People are wondering when we could be freed from Covid-19 lockdown. The United States is a very large country and it is hard to make predictions. I have listened to influential people making predictions. Their positive predictions are certainly what we would like to see. But certainly circumstances could result in delays to the plans. At the end of this article is a discussion about the Fed and its balance sheet. We may be in this for longer than most people think.

The LPGA CEO, Michael Whan, was clear in his hope that mid June, 2020 would be when the tour got back. He said that if it isn't mid June then the season could be saved if July, 2020 was on the schedule.

Similarly, an airline anonymous source was saying that 25 percent of air travel could be restored in June and 75 percent could be restored by July. That is great, but clearly airplanes must screen their passengers and change the way they process people through airports. Is this even doable under current conditions?

Bill Gates has sounded an optimistic tone. Yet he said on the daily show that he is hoping people can go back to work at the end of summer. So, that really isn't optimistic is it? It is a bleak forecast. Families will break down if serious help does not come from Congress. I just don't know if Mitch McConnell is up to the task.

Stimulus Too Small

But this means going through April and May and maybe June, July and August with people at home not working. A measly $1200 just won't cut it. The government should really up the help to main street. From an article by New York Intelligencer:

$1,200 is the average rent for most Americans,” Natalie Foster, the co-chair of the pro-UBI organization the Economic Security Project, told The Guardian. “This first check is eaten up, and what are they supposed to do after that?

The $600 bonus unemployment insurance is a possible lifesaver for families and those who receive tips, but if they are kept on the payrolls they won't qualify. And we don't know how the tightfisted states will apply the program! And we don't know if the program will need to be extended. Republicans are worried about those folks not working. Well, truth is, spending is more important than working. People will work once people spend. That is how economics works.

But now Donald Trump is talking again about the cure being worse than the disease and about a second task force which will study when people can get back to work. If he thinks it can happen in a month or two it will have to be because the virus numbers go way down. There is a little hope that this could happen, but if people go back to work too soon, it could end up flaring up. I am encouraged to see retail employees wearing masks and gloves in recent days.

Clinton and Lack of Testing

We still have a lack of testing. Trump was like many of us, hoping that the virus would be limited. In Las Vegas, it has been, as we only have something over 1400 cases, but there is a slow growth of cases. That is not good, but it is manageable. But when clusters formed in other regions of our nation, it was time to act, and our medical supplies were lacking and our president was not ready.

Turns out it was Bill Clinton who thought up the national medical stockpile. He was way ahead of his time, but both Republican and Democrat presidents did not follow through. It appears that the government is kicking in, but POTUS treatment of many companies in the news is abhorrent. 3M, GM, and others have been kicked around like the president's own personal servants.

They say fascism only uses private business for its own ends. And with the tariff war continuing we have private businesses crying out for relief. They want to do business. They do not want handouts.

The Fed Must Step Up

If people stay in and try to wear masks as I advocated before the CDC did, the virus could be defeated and the timetables set forth by the LPGA and others will come to pass. But if the virus is not respected, and we go into fall, the Fed will have to massively expand its balance sheet. The Bank of Japan is the only central bank from a G7 nation with a balance sheet larger than its GDP. The Fed was at 25 percent of GDP back in 2019. Certainly, we are higher now, over 5 trillion dollars and going higher, but still relatively safe compared to the BOJ. The Fed must fight deflation in this time of mass unemployment. As Jeffrey P. Snider said:

Given the alternative, devastating deflation, Fed officials right now don’t care if you think this is overdoing it. John Maynard Keynes was right about that much; deflation is, by far, the worse of the two monetary evils.
Why?
Because it goes straight to the workforce, devastating the labor markets. Businesses aren’t spared, obviously, but like anything else they pass along the negative consequences to their cost structure – meaning workers.
Thus, in the depths of a deflationary crisis, it won’t matter if the central bank goes a little crazy. In fact, from the policy perspective, the crazier it seems the better off we all are.

Snider goes on to say that all this Fed work is not really money printing because there is no inflation. It is likely that the Fed is doing what it did in the Great Depression, a sterilized money printing. And we know it is true as bonds are exchanged. There is no real fiat Greenback printing going on here. The Fed must do more!  

