Setting Up Backstops for Retail Trade
The calculation for gross domestic product (GDP) in the United States is close to 70% tied to consumer spending activities. That means that the retail trade sector must be kept alive, and there would be a serious struggle to get people out of their homes to go to a store or retail location if they are fearful of getting sick. For the employment side of the equation, the “retail trade” was shown in the BLS data to employ more than 15.5 million worked in January 2020. Would the government just write stimulus checks or offer credit to owners in retail?
Putting businesses further in debt by expanding credit lines may not be much of a help if they are already having a hard time paying bills. Retail already has suffered from the ongoing e-commerce trends every year for the past two decades, with the Amazon apocalypse and the omnichannel trends hurting traditional brick-and-mortar. In an effort to prevent retail shop owners of all sorts from closing down and laying off workers, incentives could be offered and checks could be written, if needed.
Whether it was the Treasury or the Federal Reserve that wrote the checks might not matter. After all, we already have noted that some of these efforts might not exactly be legal or constitutional.
Helping Banks and Financial Institutions — or Not
The good news about this time around is that the major banks and the financial sector players are still in great shape. They were forced into keeping massive capital reserves, and that would give the nation’s top banks time to operate through a recession, if all those stress tests have any truth in them. That said, making it through a viral outbreak, assuming it is not a long constant issue, should be sufficient.
The banks could get the benefit of lower short-term rates, but the reality is that the banks just do better with higher interest rates and a positive and normal yield curve. Either way, the banking sector should do just fine for now, as far as being in need of government money.
Mandated Purchases of Supplies
The U.S. government and states have special powers, or could pass special powers if needed, in times of certain emergencies. Whether it is using the Federal Emergency Management Agency (FEMA) or activating the reserves in a natural disaster, the government’s health agencies could be ordered to begin stockpiling medical supplies, medicines and all sorts of goods. That could even be dried or canned foods and other “meals ready to eat” (MRE) alternatives. Rather than using the special powers to “borrow” or seize those assets that might help the public well-being, companies that make medicines, facial masks, sanitation and other products could be ordered to crank up their output.
This cannot occur overnight, and many instances of supply chain interruptions already have been announced, but if the agencies are given exceptions about pricing, they could effectively get more money to companies and workers alike.
Government and Federal Reserve Commodity Purchases
Having the Federal Reserve and government agencies purchase commodities outright might seem counterintuitive. That said, every playbook in central bank policies has wanted to thwart the specter of deflation. The United States has wanted to unload some of the oil held in the Strategic Petroleum Reserves, but the lower oil prices of late (under $45 per barrel on Friday) can create deflation of its own. That said, it does free up cash from the consumer that can be used for other purchases.
There might be backlash from the portion of the population that is against the use of fossil fuels of any sort, but this potentially would be more stimulative than a government stockpile of solar panels and wind turbines.
Before taking these efforts to heart as an all-or-none effort, note that it probably be ludicrous to assume that all these efforts would be made at once. Governments are known for often being inept and inefficient. That said, there are at least some blueprints that could be used to keep the economy going under a pandemic scare.
If the COVID-19 outbreak gets far worse than even what was this last week, now you won’t be as surprised to see how far governments are willing to go to keep their economic wheels rolling forward and onward.