In the last week, the administration has failed to retain the key programs put in place to provide economic relief to assist during the pandemic. Nor is there any indication of what, if anything, will be done to provide relief, or when that might happen.
The results are so far unimpressive to say the least:
• The 30 million Americans on unemployment benefits are now without the added financial support.
• The evictions moratorium has ended. An estimated $26 billion is owed to landlords, which is looking even more unlikely to be paid due to the cuts in relief for the unemployed.
• The lack of unemployment relief will lead to bill payment failures, affecting service providers severely. This situation might lead to an increase in service prices in attempts to maintain cashflow and liquidity.
• Lack of consumer spending power will have a devastating effect on consumer goods businesses which are struggling to stay open.
• The lack of consumer demand will also hit US producers, whose production may well be unsellable on the domestic market.
• Debts may be irrecoverable across the board, from rents to basic payments. That could mean huge real money losses, on an ongoing basis.
No guidance and less leadership from Washington
It’s hard to imagine a more comprehensive, systemic hit to the entire US economy on all levels. Demand for goods and services will crash, hard, as the lack of money on Main Street bites. More businesses will have no option but to close, putting more people out of work.
Washington, notably the Senate GOP and Trump, are saying nothing of value regarding the current state of the economy. Trump spent most of yesterday insulting Democrats, rather than supporting any solutions. There are no propositions currently on the table from the White House despite claims of “going it alone”.
This approach may appeal to the voter base, but has absolutely nothing to do with the economic realities which will start to bite soon enough. It may be that the GOP is holding out for a compromise while not spending money during the process. They could come up with a compromise after a delay to get some sort of compromise on other programs. It’s a standard tactic. The trouble is that these are anything but normal times, and the real economy is truly suffering badly. Political deals can’t do much to solve that problem.
That tactic might work with chickenfeed low-relevance budgets, but it can’t work with national economics and macro budget management. The entire US economy will still lose vast amounts of private and business money, and restarting those programs will cost more money.
CAN the US dig its way out of this hole? Maybe, maybe not.
The US economy has one major strength upon which it can usually rely – It’s so big that the sheer mass of capital and domestic demand can help it bulldoze its way through a crisis. Even in 2008, the economy staggered drunkenly on, much the worse for wear after a train wreck which gutted Main Street, but still semi-functional.
The problem this time is that domestic demand is now visibly shrivelling with lack of money at the checkout points. You can’t spend money you can’t even get your hands on. Credit cards can only go so far.
People now have debts piling up that they have no way to manage in the foreseeable future. Many can barely manage daily costs, and there are currently 6 people for every job. That means 5 of those people are in real trouble right now with no way around the problems. Everyone loses in this scenario.
Nobody knows what happens when the US economy goes into a “can’t spend” mode for any protracted length of time. It’s not likely to be good, whatever it is. The foundations of the economy are now under a potentially lethal level of stress, for no apparent reason at all except political polarization.
Trade is another issue. If the US can’t meet trade needs due to the shutdowns, other countries will step in, and the US will progressively lose market positions. Add tariffs, trade tantrums, and similar invaluable distractions to doing business, and the trade situation is that much worse.
…And the pandemic keeps rolling on
The other imponderable factor is the pandemic. The gigantic rates of infection alone could make the disease endemic in the US. That means the disease never really goes away; it’s a constant threat, like malaria or TB. The strain and demands on health services over a period of years can’t be adequately measured.
Failure to manage the pandemic, particularly when other countries have done so much better, has been a colossal own goal for the US. The reopening was premature and failed spectacularly. Infection rates have soared since the 8th of June. They’re now 3 times what they were back then.
If the pandemic isn’t fixed, the economy can’t be fixed. It’s that simple. A vaccine, assuming one is available before December, could help, assuming it works, and infection rates do actually go down. If not, the risk to businesses is simply too high, and employment will stay way down. The US economy simply cannot function if these matters aren’t addressed. A major Depression is now almost inevitable unless positive, reassuring, steps are taken, and soon.
This never needed to happen at all
The problem is that the entire situation was always avoidable. All that was needed was a simple, efficient response to the pandemic. Instead, politics, dubious rhetoric and administrative nitpicking undermined the response. Government agencies were sidelined, unable to do their jobs. The only way out is to undo the damage, stop the mistakes, and get on with the job of governance.
