A Six-Point Prescription to Cure Coronavirus’s Economic Pains
As the U.S. intensifies its Coronavirus testing and the number of cases and deaths go up, we are likely to see a lock down of major metropolitan areas and economic engines in the country. New York Mayor Bill de Blasio told CNN on Sunday that he would not rule out locking down the city.
“This is a crisis that will be with us, first of all, I believe, at least six months,” de Blasio said during an interview. “It’s unlike anything we have dealt with in our memory.”
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The NBA and NHL canceled their schedules. The NCAA Basketball Tournament, which stimulates the bar and restaurant business and the local economies of tournament host cities, never tipped off. NASCAR has canceled races. Two sure signs of spring – the Boston Marathon and the Masters Golf Tournament in Augusta, Georgia – will be rescheduled for the fall. Major League Baseball has ended spring training and postponed the start of the regular season until mid-May, if not longer.
Broadway theaters went dark, museums have shut, concerts have been postponed, and Disney World, often called the “Happiest Place on Earth,” closed its gates to visitors this weekend. Tourism right now is almost non-existent. At first, events of 500 people or more were discouraged, but that number has been cut and the CDC now recommends that all events of 50 or more people should be canceled for the next eight weeks.
The mayor of Hoboken, New Jersey, a city with a bustling nightlife scene, closed bars and restaurants and declared a nightly curfew. Other cities are enacting similar measures. In suburban Scotch Plains, New Jersey, the owners of the town’s Chinese restaurants collectively decided to close for at least two weeks because of a tremendous drop in revenues. In some cases, sales were down 70% this month.
COVID-19 is making the economy sick
Small business owners are likely to be among the hardest hit across the nation. Restaurants and bars are suffering, as are businesses that offer services including spas, nail salons. Often, they do not have enough cash on hand to survive a week or two of slow days.
If de Blasio’s prediction that the crisis will last six months is indeed correct, many businesses will fold. The lucky ones will already have cash reserves or a small business line of credit to dip into during a period of economic distress. But as this crisis unfolds, tens of thousands of small businesses are on the edge of disaster.
The prosperity of the U.S. economy during the past decade has been powered by consumer spending. This downturn could turn employment market upside down and has the potential to cause a major recession if effective steps are not taken immediately.
The Federal Reserve has again stepped in and lowered interest rates to near zero. The Trump administration has announced the availability of emergency SBA loans, while various states and cities have also announced their own loan programs. However, quick delivery of disaster loans to business owners is not usually the case. In fact, it often takes four to six weeks before businesses see any disaster loan money, and it entails a tremendous amount of paperwork.
Many business owners are under the mistaken impression that “disaster loans” will come swiftly and are like receiving free money. In reality, it requires a lot of effort on the part of business owners to get any kind of financing. Further, the average loan amount approved by banks is sometimes a lot less than what a business truly needs to recover. Credit markets are already tightening as banks consider the risk/reward trade-offs of putting forward any capital in these conditions.
The Coronavirus situation is a once-in-a-lifetime crisis that is spreading at a breathtaking pace. In order to head things off, the following steps should occur:
- Suspend all the federal and state taxation collections for next 60 days without any late fees and penalties.
- Extend the date of filing business and personal tax returns by at least 6 months.
- Eliminate payroll tax for businesses up to 150 employees, both for the employer and the employees, until the end of the year.
- Federal and state agencies need to partner with banks and non-bank lending platforms like Biz2Credit to make it quicker and easy for small businesses to gain access to credit.
- Plan for an extended shut down and lock down. If this means calling out the National Guard, so be it. China has seemingly contained the virus, but only after effectively locking down the country for two months.
- Plan for the ways to restart the economy once the Coronavirus threat has subsided. Direct economic stimulus measures make sense once the virus is contained and consumer confidence has a solid foundation again.
This moment in time could make or break Donald Trump’s presidency. For more than three years, he has presided over a booming economy with robust growth, strong job-creation and record low unemployment. The prosperity we have experienced since Trump took office is unprecedented and, despite his mercurial personality and the almost daily chaos in Washington, it looked until very recently that he might be re-elected easily.
Things have changed quickly, however. Unless President Trump acts quickly and takes charge of this serious economic situation, he risks being this century’s Herbert Hoover.
The nation’s 31st president, a successful international businessman and former Secretary of Commerce, was elected in 1928 during prosperous economic times that continued briefly into his first term. In less than a year, the stock market crashed, the Great Depression began, and Hoover, a Republican, ultimately took the fall.
What were some of the initial responses during the Hoover Administration?
President Herbert Hoover (1874-1964) 31st President of the United States (1929-1933). (Photo by … [+]
The Federal Reserve cut interest rates, and Hoover pushed to bolster lending to farmers and farm cooperatives. Hoover knew the economy faced a downturn, but he believed it to be cyclical and underestimated its severity. Meanwhile, Hoover’s Democratic political opponents accused him of being “out of touch” with the economic suffering of Americans. Voters blamed him for the economy’s ails in 1932 and handed progressive Franklin Delano Roosevelt a resounding victory. FDR won 42 of the 48 states and amassed 472 electoral votes, compared with only six states totaling 59 electoral votes for Hoover in his failed reelection bid.
If the White House does not get a handle on the most important steps to support business and the economy at the start of this outbreak, you can bet that a similar fate awaits Trump in November.