Tag: corona and economy

Coronavirus, CARES And PPP Will Explode The Federal Deficit And Debt

The $2 trillion CARES Act and the just signed $484 billion coronavirus relief package, along with the economic impact of COVID-19, will drive the Federal deficit and debt to new heights. The 26 million people who have filed for unemployment insurance claims the past five weeks are creating a “Greater Recession” and driving an unprecedented level of Federal spending.

The Committee for a Responsible Federal Budget or CRFB, a nonpartisan organization, analyzes the Federal budget to “educate the public on issues with significant fiscal policy impact.” Maya MacGuineas, the CRFB’s President, said, “Like the record levels of borrowing undertaken during World War II, a large share of today’s massive deficits are both inevitable and necessary in light of the current pandemic crisis. Combating this public health crisis and preventing the economy from falling into a depression will require a tremendous amount of resources – and if ever there were a time to borrow those resources from the future, it is now.”

She added, “But just as World War II was followed by years of fiscal responsibility to restore debt to historic levels, it will be important after the crisis and recovery to ensure that debt and deficits return to more sustainable levels.” While that is a worthwhile objective, it is hard to see how that will be achieved under the current political environment.

Deficit could hit $4.3 trillion and over 20% of GDP

The Federal deficit was on track to be over $1 trillion without any additional spending for the coronavirus this fiscal year. Now with the $2 trillion CARES Act, the $484 billion relief package and $134 billion for the Families First Act, the CRFB also estimates that, “nearly $600 billion in additional deficit spending as a result of feedback effects from lower economic output, slower inflation, higher unemployment, and lower interest rates” will occur.

The CRFB’s analysis included, “These projections almost certainly underestimate deficits, since they assume no further legislation is enacted to address the crisis and that policymakers stick to current law when it comes to other tax and spending policies.” The CRFB estimate was $3.85 trillion without the $484 billion relief bill. All of this cumulates in what could be a $4.3 trillion deficit this fiscal year ending in September.

What could also be of particular concern is that the CRFB also assumes, “the economy experiences a strong recovery in 2021 and fully returns to its pre-crisis trajectory by 2025.”

The Congressional Budget Office published an estimate on Friday that the deficit could be $3.7 trillion in fiscal 2020, which includes the $484 billion bill. Keep in mind that the largest previous deficit was $1.4 trillion during the Great Recession.

A $4.3 trillion budget deficit translates to 20.8% of the country’s GDP. This would be more than double the largest amount during the Great Recession and only be beaten by a few years during World War II.

Debt to hit 100% of GDP and surpass the highest ever recorded

Before the outbreak, the U.S. Federal debt was at 81% of GDP. Unfortunately, an additional $2.5 trillion plus in additional spending along with the economic impact of the coronavirus, will drive the amount of debt to over 100% of GDP by the end of the year. Note that the graph below from the CRFB did not take into account the $484 billion or 2% of GDP impact that was just signed by President Trump.

Sometime during 2020 the CRFB estimates that the Federal debt held by the public will cross $21 billion plus and equal the size of the economy, and that during 2021 it will match and then surpass the 107% threshold that occurred during World War II.

Chuck Jones

Chuck Jones

I provide independent research of technology companies and was previously one of two analysts that determined the technology holdings for Atlantic Trust (Invesco’s high net worth group), a firm with $15 billion under management. Before joining Atlantic Trust I was the Internet Security Software analyst for Smith Barney (where I authored the most comprehensive industry report “Internet Security Software: The Ultimate Internet Infrastructure”) and an Enterprise Server Hardware analyst at Salomon Brothers. Prior to becoming an equity analyst, I spent 16 years at IBM in a variety of sales and manufacturing positions. I have a B.S. in Industrial Engineering from Stanford University and a Postgraduate Diploma in Economics from the University of Sussex, England

