We are several weeks into the coronavirus pandemic and uncertainty still rules. U.S. President Donald Trump made headlines when he declared the “shutdown” in the U.S. may end by Easter Sunday, April 12. “I thought it was a beautiful time. A beautiful timeline," Trump said in response to a question as to how he decided the date. The date is arbitrary, and the health professionals on stage with him didn’t echo Trump’s remarks; however, the economic toll of the coronavirus epidemic has left policymakers antsy to get back to “normal.” This includes Trump.
Will the economic cost of continued self-quarantines be so grave that entire economies collapse with no sign of repair even in the long-term? This is a fear everyone is grappling with. U.S. policymakers in the House and Senate have signaled they are willing to put their money where their mouths are, potentially cutting millions of checks to Americans in need of financial support. The parties have yet to make a decision, but we’re talking about trillions of dollars. Larry Kudlow, Trump’s director of the National Economic Council, became "The Six Trillion Dollar Man" Tuesday, announcing $4 trillion dollars in “liquidity” from the Federal Reserve and $2 trillion in spending from the U.S. Treasury. This would be a monumental bailout of both workers and businesses, with the bulk of the funds going to struggling firms.
Each U.S. household should be receiving a check for approximately $2,000-$3,000, according to the latest numbers from the representatives that are heading the negotiations. Democrats want to increase the funds going to individuals, while Republicans want to increase aid to businesses. Whatever the result, the funds will most probably arrive too late for Americans looking to pay their bills on the first of the month. This will be a major shock to the economy as potentially millions of Americans default on rent contracts and landlords, in turn, default on other payments they are contractually obligated to pay. In other words, it’s too late even if the bill is passed right now.
This will be an experiment in exogenous shocks to the U.S. economy and the wider global one. Will the global economy be able to recover from a multi-trillion dollar default across 190 countries? With no intervention, probably not. Policymakers need to urgently pass legislation and central banks need to spend to prop up economies lest economies are broken for good.