There is broad agreement among U.S. economists now that the economic downturn will be severe with the main unknowns the length of contagion and the economic policy response.
Still, Bloomberg notes that many analysts and investors are taking heart from signs of revival in the original epicenter of the coronavirus – China – and predicting a second-half upturn in the U.S. after the contagion hopefully subsides.
There also are strong signs of agreement in Congress and the administration regarding a large stimulus package, although the Senate leadership announced on Sunday that there were still some main details to be worked out.
As early as last weekend, President Trump and others had expressed confidence that they would be able to close on a coronavirus economic-relief plan that the top White House economic adviser, Larry Kudlow said, would provide a $2 trillion boost to the U.S. economy.
The economic measure is intended to “keep companies together, keep workers paid, so they can live and sustain,” President Trump said earlier in the week. On Saturday, Larry Kudlow told reporters as he arrived for White House talks that the spending bill itself is expected to total $1.3 trillion to $1.4 trillion, plus additional loans that would eventually be paid back, for a total economic impact of about $2 trillion.
“The package is coming in at about 10% of GDP. It’s very large,” Kudlow said.
Press reports indicate that Treasury Secretary Mnuchin and Senate Democrats have been working closely to expand the GOP’s basic economic building blocks to provide the Democratic votes needed to pass both chambers of Congress and gain the President’s signature. “The building blocks of this thing are pretty much in place,” said No. 2 Senate Republican John Thune of South Dakota.
A $1.4 trillion third-stage package would be dramatically higher than the 2008 economic rescue plan that was designed to address the banking-based financial crisis. That package included $700 billion – and would be valued at $841 billion in today’s dollars.
“This is going to be the largest, when it’s concluded, relief package in history,” Sen. Bob Menendez, D-N.J., said. “So yes, speed is necessary. But getting this done right so that it actually has the effect that we want is equally as important.”
One detail that was being discussed on Sunday was a push by Democrats to fund an increase in weekly unemployment benefits by about $600 across the board. Though states administer unemployment compensation, the federal government has provided additional funds to temporarily expand it in the past, including the aftermath of the 2008-2009 financial crisis.
That portion is intertwined with the GOP Senate plan to provide $1,200 in tax rebates to most individuals. Mnuchin has proposed two $1,000 checks for individuals at a cost of about $500 billion – substantially more generous than the GOP bill. Lower income filers are expected to receive the highest rebate benefit, rather than a tiered one that gradually increased, as in the original Senate GOP proposal.
A second tough issue involved Democrats’ agreement with the Treasury Department’s push to expand the Federal Reserve’s authority for an emergency credit facility to be managed by Treasury that Democrats want to be much broader than the administration’s proposal to backstop large companies and expand the Fed’s legal authority to support distressed state and local governments, something Republicans object to.
“I don’t think we should be bailing out governments right now,” said Sen. Richard Shelby, R-Ala., chairman of the Senate Appropriations Committee and former chair of the Senate Banking Committee. “We should be trying to get to mitigate the economic fallout and find a solution to the health situation.”
In addition, a group of airlines said in a letter to congressional leaders Saturday that they won’t furlough workers through the end of August if Congress provides $29 billion in grants. The letter pushes back on the Senate Republican proposal to give them $58 billion in loans, with no grants. The industry initially requested $29 billion in grants and $29 billion in loans.
It wasn’t immediately clear whether the $1.4 trillion figure cited by Kudlow on Saturday included a $45.8 billion supplemental spending proposal from the White House. It includes $8.3 billion for the Department of Defense to protect service members, about $11.5 billion for the Department of Health and Human Services, and $3.4 billion for the Centers for Disease Control and Prevention.
House Democrats have pushed for the supplemental to be included in this “phase three” bill, but they also believe the request was not big enough, House Appropriations spokesman Evan Hollander said. “One of the goals in this package is to do everything we can to not have to do a phase four,” said GOP Senator Kevin Cramer of North Dakota. “That’s why I think you’re going to see a really big bill.”
So, we will see. It is true that some of the remaining details that need to be agreed before the deal is fully complete are quite sensitive – but there does appear to be strong political support for the overall massive relief package of the type being prepared. Certainly, this is an economic intervention that is far larger than those in the past and deserves close scrutiny as the Congress and administration prepares to try to deal with this new pandemic threat, Washington Insider believes.