Source: Coronavirus, CARES And PPP Will Explode The Federal Deficit And Debt

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House has the votes to pass its latest $484 billion coronavirus relief bill, a measure approved by the Senate on Tuesday that puts about another $370 billion into aid for small businesses damaged by the pandemic, along with $75 billion in relief for hospitals and $25 billion to expand testing. The House will send the relief package proposal to President Donald Trump’s desk to sign into law. » Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision » Subscribe to CNBC: https://cnb.cx/SubscribeCNBC » Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide. Connect with CNBC News Online Get the latest news: http://www.cnbc.com/ Follow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC Follow CNBC News on Facebook: https://cnb.cx/LikeCNBC Follow CNBC News on Twitter: https://cnb.cx/FollowCNBC Follow CNBC News on Instagram: https://cnb.cx/InstagramCNBC

New York City 10 Days Away From ‘Widespread Shortages’ Of Medical Supplies, Mayor Says

Topline: New York City Mayor Bill de Blasio said during a Sunday CNN appearance that “if we don’t get more ventilators in the next 10 days, people will die who don’t have to die” as the city—now the epicenter of the U.S. coronavirus epidemic—faces a possible shortage of medical supplies.

  • “We’re about 10 days from seeing widespread shortages,” de Blasio said, adding, “We have seen next to nothing from the federal government at this point.”
  • De Blasio also said that the military hasn’t been mobilized by the Trump administration, and that the Defense Production Act, which the president invoked by executive order Wednesday, has not been put into motion.
  • “It feels like we’re on our own at this point,” de Blasio said, adding that April would be worse for New York City than March has been, and he fears May could be even worse.
  • CNN also reported Sunday that Federal Emergency Management Agency head Peter Gaynor could not provide a number of how many medical masks were in the federal stockpile or how many have been shipped to state and local governments.
  • In a sign of demand on medical supplies, a Friday letter from a New York-Presbyterian Hospital department head said each employee would only be given one N95 mask (when it typically uses 4,000 per day).

Big number: 300 million. That’s how many masks could be needed for healthcare workers versus the current stockpile of 30 million, as testified to Congress by Health and Human Services Secretary Alex Azar at the end of February.

Key background: The Defense Production Act is intended to be used by Trump to obtain “health and medical resources needed to respond to the spread of Covid-19, including personal protective equipment and ventilators.” Trump faced questions Thursday around his reticence to use the Defense Production Act to compel companies to produce healthcare items to combat the coronavirus, one day after he said he’d be invoking its powers. The New York Times reported Thursday that both the U.S. and countries abroad are facing a shortage of ventilators, with manufacturers saying that they can’t increase production to meet the demand.

Tangent: Tesla CEO Elon Musk volunteered his company’s factories to manufacture ventilators, but it’s unclear whether that will move forward.

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Lisette Voytko

Lisette Voytko

I’m a New York-based journalist covering breaking news at Forbes. I hold a master’s degree from Columbia University’s Graduate School of Journalism. Previous bylines: Gotham Gazette, Bklyner, Thrillist, Task & Purpose and xoJane.

Source: New York City 10 Days Away From ‘Widespread Shortages’ Of Medical Supplies, Mayor Says

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Hospitals are sounding the alarm that they need more equipment as the coronavirus outbreak grows. Greg Cergol reports.

U.S. Stocks Claw Back Some Losses As Oil Prices Rebound

Topline: U.S. stocks recovered some losses on Thursday and oil prices soared, though the modest gains were not enough to offset the damage done by a weeks-long sell-off.

  • The Dow Jones Industrial Average was up 0.8%, or 170 points. The S&P 500 gained 0.3% while the Nasdaq gained 2.3%.
  • Tech stocks led the way on Thursday, with Amazon up 2.8% and Microsoft up 1.6%.
  • At a press conference on Thursday afternoon, President Trump said he would consider for companies who receive bailouts under his administration’s proposed $1 trillion stimulus plan.
  • Central banks are also continuing to act in order to cushion the economic blow of the coronavirus outbreak: yesterday, the European Central Bank announced an $818 billion bond-buying program and the Federal Reserve said it will act to shore up prime money market funds.

Crucial quote: “Central banks, particularly the Fed, really are playing whack-a-mole with the financial system,” Eric Winograd, senior economist at AllianceBernstein, told CNBC. “Every day, a new area of distress pops up and every day, they’re coming up with a new program or rebooting an old program.” The Federal Reserve is taking extraordinary steps to stabilize the U.S. economy: it has cut interest rates to almost zero, said it’s prepared to inject trillions of dollars into the overnight repo market, slashed bank reserve requirements and agreed to buy short term debt from companies with good credit ratings.

