Welcome to the Future of Finance, all in a tidy little package.
COVID-19 Fiscal Fallout — U.S.: The week began with a steep stock market drop of almost 3,000 points followed by a 1,000 point bounce back the next day with word of a request to Congress for a $1 trillion federal stimulus plan aimed at helping small- and medium-sized businesses, plus individuals displaced by mandated closures of schools and ripple effects in the private sector. "We are looking at sending checks to Americans immediately,” said Treasury Secretary Steven Mnuchin. That as the novel coronavirus has claimed at least 100 lives in the United States; the outbreak is now being reported in all 50 states and D.C., with West Virginia being the latest and last.
“With parts of the economy appearing to be in free-fall, layoffs rising each day, and industries like hotels, airlines, and restaurants are begging for relief,” reported the Washington Post. “The overall price tag of the package could be around $1 trillion…. There were also more than 1,000 new infections were reported in a 24 hour span, the highest number so far.”
Worldwide COVID-19 Outlook — What works for mitigating public health hazards — quarantining and social distancing — may be the wrong prescription for the global economy. An International Monetary Fund (IMF) analysis calls for “constant contact and close coordination are the best medicine to ensure that the economic pain inflicted by the virus is relatively short-lived. Many governments have already taken significant steps, with major measures being announced on a daily basis—including yesterday’s bold, coordinated moves on monetary policy. But clearly, even more needs to be done. As the virus spreads, increased coordinated action will be key to boosting confidence and providing stability to the global economy.”
The IMF is making the case that a coordinated and synchronized global fiscal stimulus is growing stronger by the hour in a new set of policy recommendations:
It is like Mnuchin has been reading the IMF’s mail, at least on the first point...
“First, fiscal. Additional fiscal stimulus will be necessary to prevent long-lasting economic damage. Fiscal measures already announced are being deployed on a range of policies that immediately prioritize health spending and those in need. We know that comprehensive containment measures—combined with early monitoring—will slow the rate of infection and the spread of the virus. Governments should continue and expand these efforts to reach the most-affected people and businesses—with policies including increased paid sick leave and targeted tax relief….
“Second, monetary policy. In advanced economies, central banks should continue to support demand and boost confidence by easing financial conditions and ensuring the flow of credit to the real economy. For example, the U.S. Federal Reserve just announced further interest rate cuts, asset purchases, forward guidance and a drop in reserve requirements….
“Third, the regulatory response. Financial system supervisors should aim to maintain the balance between preserving financial stability, maintaining banking system soundness and sustaining economic activity. This crisis will stress test whether the changes made in the wake of the financial crisis will serve their purpose.”
Municipal Bond Blues — Bloomberg reported, “The coronavirus is crushing high-yield municipal bonds. Risky state and local government debt issued on behalf of airlines, oil companies, or backed by a national settlement with tobacco companies” declined 3% over two days by March 11 and "The riskiest municipal bonds [were] getting pulled into the financial market maelstrom. Ohio's tobacco-settlement-backed bonds, which soared soon after they were sold late last month, fell as much as 12.7% from their peak in just seven trading days… The yields on some junk-rated bonds backed by American Airlines Group Inc.'s terminal at John F. Kennedy International Airport have jumped by more than 3 percentage points since last week. And investors hit the exits on a $3.8 billion high-yield municipal ETF, marking the biggest one-day exodus from the fund since 2016."
Money Moves in State Houses — The Massachusetts House approved HB 4508 to raise taxes or fees on gasoline, corporations, ride-hailing services and vehicle purchases by rental car companies as a way to generate up to $612 million per year for transportation infrastructure. The Senate awaits.
Alabama Gov. Kay Ivey ignored objections of the mayors of the state’s 10 largest cities in signing HB 147 that requires local governments to get legislative approval before imposing new occupational taxes. The measure blocks a 1 percent tax adopted by the city of Montgomery in January.
Market Dip Costs Alaska Permanent Fund $2.8 Billion: The Alaska Permanent Fund announced that the ongoing market slump commonly blamed on fears over the coronavirus has cost the Fund $2.8 billion, or roughly 2.4 percent of its value.
Public Budget Hearings in the Age of Social Distancing — Many organizations have answered the call to help out during the response to the coronavirus. Among them is an offer from Balancing Act, the maker of online public budget simulations for government, to use its software for free until June 30 to satisfy the requirement for providing a meaningful public budget hearing experience during a time of social distancing. This is not an ad, or an affiliate link. If you are interested, contact Balancing Act directly here.