Markets have rejoiced over the prospect of an unprecedented stimulus bill, which was passed by unanimous vote in the Senate earlier this week, and is awaiting passage in the House on Friday. But as BMO rates strategist Ian Lyngen argued in a note published earlier this week, passing the stimulus bill into law is merely the first hurdle.
After that, bureaucrats will need to figure out how to get the money to the people, while individuals and small/medium business owners pray that the money finds its way into their hands before they're driven into bankruptcy or starvation (or both). The quest to distribute the money will require cooperation between various state and federal systems on a level that's unprecedented, while states make adjustments to their unemployment systems and other processes to disburse the federal grant money in ways that have never been done before.
Douglas Holtz-Eakin, who was on President George W. Bush’s economic team during the 2001 recession, said he’s "cautiously optimistic" about the package, but worries about the money getting where it needs to go, while also worrying that it won't prevent a dramatic economic contraction.
“I hope it works. It’s designed sensibly on paper. Now we have to get the money out the door,” Holtz-Eakin said. Even still, “we’re probably going to have a second quarter growth rate that is double-digit negative."
Barack Obama's $800 billion stimulus bill was literally the first major policy accomplishment of his administration, undertaken almost immediately after his inauguration as most of the country was still wrapped up in the aftermath of the crisis. In March, Obama would remark that stocks looked 'cheap', effectively calling the bottom. And over the following years, the money slowly trickled out of federal departments and state grants.
Just as the selloff and economic hit seem more concentrated this time around, so is the government stimulus package meant to effectuate a powerful jolt to economic growth - something strong enough to resuscitate an economy that's bleeding more than 3 million jobs a week, a number that was effectively curbed by our country's ability to process the claims (remember, most state governments are still running on massive mainframe computers from the 1980s).
As Bloomberg explains, new programs like the $377 billion subsidy for small businesses via loans that will become "grants" if the businesses simply choose to retain all of their pre-crisis employees for the next few years are intended to get moving quickly, with the money being ladled out in weeks, not months.
Remember last week when President Trump first said he wanted checks in mailboxes in two weeks? That deadline is probably impossible. But if that money isn't there in a month or two, people are really going to start to feel it. As one reporter explained via twitter earlier, the financial system isn't really set up for the mass forbearance of payments.
The financial system is just not set up for a temporary forbearance on payments. If someone doesn't pay for something, then someone else is owed something. (Buyers of credit protection *will* ask for money due).— Tracy Alloway (@tracyalloway) March 27, 2020
This is going to be a mess.
In other words, the government, the banks, the Fed and everyone else involved is racing against the clock. Both the Treasury, the banks, the various state agencies that administer the welfare and unemployment insurance programs that have just been given a shot of "steroids", as Chuck Schumer put it - basically everybody involved in making sure this money gets to where it was intended to go - is now scrambling to compete in a sack race that will test the capacity of their systems to work together and also process the sheer volume of payments and disbursements necessary for this program to work.
Remember how state websites around the country crashed last week as millions of Americans tried to file for unemployment insurance? That was just a glimpse of the mayhem to come. The technological pandemonium will be tantamount to a mass marketing opportunity for Amazon, Microsoft and Google as they battle for the lucrative state and federal contracts to transition these systems off the old mainframes and on to the cloud.
But technological limitations aren't the only potential roadblocks. The bill was written in a hurry, and some legal definitions and processes remain vague, opening the door to lawsuits and injunctions and other potential disagreements intended to tie up the payments and divert money as everybody scrambles to get a piece.
The biggest single portion of the stimulus is the billions earmarked for large companies and state and local governments. But the rules for deciding who is entitled to that money, and how it will be distributed, are still being worked out.
According to the legislation, the Treasury has 10 days from the date Trump signs it into law to come up with a set of guidelines governing who will qualify for the loans and how the application process will be regulated.
One of the biggest components of the legislation is the $600 billion earmarked for states to dole out via beefed up unemployment benefits through July 31. Maximum state benefits range from $235 in Mississippi to $823 in Massacjusetts, and the number will range depending on income.
Though the government wants individuals to take advantage of the programs "quickly", at best, the money will take a few days to become available, and the checks won't start to flow for a week or two, probably longer.
The added boost would be four months for those laid off now, but less time for those losing their jobs closer to July 31. And with so many different state agencies administering their own programs, there's plenty of room for some stated to stand out as successes, and others to stand out as failures.
"We want people to take advantage of all of this quickly,” Pelosi said Thursday. Some of that will "depend on how the states do it, and they are not all uniform."
As one Obama-era official said to Bloomberg, compensating contractors and the self-employed gig economy workers could be a challenge for some states.
Seth Harris, who was deputy secretary of labor in the Obama administration, said the expanded coverage in the legislation, especially to contractors and those employed in the gig economy, may be a logistics challenge for some states.
"These under-resourced, strapped, stressed systems in many cases do not have the latest technology or data systems," he said. “Now they’re being hit by the largest tsunami of unemployment claims in the history of those data being collected. Now Congress is asking them to change the way they do things."
One Kentucky Republican is threatening to throw up roadblocks for the bill by essentially showing up and demanding an in-person roll call vote, while Speaker Pelosi tries to push through a voice vote to expedite the vote and avoid individuals coming close to one another after at least 2 Congressmen have tested positive for COVID-19.