Trump now speaks of a $2 trillion fiscal stimulus. But a lot of it is smoke & mirrors that doesn't help the average American. Too much of it is going to the large/middle sized firms, many that are cash rich & used previous bailout for share buybacks. Not enough going to workers!
Over half of Americans are gig workers, partially employed, contractors, freelancers, hourly workers, informally employed, undocumented workers, workers with no formal contract, business-owners with 10 workers or less, who are now near 0 income. They are totally wiped out now!
The half of Americans who work without a formal employment contract do not qualify for unemployment benefits & and other welfare programs for unemployed or for paid sick leave as they aren't formally employed. US is one big part-time/gig/contractors/freelancers/1-man biz economy.
For half of America that doesn't have formal employment & benefits that come with it, a one time $1000 is transfer payment is spare change; these folks don't qualify for paid sick leave or unemployment benefits as they are not formally employed. They will run out of $ to buy food
Half of America will soon not be able to pay rent/mortgage & other utility bills & will soon not have enough $ for food/basic essentials. 40% of US folks have less than $400 savings for emergency. They will soon be hungry, riot in streets & mob the supermarkets & other stores!
Since half of Americans will soon have no income/savings 2 buy food & other essential, in addition to the $1K transfer they need temporary deferment of all rent/mortgage, utility bills, taxes & other fixed costs until this crisis is over. Otherwise you get riots & mass defaults!
Apart from American workers - half of which aren't formally employed & thus highly vulnerable - the other most vulnerable folks are small firms/businesses. These small businesses will soon be with near 0 revenue & many fixed costs such as rent/mortgage, biz loans & labor costs.
Small businesses are vast majority of US employment; they don't have liquidity 2 survive a 2-3 month economic shutdown; rent & debt payments come due on April 1; formal/informal employees will be fired; business will have 2 decide whether to pay or default this week. Grave risk!
If lenders & landlords of small biz firms don't give forbearance then they will have to file bankruptcy. This will trigger the largest wave of bankruptcy filings & job layoffs in US history. Result will be a flooding of the courts & further loss of confidence in economic recovery
If these mass defaults occur debt/equity markets will crash & even liquid & capitalized banks will see a surge of NPLs as a result of overwhelming loss of jobs & impact of defaults on credit cards/personal/auto/biz loans, mortgages, RMBS, CLOs. Even safe banks can then go bust!
Solution to this imminent economic depression & debt/financial crisis: suspend all payments obligations 2 lenders & landlords by any SME biz or individual that is impacted; mass government programs 2 provide funding in interim 2 all impacted parties: workers/firms/creditors/banks
Only agents in the economy that have the balance sheet, P&L & cash/credit to withstand the shock are: the government, large profitable/cash-rich corporations, banks that will get the liquidity/credit support by the Fed & government. Households & small biz need to be backstopped
The balance sheets of the government, rich-profitable large corporations (excluding those severely hit by the crisis such as airlines, etc), banks are strong enough for now and thus need to support the income & balance sheet of middle-lower income households & small businesses.
Banks/other fin lenders 2 households & small business will take hit of deferred payments on many loans (mortgages, SME biz/personal loans, consumer credit, etc). They will get backstop via massive Fed liquidity support, forbearance 2 avoid credit crunch, credit guarantees, etc
The Federal budget deficit will surge to about 10% of GDP but will need to be fully monetized by the Fed via QE & credit easing. This is effectively a temporary helicopter drop of money but only option to finance the temporary deficit without spiking interest rates & recovery!
