closings. As a result, the economy is slowly opening up, rather than returning to where it was in February. In fact, the Federal Reserve forecasts that the unemployment rate will remain at 9.3% by the end of the year, which is close to the maximum of the Great Recession.
This is troubling given that the number of confirmed infections has reached daily highs in the United States. The economic recovery is already moving slowly, and could become even slower if rising infection rates cause businesses to close or force additional closings.
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4. It is election season, and both parties want to look good
Fourth, do not overlook the fact that we are in the midst of an election year. Neither Democrats nor Republicans want to be seen as the party that did not go to fight for the American worker. Passing another round of stimulus would not only help some people make ends meet, but would be a topic of conversation lawmakers could use when the time comes to influence voters going to the polls.
It may not be the altruistic solution the American public expects of lawmakers, but there is definitely an incentive for both sides to find a compromise solution with less than four months left on Election Day.
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5. It will be necessary to soften the blow to the financial sector
Finally, a second stimulus package may be necessary to soften the blow to the financial sector.
Until now, financial institutions have been more than willing to offer concessions to owners and borrowers due to the financial shock that many have suffered. But banks and credit unions expect these outstanding loans to be completed, and that may not happen. The end of improved unemployment benefits, along with a second wave of infection, could be the catalyst to trigger mortgage, auto and business loans.
To be fair, the nation’s largest banks have a considerable amount of capital at their disposal now, relative to the financial crisis of more than a decade ago. However, an exogenous shock like the coronavirus pandemic could wreak havoc in a shorter period of time than anyone could have predicted. The fact is, even reinforced bank stock balances may not be able to withstand the attack.
Without additional stimulus in the hands of the Americans, and perhaps for the financial sector, things could get worse in the coming months. This is why a second stimulus package should be considered a fact, in my opinion, before the end of July.
