Uncle Sam is coming to the rescue in this time of economic need. While it saddens me that our economy has reached this point, it seems the stimulus package is necessary to keep this dip from becoming the Grand Canyon.
Please endure my preaching, but among the first items I recommend when an individual comes to me for financial planning advice is insurance against loss of income. The second is an emergency savings account to cover six months of income for any unforeseen short-term emergency. We recommend this before beginning to save for longer-term goals.
Clearly, some individuals and corporations have failed at this concept. Corporations have mismanaged their risk in buying their own shares, and individuals have done likewise in buying the cool car, boat, or taking the luxury vacation before thinking of the unthinkable. As I step down from my soapbox, let me add that I know circumstances occur that can make it impossible for even the most disciplined individual or company not to suffer. However, collectively we seem to have missed the point of saving for a rainy day. These are the times and actions that force government debts into the stratosphere, and we will all bear that burden collectively in the coming years. It is always bothersome to me when the best answer to a question is, “the government!” Unfortunately, that’s where we are today.
So now for the details. In the early hours of Wednesday, March 25, 2020, Congress rallied to the cause with an initial agreement on a $2 trillion stimulus package to aid small businesses, hospitals, and other key industries. While details are yet to be released in full and passage is not yet complete at the time of this writing, the bill is said to provide $1,200 cash payments to individuals, $2,400 to married couples, and $500 per child as long as their income is below $75,000 and $150,000 respectively. I believe this is the most effective way to jolt the economy back to life as it provides money directly to those in pain. Instead of having politicians choose which company should get funding, consumers will take their cash and spend it where it is needed most.
The bill is said to provide $350 billion to small businesses to keep employees working and provide cash to pay them. This amount is believed to include $10 billion in Small Business Administration emergency grants limited to $10 million per business and $17 billion to cover businesses currently reliant on SBA loans. These funds should filter through our local economy and others around the nation. Other items expected in the bill include $150 billion for state and local municipalities, $50 billion for hospitals, $30 billion in funding for education, and $25 billion to fund transit during this emergency. These funds are focused at the heart of the problem and should make the biggest difference in the short term.
Among larger public businesses funded by the bill were airlines who have suffered as air travel has come to a sudden standstill. This debate about public corporations seems to have been at the heart of the holdup in funding. Democrats wanted to ensure companies wouldn’t get a bailout and spend it to buy back shares, another major source of heartburn for some investors, or cover executive compensation while employees suffered from layoffs. The government is expected to hold equity in some of these companies should they accept help. This is as close to the nationalization of companies as we get, but dire emergencies require equally dire measures. I applaud them for taking actions quickly since we find ourselves in this situation. With their quick reaction, the less the damage should spread.