COVID Causes Biggest Financial Challenge in a Century

COVID Causes Biggest Financial Challenge in a Century

(AmericanProsperity.com) – In just three months, America went from having one of the best economies in decades to one of the worst all-time. The unemployment numbers shot up again on Thursday and are worse than predicted. Millions of Americans are skipping payments on their debts. Wall Street is warning businesses they better get cash on hand quickly and the White House is considering another $1 trillion relief package.

Some are starting to ask if America’s economy can handle the blow in the long-term.

Unemployment Worse Than Predicted

Last week, 1.877 million more Americans filed unemployment claims. Economists were predicting 1.775 million new applications. While it’s a decline from the previous week’s number, unemployment is still historically high as states start to reopen their economies. In total, 42.6 million Americans have filed jobless claims since mid-March.

Economists say social distancing will have an impact on a business’s ability to experience growth once the economy reopens. Because they will not be plush with money or revenue, it may take months or longer before they begin bringing their employees back to work. That could prolong joblessness.

Americans Skipping Payments

Millions of people are getting help from their lenders. Some of it is good business practices and some of it because the CARES Act requires lenders to work with borrowers during the pandemic. Nearly 4.75 million mortgages are in forbearance. Additionally, credit bureau TransUnion estimates 3 million car loans and 15 million credit card accounts are in a program allowing borrowers to skip or reduce payments.

The problem is Congress only created a partial bridge to solving the long-term problem. As soon as emergency declarations and forbearances end, all of the money owed will be due at once. If most people can’t pay their mortgages now, they likely will not be able to afford three or six months of payments due at one time.

There are no federal guidelines to establish how this is going to work to protect people’s homes or cars. Rent evictions and foreclosures could reach all-time highs. Millions of people will also be struggling due to credit problems.

Wall Street Telling Companies to Get Cash

Many companies have substantial debt that helped support them over the last three months. Bankers are telling companies they better get a lot of cash on hand now because things may get a lot worse. Their concerns center around another pandemic developing in the fall and winter, which will increase defaults and slow economic recovery.

Businesses need the cash to withstand any prolonged dip in the economy that could hurt revenue. In addition, cash on hand may also help a business weather the storm by acquiring struggling companies that could help increase business and project them to long-term growth.

Another Relief Bill

Finally, the White House is considering another $1-trillion relief bill. However, it’s not a forgone conclusion though Republicans and Democrats say they recognize something has to be done. However, there’s no agreement on specifically what to do. Some want a $1,200 payment per person and child up to a maximum of $6,000. Others want a return-to-work bonus that rewards work instead of handing out free money.

Regardless, another $1 trillion in new spending is sure to cause economic concern long-term. Countries cannot spend their way out of the crisis. At some point, the economy has to grow to make the government’s investment work.

~Here’s to Your Prosperity!

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