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Congress has moved at a remarkable pace for such an enormous piece of legislation. The Senate unanimously approved the $2 trillion package of loans, aid and payments Wednesday night, and House is expected to quickly pass the bill Friday.
“We’ll have a strong bipartisan vote and hopefully by noon be finished,” House Speaker Nancy Pelosi said in an interview Thursday on Bloomberg Television. That will send the bill to President Donald Trump for his signature.
Then the hard work begins. Government institutions, especially the Treasury, will be asked to deliver enormous amounts of aid, racing against skyrocketing jobless claims.
Investors reacted positively to the action in the Senate, even with Thursday’s report that 3.28 million Americans filed for unemployment last week. The S&P 500 closed near session highs Thursday, posting its first three-day rally since February. The Dow Jones Industrial Average saw its biggest three-day gain since 1931 — and is now 21% above its March 23 trough.
Douglas Holtz-Eakin, who was on President George W. Bush’s economic team during the 2001 recession, said he’s “cautiously optimistic” about the impact of the coronavirus package, but it probably won’t prevent a dramatic drop in the economy.
“I hope it works. It’s designed sensibly on paper. Now we have to get the money out the door,” Holtz-Eakin said. Even still, “we’re probably going to have a second quarter growth rate that is double-digit negative.”
It Takes Time
For pure scale, as well as speed, the virus rescue package dwarfs the stimulus plan President Barack Obama signed into law in February 2009 — a roughly $800 billion package designed to last about two years and pull the country out of a deep recession triggered by the financial crisis.
It took time for that money to flow. Just $114 billion of the spending side of Obama’s package was spent by Sept. 30 of that year, according to the Congressional Budget Office.
By contrast, this plan is intended to deliver a larger and more compressed jolt to the economy until the crisis abates. New programs, like the $377 billion in fresh subsidies for small businesses, are intended to get out the door in weeks, not months or years, though it will be a challenge for the banking system and the government to quickly process the millions of transactions expected.
The biggest single portion of the stimulus is the billions earmarked for large companies and state and local governments. But the rules for deciding who will get that and how it will be distributed are a work in progress. The legislation specifies that 10 days after it becomes law, Treasury will publish guidelines on application requirements and how to get loans.
The Fed’s Role
Holtz-Eakin said Treasury Secretary Steven Mnuchin should let the Federal Reserve handle the entire corporate bailout. That would be the best way to distribute the aid according to need rather than based on political influence or popularity, said Holtz-Eakin, now president of the American Action Forum, a conservative issue advocacy group. The Fed is less likely to favor, for example, a coal mining company over a solar energy business.
The Fed already announced an initiative that provides a framework for backstopping bank loans to businesses, and the role mirrors actions it took in the 2008 financial crisis, Holtz-Eakin said.
“They have stood up everything they need, they are experienced at it, having done it in 2008-2009. People will come to the Fed out of need, who will then provide it to the people who need it the most,” he said. “The Treasury, in contrast, doesn’t lend to people. They borrow.”
Small businesses, which employ about half the private sector workforce, will be supported with a aid and federal loan guarantees going through banks and the Small Business Administration.
There is concern about whether the SBA can handle the strain of the demand and move quickly enough to deal with the urgency of the financial pressure facing many small businesses.
North Carolina Representative Patrick McHenry, the ranking Republican on the House Financial Service Committee, said the banking component is especially important because the SBA may not be able to move quickly enough.
“It is going to be a week to 10 days before they can access SBA programs,” McHenry said on Bloomberg Television. “Those community bankers will have greater capacity to work with people to structure their loans to get them through this cash crunch for the next month to three months that they are experiencing.”
Speed is Key
Mnuchin said he has authority to create regulations to allow FDIC-backed banks to give quick loan approvals.“By the end of next week we want all the banks to be able to originate loans same day,” Mnuchin said.
Speed is also key for millions of workers have lost jobs and are counting on unemployment insurance to cover housing costs, auto payments, student-debt payments, as well as other daily costs.
But that could be a choke point for the stimulus.
The record number of Americans filing for unemployment benefits last week was more than quadruple the previous high in 1982, according to Labor Department figures released Thursday. That is putting a heavy burden on state websites and other systems to process them.
The money available is significant. The stimulus bill provides funding to allow states to boost weekly unemployment benefits by $600 through July 31. Maximum state benefits range from $235 in Mississippi to $823 in Massachusetts depending on income. The added boost would be four months for those laid off now, but less time for those losing their jobs closer to July 31.
”We want people to take advantage of all of this quickly,” Pelosi said Thursday. Some of that will “depend on how the states do it, and they are not all uniform.”
‘Stressed Systems’
Seth Harris, who was deputy secretary of labor in the Obama administration, said the expanded coverage in the legislation, especially to contractors and those employed in the gig economy, may be a logistics challenge for some states.
“These under-resourced, strapped, stressed systems in many cases do not have the latest technology or data systems,” he said. “Now they’re being hit by the largest tsunami of unemployment claims in the history of those data being collected. Now Congress is asking them to change the way they do things.”
Andrew Stettner, a senior fellow with The Century Foundation and an expert on jobless benefits, said getting bigger checks to current unemployment recipients should be accomplished in a matter of weeks. Adding in new classes of workers like contractors may take longer.
“States are dealing with unprecedented volume and went into this crisis with very low staffing levels and more than half have ‘80s-era mainframe computers,” he said. “However, the fact that 3.2 million people were able to file a claim last week is evidence to their scalability.”
The House vote Friday will be conducted under unusual circumstances after two House members tested positive for the coronavirus, and others are in self-quarantine after possible exposure.
Leaders of both parties are working together to make sure enough members are in Washington Friday to constitute the quorum needed for a recorded vote — which is at least 218 in the 435-seat chamber — just in case there are objections raised on the floor to a voice vote.
Those lawmakers who make it back to the Capitol will vote in groups of 30 to maintain social distancing. The House’s sergeant at arms and attending physician urged members to avoid elevators, refrain from gathering in groups and to clean their hands before going into the chamber.
