WASHINGTON, D.C. – While populations around the globe go into self-quarantine (or forced quarantine), it is impossible to isolate the contributory effects of media to our current state of affairs. Our information technology world in which news and hype alike are absorbed so instantaneously, on such a global scale, and then reinforced and amplified every 24 hour news cycle, creates the conditions for a whiplash of change in an ever shorter period of time.
Consider the change in the stock market, an information sensitive system if there ever was one, in the last three weeks. A forward looking mechanism by it’s nature, the markets were looking ahead with extreme uncertainty as to the economic effects of the Wuhan coronavirus spread to the world’s major economies. Yet, it wasn’t just the spread of the virus and potential strains on healthcare systems that led to one of the largest and fastest stock market swoons in history; it was in consideration of the more massive economic disruption caused by government literally ordering business to stop, for people to shut in.
That drag on what was a years long bull market is hitting China, where the virus originated and where the Chinese Communist Party arrested its spread with brute force, with what stands to be the first economic decline in over 30 years for the world’s second largest economy. Wednesday, investment bank Goldman Sachs cut its Q1 GDP forecast for China to -9% from an already lowered projection of +2.5%.
Deutsche Bank, meanwhile, is forecasting a 13% annualized decline in Q2 GDP for the U.S. That would be a huge recession, and according to Bloomberg, Treasury Secretary Mnuchin warned that the unemployment rate in the U.S. could hit 20% without action.
That action comes in the form of eye-popping spending from the Federal Reserve and the Federal Government. Emergency monetary programs that make the Great Financial Crisis response look like child’s play, and a fiscal splurge of spending from Capitol Hill that dwarfs the stimulus and bail outs of the Obama era. How big?
In just the last two weeks, the Federal Reserve has reduced the target range for the fed funds rate by 150 basis points, dropping rates to essentially zero; the central bank introduced a $700 billion quantitative easing program (QE); launched a $1.5 trillion+ repurchase operation; announced a new Commercial Paper Credit Funding Facility, last done during the height of the 2008/9 finaicial crisis when companies couldn’t pay their bills; and, announced Tuesday night that they’ve established a Primary Dealer Credit Facility (this was announced last night).
On the fiscal side, Congress passed an $8.3 billion ‘coronavirus relief package’, but that is only round one. Even so, that bill was packed with expansions to entitlement programs by Speaker Nancy Pelosi and Democrats in the House. Senate Leader Sen. Mitch McConnell (R-KY) has advised his caucus to ‘gag and vote for it anyway.’
What about round two? Lawmakers and the White House are now crafting a plan to pass a $1 trillion+ stimulus package. This would include tax cuts (it being always right to let people keep more of their own money), but also as much as $250 billion in direct payments to send stimulus checks directly to Americans (except, of course, for the Americans whose income are too high, the ones providing jobs); tens of billions to bail out airlines and other big businesses; and, funding for items like Small Business Association (SBA) loans to help all the small businesses that are hurting precisely because governors and mayors have ordered them to close their doors.
It’s the Big Businesses that are first in line lobbying for taxpayer rescues. The airline industry is reportedly asking for $50 billion of assistance; the hotel industry is reportedly seeking $150 billion; and, Boeing said the aerospace industry needs at least $60 billion in aid, including loan guarantees.
Yet, even those massive hits taken by industry pale in comparison to that of small and medium sized businesses that stand to be obliterated by the draconian shut down methods being issued by executive order in states across the country.
That’s just in the United States. Similar efforts are being undertaken in major economies around the world. It is truly incredible how quickly things have changed. The dollars and cents impacts in reaction and response to the Wuhan virus are stunning, but the speed at which the world has been turned on end is especially so. And we’re only a couple days into some of the most extreme mitigation measures; what will transpire over the next 15 days?