While we have shown some other alternatives below, many of these would effectively represent some form of helicopter money, or additional quantitative easing tools. Money has to come from somewhere, and the old printing presses of the past now might be more digital ledgering.
Federal Reserve and Entities Can Buy Stocks
The U.S. Federal Reserve (Fed) balance sheet had worked itself down to about $3.75 billion in August of 2019, after peaking above $4.5 trillion back in 2014 and 2015 after quantitative easing measures went beyond just managing interest rates. The size of that Fed balance sheet has come back up to nearly $4.2 trillion in February of 2020. Rather than solely buying Treasury notes and bonds, government agencies and mortgage-backed securities this time around, what if the Fed was more creative with asset purchases?
Central banks in Europe have bought corporate bonds, and Bloomberg noted in 2019 that the Bank of Japan and central banks in Switzerland and Israel have purchased equities in the past. With the widespread reporting of the “Plunge Protection Team,” would anyone really be surprised if stocks started to get a new mystery buyer?
Beyond simply buying stocks and then having to dump them in the future, there are “other means” that could be considered. There have been calls in the past that the money put into Social Security should have at least some equity market allocations.
Many other nations may not directly own stocks for their treasuries, but there are massive sovereign wealth funds that exist. Norway, China, Abu Dhabi, Kuwait and Hong Kong have nearly $4 trillion in combined assets in their sovereign wealth funds, with dozens of other countries and entities having an equivalent of sovereign wealth funds well. Not all the available funds could be or should be targeted toward stocks, but maybe some should be considered if needed.
Writing Checks to Impacted Industries
The world already has seen bailouts occur in the bank and financial sectors in the Great Recession. The government also bailed out the U.S. auto sector a decade or so ago. And after the 2001 (9/11) terror attacks, the government propped up the airline industry with billions of dollars worth of “gifts” that were reported to have gone way down the line beyond just air carriers. Subsidies for farmers are well known in America and in many other nations, whether the economy is good or bad.
The airline sector’s woes of the 737 Max fleet grounding in 2019 were followed by the impact of the coronavirus in 2020, as flights into and out of China were canceled. The airlines are in better shape in 2020 than in 2001, but the impact could be massive well just beyond major air carriers. It could spill into hotels, restaurants and drinking establishments and beyond.
As for airlines in 2020, travel companies already have warned that travel plans are being curtailed and cancellations are on the rise in North America. Refinitiv listed its consensus analyst revenue forecasts (rounded) as $45 billion for United, $47 billion for American, $49 billion for Delta and $23 billion for Southwest. That’s already almost $165 billion in expected annual revenues, before even getting into the rest of the carriers, and a large portion of that now at risk.
As (and if) airlines will have to cut more routes or lower their numbers of flights, it means less work for pilots, flight crews and maintenance and other workers that are needed, and it remains to be seen how their labor unions would act in a time of need. According to the U.S. Department of Transportation’s statistics, there were almost 600,000 full-time workers and almost 119,000 part-time workers for the major airlines alone.
It may seem odd to throw money at hotels and restaurants (and bars for that matter) in a time of need, but the Bureau of Labor Statistics (BLS) data shows that there are nearly 13.9 million non-seasonally adjusted workers tied solely to the “accommodation and food services” industries. About 2 million are tied to accommodation, with about 11.9 million people tied to the “food services and drinking places.”
If people are not traveling for business and on vacation, they likely are eating out and going out drinking far less than when they stay at home. It means they are also using far fewer hotel rooms. If workers have to tend to kids for weeks at a time, and if the summer rush is thwarted because of extended school years, some establishments simply may not have the worker availability even to open their doors.
On top of that, the population would not want to go out as they normally would if they feared getting sick. That said, those people who supplement their income or property expenses with Airbnb, Vrbo and other place-sharing services likely will not get a penny in assistance. Catering companies also may be overlooked.