Many of the emergency economic measures that were put into place to support the American people financially throughout this pandemic are about to disappear, and that means that big trouble is on the horizon. Right now, we are in the midst of the deepest economic downturn since the Great Depression of the 1930s. Economic activity has fallen dramatically, more than 100,000 businesses have permanently closed, and more than 44 million Americans have lost a job so far in 2020. But up to this point most Americans are not feeling too much economic pain thanks to unprecedented intervention by the federal government. Unfortunately, that short-term boost of artificial relief is about to wear off, and that is going to cause some major problems as we approach the end of this calendar year.
The US economy right now is like a jumbo jet that’s in a steady glide after both its engines flamed out. In about six weeks, it will likely crash into the side of a mountain.
I think that is a perfect description of what we are facing, except that I would replace “U.S. economy” with “U.S. consumers”.
The truth is that the economy has already crashed, but consumers have been shielded from the effects of that crash by trillions of dollars in emergency government spending and other unprecedented measures…
What’s kept us in the air so far is an extraordinary government relief effort. In most states, evictions have been temporarily banned, preventing a mass homelessness crisis. Most federal student loan payments have been put on hold, removing one of the largest recurring monthly expenses that millions of people face. Banks were ordered to give their customers a six-month break on mortgage payments if requested.
Most importantly, and counterintuitively, household income sharply increased in April as hundreds of billions of dollars in lost wages were replaced by trillions in government spending. The government sent out more than 159 million stimulus payments of up to $1,200 per adult (more if you have kids), and more than 20 million unemployed people became eligible for an extra $600 a week in federal unemployment benefits. The result, according to Bloomberg, was the largest monthly increase in household income ever recorded.
What we have witnessed has been a sudden transfer of wealth that is unlike anything we have ever seen in all of U.S. history, and this has allowed most Americans to get through the past few months without too much of a problem. In fact, many unemployed workers have been bringing home more money than they did when they were actually working.