A stimulus package is a package of economic measures put together by a government to stimulate a floundering economy. The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending, like in the times of the COVID 19 pandemic.
On Tuesday, the President of the United States, Donald Trump announced that his administration was ending the stimulus talks with the U.S. House of Representatives, this has started a lot of discussion and debate and everyone has started making their respective opinions. Some hold a view that recovery is a self-sustaining path and recovery will take place but will be a very slow process without further government spending. Few also believe that in this time of pandemic such kind of packages are the most important steps because there are a lot of households and small businessmen who are suffering extreme and such packages help them recover. Many economists also feel that with a lot of unemployed labour and resources in the country, the government should continue with the aid. Jerome Powell, Fed Chairman, warned that being stingy with government spending in the coming months could trigger "tragic" consequences as firms and families sustained by unemployment insurance and other benefits fall off a spending cliff.
According to the reports by the local governments in the United States, the total jobs lost were 1,82,000 in September which also includes the government school staff who were the ones majorly involved in support or ground duties like bus drivers etc. Donald Trump"s recent tweet said
“Nancy Pelosi is asking for $2.4 Trillion to bail out from poorly run, high crime, Democrat States, money that is in no way related to COVID-19. We made a very generous offer of $1.6 Trillion and, as usual, she is not negotiating in good faith. I am rejecting their request, and looking to the future of our Country. I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”
The tweet depicts the clash between the Nanci Pelosi, speaker of the House of Representatives, and Donald Trump about the package size. One prominent issue in the fiscal talks is that the aid is for cash-starved state and local governments, which Pelosi argues is critical and Trump says would be a reward for Democratic-governed states that have overspent.
The bill includes enhanced unemployment insurance, direct payments to Americans, Paycheck Protection Program small-business loan funding, and aid to airlines, among other provisions.
The stocks were also affected as soon as the announcement in this regard was done on October 6, which is illustrated in the graph above. Shares of Boeing dropped 6.8% to lead the Dow lower. Amazon slid 3.1% while Facebook, Netflix, Alphabet, Microsoft, and Apple all declined more than 2%.
Airlines were also under pressure as the industry was hinging on the additional aid to avoid more layoffs. United Airlines and Delta were down 3.7% and 2.9%, respectively. American slid 4.5% and Southwest pulled back by 2.4%. Stocks fell because it had been doing the opposite, based on the idea for the last week or so that there would indeed be a stimulus package and relatively soon.
A stimulus package may not solve every problem related to COVID but it paves some way toward recovery. The recovery is likely to be slow and the business cycle to go under severe contractions. The country needs support and government aid to encourage small business, state and local governments, airlines, leisure and hospitality workers and retail. Even if the policy action results turn out to be more than needed, then also it won't go waste and will indeed give a faster pace to the recovery process.
Do you think Trump and House of Representatives will come to a conclusion for the greater good of American people? Or will they just let the numbers do the talking and see the economy fall?
Share your views in the comment section below.