Four fiscal measures

Posted by: Paul Donovan

27 Mar 2020
  • The US initial jobless claims numbers yesterday were terrible. However, the fiscal package is expected to pass the House of Representatives today or tomorrow. US fiscal policy is more focused on dealing with unemployment than preventing unemployment, so the claims number is likely to stay high.
  • Global fiscal policy falls into four main categories. Automatic stabilizers (unemployment benefits, lower tax payments) are an anti-depressant, not a stimulus. They add to the deficit. Job-saving schemes (e.g. UK, Denmark, Germany) are an anti-depressant, not a stimulus. They add to the deficit.
  • New fiscal spending (company grants, USD 1,200 handouts to people) are an anti-depressant in phase one – the current demand drop. They are a stimulus in phase two – the bounce back. They add to the deficit. Loan guarantees (encouraging banks to lend to companies) are an anti-depressant in phase one and a stimulus in phase two. They add to future deficits only if companies default on borrowing.
  • Chinese industrial profits were predictably very weak in January and February. March Italian business and consumer confidence is due. (Who fills in a sentiment survey in the middle of a lockdown?). Markets will view US income and spending data for February with nostalgia, and then ignore it.

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