With the news media announcing Federal Reserve and proposed Congressional measures to keep the U.S. economy from further crisis resulting from the COVID-19 outbreak, area residents may wonder what the Fed actions and the proposed stimulus bill might mean for them and their communities.
Late Wednesday night, the U.S. Senate passed a $2.2 trillion relief bill 96-0. The package, which still must be approved by the House and signed by President Trump, includes help for individuals, small businesses and large corporations in a cornucopia of specific programs.
Individuals with qualifying levels of income will get $1,200 each, plus $500 for each dependent child.
“About 93% of people will get a check, including retirees,” Scott Winslow, managing partner of Wilmington wealth advisory firm NabellWinslow, said Thursday. He explained that eligibility will be means-tested, based on the individual’s most recent federal tax return – or on their Social Security income if the person did not make enough money to file a return.
Winslow said a major concern of his is the restaurant industry.
“Many restaurants are very thinly capitalized, and I’m concerned [relief] is not going to them fast enough. Hopefully, the government will get money to them quickly so they can get their doors back open soon, rehire their workers, and save their business," he said.
The Small Business Administration will administer small business loans but will work through local banks that are SBA lenders, Winslow added.
His concern extends also to all kinds of laid-off service workers, who need the government supplement now to pay their bills.
Adam Jones, an economist at University of North Carolina Wilmington, shares Winslow’s concerns about the impact of COVID-19 closures on local economies. He has a suggestion.
“I hear lots of people talking about how important it is to support local business and buy local. I would suggest it is particularly important to buy ‘local services,’” he wrote in an email Wednesday. “Buying a new television isn't all that helpful locally because a lot of that money flows back to the television producer, but ordering out to eat employs the cook locally. Getting your bicycle tuned up employs mechanics in Wilmington. Buying a new bicycle employs folks at the factory somewhere else. So order food for delivery and tip well!”
Monday, the Federal Reserve Federal Open Market outlined the provisions it plans to take to address the faltering economy. Those include:
- Purchase of at least $500 billion in Treasury securities and at least $200 billion of mortgage-backed securities. The FOMC will include agency commercial mortgage-backed securities in the latter package;
- creation of new programs that, combined, will provide up to $300 billion in new credit to employers, consumers and businesses;
- establishment of a Term Asset-Backed Securities Loan Facility (TALF) to support the flow of credit to consumers and businesses;
- expansion of the Money Market Mutual Fund Liquidity Facility to include a wider range of securities such as bank CDs; and
- enhancement of the flow of credit to municipalities by expanding the Commercial Paper Funding Facility by accepting a broader range of eligible securities.
The Fed’s promised purchase of Treasurys and mortgage-backed securities looks a lot like the quantitative easing measures of 2008, experts have observed. Jones said there are a few differences.
“The Fed has a little more flexibility this time around (compared to the financial downturn of 2008) to make some secured loans that they would not during the financial crisis,” Jones said. “Essentially, they learned a few lessons about firms that require financing and may act a lot like a bank without technically being a bank and the Fed is more liberally defining some of their categories this time.”
As part of what might be termed the new QE, Jones said, “The Fed is purchasing mortgage-backed securities to make sure mortgage credit doesn't dry up.”
The inclusion of commercial mortgage-backed securities in the FOMC’s purchase plan is also significant to support commercial credit.
“It boils down to the fact that financial markets include many more participants than banks and the Fed is gearing up to make sure the broader financial market continues to function; in the (2008) crisis the definitions of who the Fed could assist were too tightly written and some folks that acted a lot like a bank but weren't technically a bank could not be assisted and their failures, or fear of their potential failure, rippled through to all of us," Jones said.
Will any of these measures be important for the area’s economy?
“They will all be important because if the U.S. economy goes down, we go down,” Jones said. “I think the most important thing for our region is that we get this behind us while there is still time to salvage some of the travel season and that means making sure businesses can hang onto their employees as well as trying to minimize the financial hit to consumers such that they can afford to come visit this summer.”
Winslow made a similar comment, looking at the proposed Congressional stimulus package as a bridge to fill the financial gap until hospitality businesses can fully open again. He recalled what happened in the Great Recession: People who could not afford an expensive vacation came with their families to the Southeast North Carolina coast. He hopes that will be the case again if the hospitality industry can safely open at some point this summer.
“People who can’t travel abroad, or who can’t get on a plane. They can drive here and have a relatively affordable vacation,” he said. “This crisis is unprecedented. There will be other unprecedented crises in the future. But we’re Americans. We’re resilient. We will defeat this virus and our economy will boom again.”