The Government Makes It Rain --- Stimulus To the Rescue

Coronavirus Update – Shutdown Has Finally Started

Thanks to the great leadership exhibited from New York, California, and Chicago the nation is slowly shutting down city by city --- and state by state. While unbelievable, this is very necessary to starve the virus. There will be debates on how long and I remind people to look to China’s recovery and the timeline they used. For example, Wuhan the epicenter of this crisis will remove the lockdown on April 8th. SO the reality is the longer the better for the hotspots. Why I demanded leadership --- one voice, one plan. Providing risk consultation to large corporations puts you in a position to see some amazing dynamics. People will not do thing unless they know the order has come from the top…it appears countries are no different. The shutdown should be federal because if we all go into shelter at the same time, you hope we can plan to exit strategically around the same time. Let me give you an example, if you have a missing child, technology (like the Amber Alert) has allowed for us to receive notification all at the same time rather than piecemeal.  This speeds up the likelihood of finding the child much better than sending it to one police department at a time. If the coronavirus shutdown does not come from the top, when one state recovers my question is: “Does that state allow you to travel or accept visitors from states that did not shutdown at all or that shutdown much later than your state did. Essentially this recovery could drag on longer than needed if we cannot move in a cohesive manner as a country. There could be a lack of trust in the air which is why I believe countries like Italy, China, S. Korea and others when into lockdowns all at once. Make It Rain – Last Resort to Inflate the Economy I am hoping for better coordination so we can begin to recover quicker and get the economy going.  The importance of the pillars we work on so hard here is to help you during these exact moments. If you have savings, you have some cushion during these bad times. See these articles, ripped from the news headlines: “Many Americans Biggest Worry is April 1st Rent and Mortgage Payments”  -- Washington Post “Real Estate Billionaire Barrack says Commercial Mortgages on a brink of Collapse” – Bloomberg “Jobless Claims Soar Past 3 Million to Record High” -- CNBC  “Mortgage Rates Surge to Highest Level Since January” – Marketwatch “2 Trillion Dollar Stimulus Package” --- See below These are just a few of the necessary reasons why the Federal Reserve is making it rain. It’s basically a blank check to shore up the economy until we can get a handle on the COVID-19.  Like in 2008, the market has responded with a rally since a “handshake deal” was announced just a few days ago. This rally will likely continue into the actual signing of the bill. Use this an opportune time to trade in the relief rally that is not uncommon. But when the dust settles, I am still not risking my individual retirement account funds at the moment because we know there is more to come. Mortgages need to be paid, the rent is due, businesses are asking for a bailout and jobs are being shuttered. Hopefully all this is temporary but it is a big risk. I don’t see an all clear sign, just yet. Urb Lesson of the Day:  Account Diversification · Savings Accounts – Gets you through the rough patches in life · Investment Accounts – Allows you to take risks when others are NOT – like today · Individual Retirement Accounts – This is truly for your future, why NOT wait for a sign that the recovery is strong

My Reality Show: Pt. 2 First Pick in The Stimulus Bill Draft

I have decided to announce my first pick in the economic stimulus bill draft! After reviewing the contents of the bill, I realized the Obama administration did some things right in crafting the stimulus bill. For me, there is a provision in the stimulus bill that has the upside of a Lebron James. Yup, there is some first round potential in the First Time Home Buyer Credit. A close second, my Chris Paul pick, was the Higher Education Tax Credit. I tip my hat to the administration because the bill provides just enough incentives for me to help do my part and stimulate the economy. Although I would have loved to take advantage of the original amount, I am glad that $8000 in credits will be available to assist me in possibly buying a place in the expensive city of Chicago. I was surprised after rereading my own post that I had missed the provision on going back to college and the assistance that is provided there. So we'll see but after I get a place...maybe I'll start studying for the GMAT. Now I will likely miss the 2009 credit but I could take advantage of the 2010 credits.

My Reality Show...