But then the Fed cannot curb growth after the virus is defeated and expect to pay down the balance sheet. The new normal may get even more depressed. The BOJ seems to be in a precarious position. We don't want to go there. The Fed is like a guy with a credit card. It is easier to run up the credit card than it is to pay it down. Same with the Fed balance sheet. But we have to run it up now, and it may spill over into fall. The Fed has room. If Congress won't act, the Fed must resort to Helicopter Money from its balance sheet. It has plenty of room. It is a frugal credit card spender. 25 percent of GDP is nothing. 

If we keep having crises, and we as a nation fail to grow, because of an end to globalization with tariff wars, it will be harder for the Fed to sell assets off its balance sheet. Easy to buy the assets but harder to sell, especially when rates are low and the economy is not growing. JapanRUS? Is that our future? Failure to be able to sell off the balance sheet tells investors that the economy cannot grow without slight of hand, stock buybacks and Fed lies.

If JapanRUS, the Fed may never be able to sell down the balance sheet. Japan will never shrink its balance sheet. But it is in uncharted territory in expanding a balance sheet that is already massive. We don't have to go there. But we need to rekindle world trade and work with other nations. Trump's nationalism is a bad nationalism, because it is an uncooperative nationalism. It is a no growth nationalism. 

What Happens After a Huge Economic Shock?

After the pandemic, the economy will struggle to grow. The likely scenario is that many people and businesses will reassess, downsize, build reserves in cash and do all those things like what happened in the Great Depression. My parents and others of the Greatest Generation saved money. That is what they did. They were buffeted by the Great Depression and learned to act accordingly.

Energy companies may struggle as many companies will keep their workers at home, as long as they do their jobs. How will restaurants and bars do once the virus is gone? Will it be totally gone?

I bet the millennials are saying we leap from one crisis to another. They learned frugality when their parents lost their houses. The Covid-19 Coronavirus is like a booster shot. They know the government really won't be there for them in the way they need it. That is the Fed's fault. Its guidance for governments is poor. It won't do direct Helicopter Money, so much more efficient! 

The Fed could not normalize before the Coronavirus. How could it possibly normalize now? The Fed can only push up assets to make the economy feel a wealth effect. Problem is, it leaves out half of Americans, who were in no mood to spend before the Coronavirus. Bankers want them to spend those pitiful stimulus checks.

At least small business will get help through the Fed. That is what the Fed did not do in the Great Recession even though it is authorized to do so since the Great Depression, as George Selgin notes:

Like all Fed lending to non-banks in recent decades, lending by the TCSLF will be authorized by Section 13(3) of the Federal Reserve Act, covering the Fed's "discounts for individuals, partnerships, and corporations." That authority, first granted to the Fed in 1932 (when it was "tucked inside a highway construction bill"), and amended several times since, allows Federal Reserve banks, with the prior approval of the Secretary of the Treasury and an "affirmative vote of not less than five members" of the Board of Governors, to extend credit to non-bank firms "in unusual and exigent circumstances."

Some say many of these small businesses need to go under, that they are not very profitable anyway. But they do employ people. And it is easy to be torn by the program. However, it does seem fair that someone besides big business is bailed out. The American people have to perceive fairness from the Fed and their government. Now to put some fairness into the individual stipends because they are simply too little too late. Maybe in the next bill. IfBill Gates is right, these individual stipends need to be massive.

The current bill is not what was done in the Great Depression. The Fed loaned directly to main street firms. No, this time banks will handle the transactions. And some loans will be forgiven as grants if employees are maintained. How that will impact the banks who take on those loans is not yet clear to me. Would a bank have to be bailed out? Interesting subject to follow going forward. Bank stocks could experience headwinds from loans turned to grants. BAC seems to be the lead bank in making the loans at this point.

Conclusion

The economy could be opened up in a month to 5 months. Businesses don't know and they can't plan. This is a tough deal for planning and borrowing. Stipends are just too small. Bill Gates has said that it could be over 5 months before crowds could be allowed, including sports crowds, airplane customers, and cruise ship customers. Bill Gates that a vaccine may be necessary to allow group events. That could be 18 months from now.

Donald Trump has to get it together. He is busy browbeating business and governors, yet Harry Truman said the buck stops with the president. Trump is incapable of embracing that truth, meaning mistakes could be made with unwise timetables set forth by an administration that still doesn't take the virus seriously enough. Investors will have a difficult time determining the resumption of economic activity. Look for massive volatility in markets possibly stretching out months into the future. Discretionary stocks could be hammered if the government does not step up. And it may not step up.