The entire world was once in a lockdown due to the Coronavirus outbreak, now it looks like we may be headed that way again. Small businesses such as restaurants, bars, salons, gift shops, etc. were closed for months, putting hundreds of people to be out of work. While we have seen a rebound from those lost jobs, there are still millions without employment and fewer prospects. Our unemployment rate stops counting people who have given up looking for more work or are unable to get back into the job market. The situation was pretty bad in the U.S. In some cases, people may be struggling just to survive.
The challenge here is that the financial position of the majority of Americans has never been strong to begin with. Most people are in survival mode and just trying to scrape by. Imagine how these people might be dealing with a times where they had to live without pay for weeks.
This just justifies the need for government support and companies to prevent large-scale layoffs. Since the virus has spread at a record fast pace, the number of people infected will continue to rise exponentially if the government doesnt issue mandates like mandatory mask participation. In fact, many countries had had to witness a second round of the virus after they returned to “normalcy” and carried out daily operations. This has compelled the Trump administration to make extremely difficult decisions and thus, they had to continue with a long lockdown.
Trying Times: the U.S. under the Lockdown
The result of the absence of months of economic activity in the country has been quite serious. People were unable to meet their essential expenses – utility bills, medical bills, student debt repayments, other debt repayments, credit card bills, etc. People who have kids were compelled to leave their jobs to stay at home and care for their children. All states have been hit, and while urban centers were at most risk, now areas of the Midwest and the sunbelt are feeling the sting. The authorities have rightly said that the economy can always be brought back on track, but the lives lost can never return.
They say ‘no pain, no gain’ during our last lockdown, and to curtail the spread of the virus, it was essential for people to stay home and back the government’s decision. But how will people meet their expenses if we go through a second wave of Lockdown? What will happen when utility bills will start piling up? Will the government step us and save the people? Not at the rate Congress is squabbling amongst themselves.
These times are probably the strangest we’ve seen in our lifetime. In an unprecedented move, the U.S. announced an exceptionally large $3.7 trillion dollar stimulus package to provide relief to struggling businesses and laid-off employees including, but not limited to, freelances, independent contractors, and gig workers. This insanely high amount of a relief package is equivalent to roughly 10% of America’s GDP.
Under those programs, the government planned to provide monthly payments to the workers who were recently unemployed due to the Coronavirus outbreak. In the same manner, the authorities also planned to inject some cash into struggling businesses to keep them afloat. While it worked for some businesses, others saw corruption, delays, misuse of funds and fraud.
Apparently, the Federal Reserve had learned from their mistakes with the 2008 financial crisis. Lauded as one of the most aggressive and progressive moves made in the history of the United States, the stimulus package was considered to be what was needed to save not only the people of America, but the economy as well, which may have tanked to an unimaginable level. This is one of the few instances where economists (even those who may have see government spending as wasteful) and political leaders (who may have dismissed pro-poor policies as being impossible to achieve), have nodded in unison and agreed that the time had come for the government to pull out some cash for the deserving people who are hit the hardest due to the global pandemic. But now, that time has come to and end, and political leaders worry not just about government spending, but the bloated debt we see, the highest in the history of the United States.
Should We Worry About the Loan?
As Congress debates another stimulus bill, it has also raised an important question; how will the government pay back the money it has borrowed to keep the economy running? And yet here is another question; should we start worrying about this loan and those loans that follow?
Consider this… for every $1 trillion that we borrow as a country at 30 years, we have to pay $1 billion in interest – every year! For 10 years, we will have to pay $5.8 billion a year as interest. The level of borrowing the country has done to cushion the impact of the lockdown is similar to the borrowing during WWII. Unfortunately, this may be a decision that may bring more problems in the future and less relief at present.
What would have happened had the government not taken this decision? Potentially a prolonged period of recession. While the U.S. economy can survive the impact of this one-time public debt, it may not be able to tackle a long recession. When do we close the ATM for our citizens? When do we stop borrowing? When do we stop our stimulus relief? Also something to think about, the money spent in recent times is just to save the economy and get it back on track. Public debt is not like a personal loan where you don’t have sufficient ways to pay off the debt. What do you think will happen with taxes now that we have amassed all of this debt? Will taxes go up or down?
Debt Repayment: A Look Into the Future
The government can always make debt payments through taxes. But will it be on the uber rich, or the everday Joe? The government has enough assets to service its debt efficiently. At present, the global reserve currency is the U.S. dollar. The country, in fact, is in a very safe position when it comes to reserving the debt. There is one thing which is extremely important to mention, which is government debt doesn’t retire. At present, the focus of the authorities should be on helping people stay afloat – which it has been doing. At present, the interest rates are also low, to the point that almost every country has revised its monetary policy.
While the Stock Market has experience the perfect “V” shaped recovery, the economy has not been as lucky. The debt we have created as a country will be a problem if it doesn’t boost the economy – which is not a major concern at the moment because the very purpose of the stimulus package was to prevent the economy from derailing. The package was for a specific period, and it is hoped that once the threat of the virus is over, the economy will begin thriving. The real question is, how long will we be living with this virus?
The Final Word
The Coronavirus outbreak has taken every country by surprise. No one knew how to tackle a crisis of this magnitude. Even now as we experience a second wave of lockdowns in countries like Israel, France and the UK, countries are trying different measures to reduce the impact of the still-evolving virus. The government decision to launch a relief package, undoubtedly, is laudable. However, at what point are we overspending to the point where it may be detrimental to our grandchildren? Bring the economy back on track will be inevitable. The question is, at what price? And more important, who will pay that price?