US Senate passes stimulus bill as States brace for crisis

After five days of fraught negotiation in Washington the Democrats and Republicans agreed late last night on a stimulus bill designed to combat the fallout of coronavirus worth $2 trillion, dwarfing the $800 billion stimulus passed in the financial crisis of 2008.

At the heart of the bill is a provision to send direct payments of up to $1,200 to most Americans, with an additional $500 for children.

Two massive lending programmes have also been set up. The first provides $367 billion aimed at small businesses. The second provides $500 billion to be loaned to businesses of any size as well as states and cities. Additionally, unemployment insurance has been massively boosted with benefits bolstered by $600 weekly and extended to last four months. Eligibility for the programme has also been expanded.

Finally, hospitals will receive $150 billion of extra funding to help purchase equipment and supplies, and another $150 billion is being provided for state and local stimulus funds.

The agreement was only struck late last night after days of partisan wrangling. The initial Republican stimulus bill had been widely criticised by Democrats as too friendly to big business. They also attacked the $500 billion loans programme, accusing it of being a “slush fund” which lacked oversight. These concerns were hardly assuaged by Trump’s assurance “I’ll be the oversight.”

However, the Democrat’s alternative bill was an unwieldy behemoth which included provisions from a progressive wish list bound to enrage Republicans. These included new emissions standards for airlines and requirements that any company bailed out would provide a $15 minimum wage.

The Democrats have gained some meaningful concessions, however, such as the establishment an oversight mechanism to review loans issued from the stimulus package. They also secured a ban on Treasury loans for any businesses owned by Trump and his family, or for any member of Congress or senior government official.

On top of this, any company receiving Treasury loans will face a one-year ban on stock buybacks, limits on executive bonuses, and they will be forced to take steps to protect workers – all subject to scrutiny by an inspector-general.

The bill has passed the Senate and now needs to pass the House of Representatives as well. Congressional leaders hope to expedite the process by unanimous consent, which carries with it the risk that some congressperson might decide to play the awkward squad.

In the meantime, while the bill was being negotiated the Federal Reserve also took drastic action shore up markets. On Monday it announced that it would purchase an unlimited amount of U.S. Treasury bonds and mortgage-backed securities, plus, for the first time in its history, certain corporate bonds. A Main Street Business Lending Program that will offer loans to businesses, on top of any Congressional action, is to be announced imminently.

The sums involved are staggering. Fed action is estimated to be worth $4 trillion. Combined with the Congressional Bill, the assistance looks to be worth $6 trillion, around 30% of US GDP, and more is likely on the way.

These measures seem to have reassured the stock market. While its losses over the past month mean it is still only slightly higher than it was in 2016, Fed action and the prospect of a Bill caused the Dow Jones and the S&P 500 to close up 11.37% and 9.38% respectively yesterday.

But with unemployment surging, and Goldman Sachs economist David Choi predicting an unprecedented increase of 2.5 million this week, the economic costs of the pandemic are going to be widely felt regardless of federal action.

The quarantines driving the massive spike in unemployment are proving to be the next point of political contention.

Currently, they look set to spread. The World Health Organisation has announced that the US could become the next centre of the coronavirus pandemic. Despite mass testing for coronavirus only really getting underway in the US over the past fortnight, it already looks to be one of the worst affected countries.

According to covidtracking.com, a site which collates US states’ testing data in the absence of official Centre for Disease Control statistics, 709 Americans have died due to coronavirus and 53,192 have tested positive for the virus. Already only Italy and China have identified more cases, and many more people are expected to test positive in the US over the next few days.

Worst hit in the US is New York, which was placed under emergency lockdown on Sunday evening. On Friday just 7,102 people had tested positive for coronavirus in the state. Now this number has more than tripled to 25,665, nearly half of all the cases in America.

Infection rates seem to be lower in the rest of the US. Nevertheless, sixteen other states including California, Massachusetts, and New Mexico (as well as numerous local authorities) have adopted similar measures to New York, urging people to stay home. Around 160 million Americans are now subject to these quarantines, though enforcement seems to be patchy.

As the economic costs of quarantine begins to be felt, some are expressing scepticism about the measures. Tweeting late Sunday night Trump stated “WE CANNOT LET THE CURE BE WORSE THAN THE PROBLEM ITSELF, AT THE END OF THE 15 DAY PERIOD, WE WILL MAKE A DECISION AS TO WHICH WAY WE WANT TO GO!”

Trump has since reiterated these sentiments, and in a Tweet on Tuesday, seemed to suggest a mix of social distancing, and measures to protect the elderly could do the trick. These ideas have been echoed by others, including Lloyd Blankfein, former CEO of Goldman Sachs, and some conservative media figures. In the White House itself, National Economic Council Director Larry Kudlow and Treasury Secretary Steven Mnuchin are both said to be keen to get the economy going again as soon as possible.

Of course, relaxing restrictions just as the rate of infection appears to be accelerating exponentially would be contrary to all accepted expert scientific advice. A huge spike in coronavirus cases hitting the workforce and overwhelming hospitals would also devastate the economy.

It is unclear what Trump could do to stop quarantine measures being enforced by state and local authorities. But there is some evidence that Trump’s broad scepticism about the severity of the crisis has already contributed to under-preparation – discouraging Republican controlled states from acting promptly and Republican-leaning Americans from adopting social distancing measures. If the president starts urging people to defy quarantines, how many will take his advice?