Big number: The price of oil bounced 24% on Thursday, gaining back about half of its losses from Wednesday, when it reached a multi-decade low. According to reporting in the Wall Street Journal citing people familiar with the matter, the Trump administration is considering intervening in the ongoing oil-price war between Saudi Arabia and Russia.

Key background: The Dow dropped 6.3% yesterday, nearly 2,000 points, while the S&P 500 was down 5.2% and the Nasdaq slid 4.7%. It was the eighth consecutive day where the S&P 500 swung more than 4% in either direction—that level of volatility is far worse than the previous record of six days during the Great Depression, according to LPL Financial. Last night, President Donald Trump signed a coronavirus relief bill into law. The bill includes free coronavirus testing and paid sick leave, among other measures. The Trump administration is also pushing for a $1 trillion economic stimulus package.

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Sarah Hansen

Sarah Hansen

I’m an assistant editor on Forbes’ Money team, covering markets, fintech, and blockchain. I recently completed my master’s degree in business and economic reporting at New York University. Before becoming a journalist, I worked as a paralegal specializing in corporate compliance and the Foreign Corrupt Practices Act.

Source: U.S. Stocks Claw Back Some Losses As Oil Prices Rebound

U.S. stocks plunged amid anxieties of a free-fall in oil prices and escalating spread of the COVID-19, with all three major indexes declining more than seven percent.  Trading was halted for 15 minutes after the S&P 500 fell by seven percent, and resumed at 9:49 local time (1349 GMT). Subscribe to us on YouTube: https://goo.gl/lP12gA Download our APP on Apple Store (iOS): https://itunes.apple.com/us/app/cctvn… Download our APP on Google Play (Android): https://play.google.com/store/apps/de… Follow us on: Website: https://www.cgtn.com/ Facebook: https://www.facebook.com/ChinaGlobalT… Instagram: https://www.instagram.com/cgtn/?hl=zh-cn Twitter: https://twitter.com/CGTNOfficial Pinterest: https://www.pinterest.com/CGTNOfficial/ Tumblr: http://cctvnews.tumblr.com/ Weibo: http://weibo.com/cctvnewsbeijing Douyin: http://v.douyin.com/aBbmNQ/

Federal Reserve Launches Third Emergency Lending Program

(Washington) — The Federal Reserve announced late Wednesday that it will establish an emergency lending facility to help unclog a short-term credit market that has been disrupted by the viral outbreak.

The Fed said it will lend money to banks that purchase financial assets from money market mutual funds, including short-term IOUs known as commercial paper.

By facilitating the purchase of commercial paper, which is issued by large businesses and banks, the Fed hopes to spur more lending to firms that are seeking to raise cash as their revenues plummet amid the spread of the coronavirus.

The program is the third facility the Fed has revived from the financial crisis days of 2008, when the central bank set up an alphabet soup of programs intended to keep financial markets functioning.

This facility, known as the Money Market Mutual Fund Liquidity Facility, is intended to help money market funds unload assets such as commercial paper, but also Treasury securities and bonds guaranteed by mortgage giants Fannie Mae and Freddie Mac.

Experts Weigh in on the Impacts of COVID-19 on the Global Economy

TIME spoke with four experts, across various disciplines, about how the COVID-19 pandemic could uproot the flow of business, money and labor around the world.

Money market mutual funds are owned by individual investors in brokerage accounts but also by institutional investors and businesses. Many of the funds have sought in the past two weeks to sell assets to raise cash as many investors redeem shares in the funds. Yet with demand for cash rising as stocks plunge and the economy slows sharply, money market funds have struggled to find buyers for their assets.

By CHRISTOPHER RUGABER / AP March 19, 2020 12:42 AM EDT

Source: Federal Reserve Launches Third Emergency Lending Program

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March 31 (Bloomberg) — The Federal Reserve released thousands of pages of secret loan documents under court order, almost three years after Bloomberg LP first requested details of the central bank’s unprecedented support to banks during the financial crisis. Bloomberg’s Margaret Brennan, Erik Schatzker and Peter Cook report. (Source: Bloomberg)
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