Now I am no longer a huge fan of the reality television craze as I often pass on keeping up with American Idol, Survivors, Big Brother, The Biggest Loser, The Real World, College Hill or any of the dance shows. However, I am a fan on a new economic reality show that I may personally star in. In true “reality tv” form, it would be all about me and the focus would be to prove or disprove my theory that there is definitely a need for a stimulus bill.

Logic:
My logic was included in a recent post written here at Urbanomics that describes the need for an economic stimulus bill and how it can and should be crafted to help those that can stimulate the economy the fastest. My version of a bill would evaluate most Americans based on different scenarios and the respond to their needs within the bill, accordingly. I have attached a link to the post that described a number of scenarios that are playing out across American households across the US:

http://urbanomics.blogspot.com/2009/02/stimulating-economy.html

Concept:
The scenario that I most represent is: SCENARIO #4

“4. An employed young man is not going to the bar, eating out, or vacationing”
Note: I haven't shaken my weekend bar trips!

My goal is to create a series of posts that will evaluate whether there are provisions (i.e., goodies) in the bill that impact me and also help stimulate the economy. I will document the provisions that affect me and if they really work in the end!

Stimulating the Economy...

The hardest question I received so far this year is, "Do I agree with the stimulus bill?" It is a very difficult question because we are facing a very tough economy that has a number of different scenarios currently in play. Consider the following scenarios:

1. Young, middle, and old aged people are unemployed
2. A single mother working retail has her hours cut because demand is slowing
3. Governors fear slashing jobs if the state doesn't balance its budget
4. An employed young man is not going to the bar, eating out, or vacationing
5. A young couple with children did everything right but is underwater on their new housing purchase after buying at the height of the real estate market
6. The parents of a well off family of four still lives their daily but are shopping less and saving more than ever do to declining investments and the declining value of their home.

I went to answer this question and tried to address as many of these different scenarios as possible. The realization I quickly came to is there are a FEW small measures that will help everyone and those should be the focus of the government. Here is what I've got to assist in each of these scenarios:

1. Jobs, Immediate Assistance(to pay bills)
2. Jobs (More work hours or new job options), Immediate Assistance(to pay bills)
3. Immediate Assistance (to balance budget, and maintain Jobs)
4. Confidence (in the economy) and Incentive (to spend his hard earned money)
5. Confidence (in the economy) and Extra Help (with underwater mortgage and kid)
6. Confidence (in the economy and Incentive (to spend their hard earned money)

After analyzing these scenarios a true stimulus bill would address the areas that can help the most people. Here is what my stimulus bill would include:

~ Developing Jobs is needed to provide work and options to those in need and improve the confidence in the overall market (Scenarios: 1,2,4,5,6)

• Create new jobs through state and federal projects that put people to work
• Maintain jobs through by increasing the demand for American goods domestically and internationally

~ Immediate assistance needs to be given to Americans to help buy food, pay for rent/utilities, and help with kids which begins to circulate money back into the economy and builds confidence (Scenarios: 1,2,3,4,5,6)

• Food stamps assist will immediate help and will be spent immediately at grocery stores everywhere (circulating money and keeping jobs intact)
• Cash to only those that need immediate help with Utilities (No jobs and low income)
• Utility and Day Care assistance as an incentive for middle income families to spend money and not hoard any cash given by the government

~ Incentives need to be given to Americans to who have discretionary income which will circulate cash, develop jobs, and improve confidence (Scenarios 4,6,1,2,5)

• Housing and Auto Credits will provide incentives to Americans with discretionary income to help revive two major industries
• Temporary reduction in sales tax (but will this hurt state budgets)
• Tax Cuts will put more money in our pockets but I don't think this measure should be heavily relied upon because it would not cause me to spend the money...rather to save it.

These are the pillars to what I would recommend in a stimulus package. Ironically, I believe that the government has gotten the bill correct but the allocation of the bill is what I believe is out of what. Roughly 80% of the package should have gone towards DEVELOPING JOBS and providing IMMEDIATE ASSISTANCE. The remaining 20% should have focused on providing incentives to those who have been impacted the least but can provide additional help in stimulating the economy.