First it was $850 billion. Then $1 trillion. Then $1.2 trillion. Then $1.3 trillion and the market still didn't care, even as Round 3 of the proposed fiscal stimulus package grew faster than the number or coronavirus cases.
So in the Trump admin's scramble to impress investors, on Saturday morning Trump's top economic advisor Larry Kudlow said that the latest and greatest financial package being assembled to offset the crippling economic impact from the coronavirus pandemic which according to Goldman will wipe out 24% of GDP in Q2 would total more than $2 trillion.
“The package is coming in at about 10% of GDP,” Larry Kudlow told reporters as he headed into a meeting with Republican senators. He said that would work out to a bit more than $2 trillion. “We’re just trying to cover the right bases,” he added.
As a reminder when TARP was originally unveiled (by serial bailout fanatic Neel Kashkari) it was a "back of the napkin" calculation which estimated US bank needs at $700 billion or 5% of the total $14 trillion in residential and commercial mortgages.
Fast forward a little over a decade when we are now up to 10% of total GDP, and rising fast. How did they get to that number? Consider that US GDP is $22tn, of which consumption is roughly 70% or $15tn, so a 20% drop in income & spending in 2-month period means GDP -$750bn, US consumption -$500bn. Effectively the Trump admin is giving itself a buffer in case the income drop is up to three time greater or the lockdown lasts 3 times longer than expected.
Kudlow also said that small businesses would get a payroll-tax holiday, without clarifying whether that component had been agreed to or merely was an item on the Trump administration’s wish list.
He declined to say whether the package would include more direct government spending, or appropriations, than thought. “We’ll see,” he said.