Danielle DiMartino Booth of Quill Intelligence recently talked to Jim Puplava on the Financial Sense Newshour. She explained what could happen when the Paycheck Protection Program runs out and what that means for small businesses in America. She also discusses the Fed's balance sheet, skyrocketing unemployment and what things could look like by the end of 2020. See below for excerpts from her interview on the Financial Sense Newshour.
The Fed’s balance sheet looks like it’s at about $7 trillion, the national debt clock is at 24,974,000,000,000 and the unemployment rate is 15% and rising. Where are we headed?
That's a good question. I think I'm going to steal from my buddy David Rosenberg, who has said sometimes you just have to look at life in the simplest terms possible. He basically said the market capitalization of the stock market has increased by 3 trillion, and the size of the Fed's balance sheet has grown by 3 trillion and that's about the long and short of it.
I've been publishing about this idea that there's more than one reason that Jerome Powell wants for more fiscal stimulus to be passed by Congress because he practically begged the nation on 60 Minutes. He reiterated it in his congressional testimony and in a speech that he'd given before that. He is really pounding the table saying that we need to get more stimulus dollars out to the people.
Set aside the politics of it for a moment, and you realize that mechanistically the Fed right now needs treasuries to buy if it's going to continue growing its balance sheet, which in turn, funnels this massive amount of liquidity back into the stock market. And that's kind of as simple as I can boil it down.
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If you tell a business to close, you’ve got to have something to give people, otherwise your economy is going to shutdown completely.
It's true. The problem I have right now is that it feels like the doctor’s been injecting the wrong medicine into the veins of the economy, because we haven't had enough go to small businesses. Even though we've had quite a few small businesses take these Paycheck Protection loans, what we haven't heard is a whole host of anecdotes saying, ‘we're so ready, come June 30 to keep our payrolls on.’ What we are hearing anecdotes of is companies that are saying, ‘we're going to make it until June 30 with these paycheck protection loans, but then we're going to look to be pushing through layoffs.’
So, again, my concern is that the small business sector was not appropriately addressed by these stimulus measures, that too much of it has already gone into things that were not necessarily needed. They were passed under the the office of being emergency measures.
But again, the thing that I think is the most effective right now in the economy is the extra $600 a week that people collecting unemployment are receiving. But this is having a perverse effect because 68% of people collecting unemployment right now are making more money than they made before. So you're going to have a disincentive, if you will, to return to the labor force until this runs out, which is Christmas, basically December 18, for the ones who first started receiving these extra payments.
We’ve heard a lot of big companies announce bankruptcy recently, especially retailers, and I’m wondering what happens if we get a second bout of this in the winter around the holiday shopping season?
Well, and that is again, the right question to ask. For a lot of companies, if they received federal aid or bailout money, they're talking about September 30 being the date they plan on pushing layoffs through, which is when they're beholden to keep employees on the payroll. A lot of the mortgage forbearance, and car loan forgiveness and grace periods come to an end again, the Paycheck Protection loans end in June and they're looking at pushing through more layoffs.
The fact that you have you have states like Texas, that closed down prematurely, and now we've got virus cases rising despite the warm weather. There are so many different sources of uncertainty. You know, what happens if we're worried about the virus before we even get to flu season rolling back around because some parts of the country open prematurely? What if this is an overhang that just kind of sits on top of this and comes in various forms as different deadlines come and go when it comes to the labor force?
Unemployment numbers are skyrocketing and what happens when the money from the Payroll Protection Program runs out?
It is unfathomable. There are parts of the country that have been hit way too hard. When you think of New York, and then there are other parts of the country where you look at those data and you say, ‘Oh, my gosh, the medicine was worse than the disease itself.’ There are no right answers. An experiment of this magnitude has never even been attempted.
A great friend of mine, Jim Bianco of Bianco Research, puts out some fabulous research. He put out a graph that showed based on the past five years, deaths in America right now are three times as high as they would otherwise be.
We also know that in places like Washington, and in other states where there were literally just no tests to be had, that we've also got a ton of COVID deaths that have not been assigned, because there was inadequate testing.
So, there is imposed economic pain that maybe could have been prevented. And there is also true economic pain and health and suffering that was not potentially addressed quickly enough because of the delay in Washington D.C. Also, both sides of the media aisle were talking it down, which was precious time that could have been preserved in February as opposed to pushing it out to March and April.
What does all this mean for the markets?
Right now, I don’t think the market is reflecting the reality of the unemployment rate. I think most Americans look back at the height of the great financial crisis and the 10% unemployment rate, and say to themselves, ‘things were worse then.’
Part of it is because the economy has been closed and we're very isolated right now from the rest of the world. We're not seeing how bad things are because we're not seeing as much as the world literally on a physical level as we were. But the fact is, the most optimistic estimate on Wall Street from a sell side firm is that the unemployment rate at the end of the year could improve to 10%.
I don't think people are grasping that the best-case scenario leaves us with the height of the unemployment rate at the height of the great financial crisis, which we can all remember. I think there's a little bit of delusion going on right now that there's going to be this massive fast snap back in growth. Because we do have again, 68% of those collecting unemployment right now are making more than they were in their day jobs prior to this. It's really easy to paper over the true underlying health of the economy if you have so many millions of Americans on unemployment insurance.
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