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US Stock Market : Still Need Stimulus

(Wed, 22 July 2020). Talks for a new stimulus plan have stalled and may not happen this month. That could lead to a plan in August after the stock market drops. Republicans won`t back another stimulus bill unless their favorite barometer of economic health - the stock market - takes a nosedive.

It looks unlikely that Congress will pass additional stimulus measures in July. The loss of extra income, particularly for lower-wage workers, will likely stall the economy. Expect a stock market drop to be the catalyst for further relief. Congress appears stalemated on how to move forward with new stimulus. House Minority Leader Kevin McCarthy says he does not expect a bill until August. There’s just one problem with that: Millions of Americans face a fiscal cliff at the end of July.

 

CARES Act Stimulus About to End

The CARES Act provided for an extra $600 per week in unemployment benefits on top of state benefits. That’s the critical item expiring at the end of the month. With job losses jumping at their fastest rate in history, these benefits have been crucial for millions of families. Critics of the program point out that many low-wage workers who were laid off may be better off unemployed, perhaps as many as two out of five. The extra $600 per week, multiplied by the millions of unemployed, comes to nearly $20 billion each week. As most of it is going to low-wage workers, that money is being used to put food on the table, pay rent and other necessities, not luxuries.

At the end of the month, that extra payment goes away. The economy may see a second dip as consumers tighten their belts even further, and mortgages don’t get paid. Some states are working to create a “back to work” bonus to encourage those with job opportunities to pursue them. Idaho has already started mailing checks. President Trump, who opposes extending extra unemployment benefits, has also proposed a bonus plan for the next round of stimulus to incentivize Americans to get back to work.

 

It’s All Fun and Games Until the Wealthy Lose Money

The posturing on further stimulus right now looks rather pointless. The GOP likely wants to boost its image ahead of the elections, so it will wait as long as possible before agreeing with Congressional Democrats on a further extension of stimulus measures. The stock market’s strong performance plays a role as well. President Trump once again tweeted about the market numbers, a day after the S&P 500 Index went into the green for 2020.

So far, there’s a lot of agreement between Democrats and Republicans on further stimulus measures. The extra unemployment benefits are the major sticking point, as well as the size of the deal. President Trump has suggested that the next stimulus bill should be around $1 trillion. House Speaker Nancy Pelosi thinks that number is too small.

Chances are there won’t be any further agreement until the stock market takes a brief dive. There’s something about a threat to the wealth of the ultra-rich that just somehow seems to grease the political wheels. It’s part of the political kabuki theater we’ve seen before. When the first bailout plan in 2008 was rejected, the stock market sold off with a one-day, seven percent drop. The second plan did not fail. It will take another stock market tantrum to get the job done again.

 

 


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