$330 Billion unspent
Macro Perspectives: Wed 7 Oct 2020
We've talked a lot about the ongoing fiscal stimulus negotiations, dating back to early August. My view has always been, it's not going to happen.
Let's talk about how we got here...
First, theU.S. economy only contracted by 31% in Q2, and is only about to do 30%+ growth in Q3, because Powell (the Fed) was quick to respond with the bazooka of monetary stimulus back in March, and Mnuchin/Trump (Treasury Secretary/the White House) and the Senate were quick to coordinate an unthinkable $2 trillion fiscal stimulus package, that included cash handouts to consumers and businesses.
They locked down on March 16, and had a bill passed in the republican-led Senate on March 25. All involved were only able to respond so quickly, and so aggressively, because of the lessons learned from their intimate involvement in the global financial crisis (just 12 years earlier).
Lamenting an opportunity missed, the democrat-led house came around in JUNE with a package of their own, to respond to a problem that was already being addressed with the initial $2 trillion package, much of which had still yet to be spent.
With that, the democrat package has always been about cramming in climate change initiatives, state and local government bailouts and voting reform. And the latter is the crux of the matter, there has never been a chance the republicans would give that ground.
So no deal.
But, as we've discussed, there remains a path to getting money into people's hands. There is $200 billion of unspent money from Cares Act 1.0 whilst there is another $130 billion of unspent money from the Payroll Protection Program. Trump may reallocate those funds, once again, by Executive Order. This would bridge the country to a full reopening of the economy (in the case of Trump re-election). In the case of a Biden win, and democratic sweep, we would be sure to see the full democrat stimulus package deployed.
What about a Trump win and a continuation of the split Congress? I suspect we may see a war-time stimulus package, as he turns the focus toward "confronting our problems" (i.e. China).