By: Yaron S. Goldblum – 25 March 2020
Absurd, or idiotic. We can’t describe the stock market movements of recent times any shorter. The mega big ups and downs follow each other in quick succession. It’s not even surprising that the Dow Jones yesterday recorded the largest percentage increase since 1933. An increase of 11.37 percent, prompted in part by the hope that a massive stimulus package would be piloted through the U.S. Congress.
Now all the exact details have not yet been announced, but at least the green light has been given to support the ailing American families and companies for 2,000 billion dollars. A quarter of this, some 500 billion dollars, will be distributed as helicopter money. That former Fed President Bernanke will still be able to experience this… The majority of families (lower and middle-income earners) will receive up to $3,000 in cash in their accounts; $1,200 per adult and $500 per child. 500 billion dollars will also go to large companies, which will then be supervised so that they cannot, for example, buy their own shares or pay out high bonuses. Restrictions of this kind apply until one year after the end of the support received. Small and medium-sized enterprises can count on 350 billion dollars in support. Hospitals can also look forward to 150 billion dollars in these difficult times and the ailing aircraft sector 50 billion dollars. On top of this, the parliament approved a Democratic proposal to set aside 100 billion dollars for temporary (maximum 4 months) paid sick leave, an unprecedented luxury in the United States.
It is all support in addition to all the fireworks the Fed has already announced. And to put the amount of 2.000 billion dollars in perspective, at the time of the credit crisis in 2008, 700 billion dollars were earmarked for the bailout of the U.S. banking sector. Thereafter, the Fed bought up another 800 billion dollars in loans in 2009. The measures taken then pale into insignificance with what is happening now. According to Larry Kudlow, economic adviser of the White House, together with the plans of the Fed, a total of 6,000 billion dollars of support is provided…
Meanwhile, the pressure on President Trump is increasing. After all, it’s an election year. Only a few months ago his prospects for re-election seemed (very) good, now the coronavirus threatens to throw a spanner in the works. Economic growth, low unemployment and the height of Wall Street were his most important selling points in the election battle, and it is these that are being damaged. Despite the fact that about a third of the world as well as the United States are currently in a lockdown and that same United States is threatening to become the new epicentre of the coronavirus pandemic, Trump is already considering revoking the (still quite flexible) guidelines for social abstinence. America needs to reopen quickly to issues that run counter to his own scientific advisers, who, on the contrary, want even stricter measures. But according to Trump, the remedy must not become worse than the disease. Now we often see Trump withdrawing his opinion and then claiming the opposite, so let’s wait and see. The expected battle with Joe Biden is getting more and more difficult every day.