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Surprisingly, the president of the United States discards the new Corona aid package, the American markets react immediately: the most important questions about the maneuver and its consequences.
US President Donald Trump’s decision to link the Corona economic stimulus package to his election victory is crashing US stock markets.
ins Minus.
Photo: Alex Brandon (Keystone)
As is usual for him on Twitter, yesterday the president of the United States, Donald Trump, announced Negotiations for a new stimulus package with state money canceled. But immediately after his election victory, according to Trump, there will be a huge stimulus package that will benefit “working Americans and small businesses.” Yet at least as measured by current polls, Trump’s opponent, Joe Biden, has a clear advantage in the presidential election. Trump’s rejection of the negotiations had an immediate impact on the stock market: At the end of the negotiation, US stocks lost 1.4 percent as measured by the broad S & P500 index. The three most important points about the importance of recent developments:
Why is a new aid package needed?
One first aid pack in the amount of about $ 3 trillion, in which the sharply divided parties
In the Senate, which is dominated by Trump’s Republicans, and in the House of Representatives, which was dominated by Democrats, he had been able to reach an agreement, it has been of the greatest importance to the course of the American economy thus far. Faced with a massive rise in unemployment at the beginning of the crisis, public spending was mainly intended to help the unemployed and companies to get through the worst of times. Support was also provided to individual US states, which are unable to borrow, but whose income also collapsed due to the crisis. By supporting revenue, a further drop in demand could be prevented, which would have plunged the economy into an even more serious crisis.
However, a significant part of the support measures expired in the summer. Because the crisis has not yet been overcome and the virus continues to roar, a further decline in the US economy was to be expected from the beginning. Without a new support package, it is primarily those most affected by the crisis who will lose the income they urgently need. Economists and, above all, the US Federal Reserve and its chairman Jerome Powell urged parties in the US Congress to adopt a new program. Powell’s commitment is mainly explained by the fact that the Fed has already reached the limits of its own possibilities, with interest rates just above zero percent and unlimited purchases of government and other bonds.
The negotiations have dragged on for weeks. The increasingly poisoned climate between the two parties shortly before the presidential elections has this time prevented a compromise. The Democrats of Nancy Pelosi, leader of the Democratic majority in the House of Representatives, wanted to push a package of another 2.4 trillion dollars. Republicans wanted much less and ended up betting 1.6 trillion. The dispute was caused mainly by aid to the states. In any case, Republicans wanted to prevent those ruled by Democrats from getting federal money like this. Trump justified it in a tweet like this: “Crazy Nancy Pelosi and radical left-wing Democrats” would only want money “to take care of failed, democratically governed cities and states characterized by high crime.”
Why did the stock market crash?
The negative reaction of the US stock exchanges to the cancellation of Trump was to be expected. Share prices are strongly driven by the expectation that the central bank and the state will do their best to support the economy despite the crisis.
This is entirely in the spirit of Trump, who views stock prices as a feverish curve for his own success. This is probably one of the reasons why Trump later wrote new tweets after the stock market reaction to his rejection tweet, in which he partially rowed again: He was ready to sign a law that would allow the sending of checks. to the US Population Leadership. It would also approve funding for airlines and small businesses. The airlines have already made it clear in advance that they would have to carry out mass layoffs without help. By Democrats, Trump’s latest tweets so far have been dismissed as a dubious move. Nancy Pelosi even suggested that Trump’s actions could be explained by his drug treatment.
Stock market reaction has been limited despite growing concerns about the US economy. Asian stocks also posted very little losses, with Europe and Switzerland even opening slightly in positive territory. Compared to so-called “futures prices,” even the US stock market should reopen on Wednesday. On the one hand, the stock markets have interrupted their uptrend since the beginning of September. On the other hand, the intention declared yesterday by the US parliamentarians to take action against the monopoly power of large technology companies such as Apple, Amazon or Google may also be responsible for the reaction of the course. The shares of these companies have so far been the main drivers of the evolution of the stock market. The subdued stock market reaction can also be explained by the fact that in the worst case, a new aid package is expected to be postponed and none is supposed to follow.
What happens after the elections?
Even if Donald Trump doesn’t give up and negotiations continue, chances are there will be another aid package after the election. This was not only promised by Trump today in the event of his re-election, but is also expected from a Joe Biden government, should he win the election. Meanwhile, unemployment in the United States, which continues to rise significantly, and persistent economic weakness are having a detrimental effect; This is especially true for those affected at the lower end of the income distribution.
