They will begin reopening the economy in three phases, but with some restrictions. Sounds exciting, doesn't it? It's sure as heck much better than what we have today, but will it work? In this article, I'll explain why it won't work like they hope, and what must occur for the economy to thrive again.
When the economic light switch is flipped on, things are supposed to return to normal, but with appropriate social distancing and special protection of the at-risk population. Money is supposed to start flowing again, but will it. Trump is at his best when it comes to the economy but is he right this time? Let's take a look at the requirements for making the money flow.
Requirement #1 - Demand: People must start buying stuff from sources other than Amazon.com and the local grocery store. Can you say retailers, restaurants and service firms? Are people itching to buy or just itching to leave their homes? Are people going to rush out and buy new wardrobes as many continue to work from home in their comfy clothes? Is there a pent-up demand for stuff? The biggest thing that people will need after this has ended is a vacation but the travel and tourism industry, as well as the industries that sell to them, are still shut down indefinitely. I'm concerned that the demand won't be there when the economy begins to reopen.
Requirement #2 - Large business spending: One of the first signs that the economy is heading for recession is when large companies initiate spending freezes so that they can conserve cash. If big business doesn't immediately release their spending freezes, all of the companies who sell to those large companies will continue to suffer and we are unlikely to see another PPP get signed to help companies retain employees.
Requirement #3 - Small business revenue: You've been hearing this for weeks now. Small business is home to half of all the employees. If small businesses aren't able to crank up their cash flows because other businesses aren't spending money, or there is a lack of demand from consumers, the economy won't recover for years.
In my opinion, opening the economy is purely a symbolic move. It will make people feel like we are moving forward, beating the virus, and returning to normal and in the short term it will be good for emotional well-being. But without tremendous spending in the sectors unaffected by the pandemic, the recently robust economy will be the quicksand economy. Stuck and unable to recover.
The government sent $1200 to qualifying American families to help pay for expenses while things were shut down. Unemployment benefits were being paid at 100% and most of those who remained employed were still paid their normal wages. That should have prevented people from going deeply into debt over the past 45 days.
So what can be done now?
Requirement #4 - Buying Sprees! I think governments in all countries should send everyone a gift card to go on a buying spree. 500 or 1,000 to go out and buy stuff! That would help retailers, the states (sales tax), distributors, manufacturers and consumers. We just need to get some flow and in the US alone that would create $40 - $80 Billion worth of instant flow.
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