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US Fiscal Stimulus “Mother of all Bazooka’s”

 

The Congress and the White House approved $2T fiscal package, the most considerable fiscal stimulus ever done in the US. To share a quick perspective, it’s about 10% of the US GDP is about $21.9T. Collective both of them are Mother of all Bazooka’s known to humans. This is based on the available information and not an investment advice. The budget is well rounded and has policies which address the risks poised by price rises due to the supply shock and the demand shock especially in airline industry. 

The stimulus bill will pay a direct payment of $1200 to individuals/ $2400 to couples to millions of Americans earning up to $75,000 individually or 1,50,000 as a couple with an additional $500 per child—an excellent step to mitigate any cash shortfall for basic amenities due to lock-down.

The first most important and key policy initiative which is considered a win by The middle Road is $130B to hospitals and health care providers.  This step will enable healthcare providers should be used for innovating testing procedures for the COVID-19, scaling up the invention along with an increased amount on buying PPE to fight COVID-19. Bill Gates and WHO pointed out that scaling the vaccines for global population will be a herculean task and rely on a multi-collaborative global effort in a public-private-civic societies’ partnership model. WHO emphasized shortage of PPE (face mask, gloves, ventilators etc.) as a significant hurdle for front line caregivers in administering medical care. Although the US has more hospital beds than any other country in the world but a shortage of ventilators is creating a hurdle. Design thinking can work out here in reworking operational flows in makeshift hospitals to handle patients suffering from COVID-19.  Article  published in  Stanford Social Innovation Review discusses how design thinking is making inroads in social innovations through improvements through refining the flow process.  

$350B loans to distressed small businesses with good credit history is a decisive move, since more than 90% of businesses are in the  Micro and Small Medium Enterprises.

$150B allocation to fund state and local governments is not adequate and needs to increase. New York is the epicenter of the pandemic in the US, and a cultural and financial global hub. Cities example Chicago, San Francisco are key financial and tech hubs and will have bigger economic hit compared to smaller towns. Many states and cities don’t have a stable credit history but are the pillars of American values and ethos, so a more significant chunk of the stimulus must be allocated to fund states and cities. The US has the most vibrant municipal bond market in the world and FED buying in the municipal bond market, to prop up the liquidity will boost coffers for the state. A further $100B allocation of funds here is strongly needed.    

$500B to distressed businesses is the thorny part of the bill. An independent committee overlooking the funds along with strict rules governing executive pay package and share buybacks is a win-win bringing in accountability to cut out nepotism. 

$50B to airline industry is required since they are the worst affected among all the businesses. An equity buy-in fosters accountability of taxpayers and allocating grants do make sense. The airline industry is hit a black swan an extreme outlier event “The COVID-19 Pandemic”, and it’s understandable their futuristic economic models could not have predicted the outcome. In spite of  an exponential drop in price of oil, the air travel industry recorded a step decline over the last year. In a nutshell, the probability of the airline industry to hedge against the pandemic risk was absolutely minimal.  

The stimulus package backed by the monetary package will help US back on its feet but remember now we will live in an era of asset prices on steroids. The debt to GDP ratio in the US is already more than 100% but still less than Japan which is more than 200%. The dip in productivity in America is only temporary and will jump back to the mean once the risks are mitigated. 

Americans are known for their patriotism, and it’s their collective effort which landed the first human on the moon.

 

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