There is little doubt that the United States economy has suffered a setback as a result of the Covid-19 outbreak, and Americans have been financially impacted by the situation. However, were the stimulus checks the wisest use of taxpayer funds? Economist and co-founder of Beacon Economics, Chris Thornberg, is hopeful about the US economy’s recovery, claiming that the current situation is nothing like that of the Great Recession which devasted the country more than a decade ago. As dire as the situation appears, the economy is bound to rebound, much like it does following a natural disaster.
In essence, the basic issues that precipitated the Great Recession are absent this time around. To begin with, job losses are only transitory. They are motivated by fear of COVID-19. While the loss of a sizable number of jobs is alarming, it does not have a ripple effect on the overall economy. While businesses are closing in California, new business are sprouting up. There are no signs of a housing bubble. Individuals are not at risk of losing their homes as a result of taking out loans they should never have been able to obtain in the first place. Mortgage delinquencies among homeowners are at an all-time low. This is in stark contrast to 2006, when default rates on auto loans, credit cards, and home equity credit accounts climbed despite low unemployment.
There is no doubt that something needs to be done to assist Americans in economically weathering the Covid-19 problem. The question is whether the stimulus was the optimal choice. According to Thornberg during his recent interview with San Diego Union Tribune, he believed that the stimulus package was rather dramatic – far too large and far too soon. It was the polar opposite of the Great Recession’s too little, too late response.
For households earning up to $75,000, the CARES Act offers a direct payment of $1,200 per adult and $500 each kid. This appears to be a significant issue, given that individuals generally cannot spend during a recession. Prior to the epidemic, Americans saved at an average rate of 8%, which climbed significantly to 33% after the outbreak. Thus, the majority of stimulus funds are being preserved to be spent once the economy returns to normal. While the Paycheck Protection Program has been beneficial in stabilizing businesses, it appears to have gone to individuals who can survive on their own.
Thornberg’s primary concern is the long-term impact of the federal government’s excessive borrowing for stimulus expenditure. At the moment, the net federal debt of an individual in the United States exceeds $50,000. Increased borrowing is occurring at the expense of future generations, all the more so given that stimulus programs often benefit individuals who have not lost work. Similarly, future Medicare and Social Security benefits are being jeopardized. Additionally, this already resulted in high inflation rates, increasing the likelihood that the country would experience a “real” recession in the future.
Apart from the burden of long-term debt, Thorberg acknowledges that all signs point to a robust economic rebound. Businesses are thriving in San Diego, despite the fact that the majority of challenges, such as labor shortages, are caused by sources other than the virus. The situation is proving to be better than anticipated, with the recession officially ending in April. Thorberg forecasts a significant fourth-quarter rebound in consumer spending. Even if another surge occurs, Thornberg is optimistic that the American will survive the COVID 19 crisis.
The problem with $3.5 trillion spending bill that it raises the federal government’s debt ceiling even higher than it already is, robbing future generations and virtually guaranteeing that millennials will be the first generation in modern American history to be poorer than their parents. Was it worth it?