Will the 2 trillion stimulus plan help the US out of the bear market?
The aim is to boost the economy in trouble due to the epidemic; analysis suggests that it may be difficult to fundamentally calm down market turbulence, and there is no talk of post-epidemic economic stimulus

At noon on March 25, Beijing time, the US Senate passed a $ 2 trillion economic stimulus package. The program is designed to boost an economy struggling with the outbreak, and is the largest single economic stimulus package in US history, including direct payments to US individuals and families at $ 1,200 per person. The bill is currently before the House of Representatives, which will vote on Friday.

What is the role of large-scale economic stimulus? According to analysis, the stimulus plan as a whole is to help residents, enterprises, and medical departments to overcome the difficulties of the epidemic period, and it is impossible to talk about the economic stimulus after the epidemic. As for whether US stocks can come out of the downturn, monetary and fiscal policies can only stabilize market sentiment, solve the problem of liquidity shortages, and bail out the affected real economy, but they cannot reverse the economic recession, so it is difficult to fundamentally calm down. Market turmoil.

How to use 2 trillion dollars?

Send checks directly to individuals and provide loans to businesses

At present, the details of the plan have not been fully announced. From the contents of the previous discussion, the use of $ 2 trillion includes several major aspects: direct payments to individuals and families, strengthening unemployment benefits, helping large enterprises, small businesses, and providing assistance to state governments, Hospitals, education funding, and student loan assistance.

Reuters estimates that part of the total cost paid directly to Americans is $ 500 billion. Pay up to $ 1,200 per person, up to $ 2,400 for couples, and $ 500 per child. For singles earning more than $ 75,000 and couples earning more than $ 150,000, the subsidy will be phased out. US Treasury Secretary Mnuchin has said that Americans are expected to receive checks within three weeks.

The unemployment assistance is expected to cost US $ 250 billion. For large enterprises, a US $ 500 billion stabilization fund will be established. For small enterprises, US $ 350 billion will be provided. The plan will also provide $ 150 billion in funding to the state government and more than $ 100 billion in assistance to hospitals.

The stimulus package has undergone lengthy negotiations, and the two parties in the United States have divided on some of them. For example, Democrats are concerned that the $ 500 billion Corporate Stability Fund will become a “bribery fund,” with monitoring provisions added to the final plan. In addition, the plan prohibits US President Trump and his family business from receiving bailouts, and the same rule applies to businesses controlled by the vice president, members of Congress, and executive heads.

As the bill is passed in the Senate, it is followed by a vote in the House of Representatives. After the House of Representatives passes, it is signed into law by President Trump.

What is the largest stimulus effect in American history?

Helping residents and businesses weather the storm, not to mention the economic stimulus after the epidemic

This plan is the largest single economic stimulus plan in the history of the United States. White House economic adviser Kudlow said at a conference on Tuesday that the US government will implement a total economic stimulus plan of $ 6 trillion. In addition to a new injection of $ 2 trillion in fiscal stimulus, another $ 4 trillion will Flow from the Federal Reserve. If the total amount reaches 6 trillion US dollars, it is close to 30% of US GDP.

What is the role of large-scale economic stimulus? Pan Xiangdong, chief economist of New Times Securities, said that the epidemic had a great impact on the U.S. economy, the unemployment rate in the United States may rise sharply, and the savings of U.S. residents are very small. To a certain extent stimulate consumption. Loans to U.S. businesses can prevent them from going bankrupt, as well as addressing corporate wages. Assistance to the medical sector also helps them fight the outbreak. On the whole, this stimulus plan is to help residents, enterprises, and medical departments to survive the difficulties of the epidemic, and it is not about economic stimulus after the epidemic.

At present, the market generally believes that the epidemic will cause the US economy to enter a recession. The latest research report of CICC has adjusted the US economic forecast for 2020 to negative growth. It is estimated that the real GDP growth rate of the United States in 2020 will be -4% for the whole year. It is estimated that during the second quarter of the economic downturn, the highest unemployment rate in the United States may increase by about 5 percentage points.

Pan Xiangdong said that the current round of US economic recession was caused by the epidemic. Consumers have to reduce consumption due to the epidemic, enterprises cannot produce normally, and they also face a sharp reduction in orders brought by the shrinking consumption in the future. Some companies will have to face the risk of bankruptcy due to a sharp decline in income and a cash flow crisis. The resulting unemployment rate will increase the economic recession.

The United States has successively introduced economic relief measures. The Federal Reserve successively increased its easing, and two emergency interest rate cuts brought interest rates to near zero levels. On Monday, it announced the opening of unlimited QE and launched a series of new projects to support credit flows to businesses and consumers. In addition, the Fed has activated various liquidity tools to expand liquidity swaps with other central banks. The Federal Reserve's monetary easing has reached almost unprecedented levels.

However, easing monetary policy and fiscal stimulus alone may make it difficult to address the risks of a recession. Wang Qing, chief macro analyst of Dongfang Jincheng, said that considering the impact of the epidemic on the US economy and the need for a stimulus policy to take effect, it is expected that the US economy will continue to experience negative sequential growth in the first and second quarters of this year, which means that the US economy Enter a state of technical decline. Due to the greater uncertainty of the future epidemic situation in the United States, the downside risks to the economic rebound in the second half of the year are greater, and the possibility of negative economic growth throughout the year cannot be ruled out.

Can US stocks out of the decline?

Stock index futures still fall, or it is difficult to fundamentally calm down market turmoil

Shortly after the announcement of the U.S. Senate's stimulus plan, all three major U.S. stock index futures turned from falling to rising, of which the Dow futures rose about 0.3%. However, then the three major stock index futures turned lower. As of 16:00 Beijing time on the 26th, the Dow futures fell about 1.5%, the S & P 500 futures fell about 2%, and the Nasdaq futures fell about 1.6%.

U.S. stocks have fallen continuously since late February. After several blowouts, they reached a new low in several years on Monday. The Dow fell from a minimum of 29,000 points to about 18,000 points, falling more than 10,000 points. The three major U.S. stock indexes compared to February. The mid-to-late highs fell by about 35%.

However, after the $ 2 trillion stimulus plan entered negotiations, US stocks ushered in a long-lost rally. Starting on Tuesday, the Dow and the S & P 500 rose for two consecutive days. On Tuesday, the Dow closed up more than 2100 points, regaining the 20,000-point mark, an increase of 11.37%, the largest single-day increase since 1933; the S & P 500 rose. 9.38%, the largest single-day increase since October 2008; the Nasdaq rose 8.12%. On Wednesday, the Dow closed up nearly 500 points, or 2.39%, the S & P 500 rose 1.15%, and the Nasdaq fell 0.45%.

Can the $ 2 trillion stimulus plan boost the stock market? Pan Xiangdong believes that the stimulus plan has temporarily boosted market sentiment, but stock index futures have turned around again, indicating that the market is still full of worries about the epidemic. When financial markets are subject to extreme external shocks, they generally experience "policy bottoms", "market bottoms" and "economic bottoms". Although the "policy bottom" has emerged because of large-scale fiscal and monetary policies, due to the extremely uncertain epidemic situation, the U.S. economy is in a phased recession or a foregone conclusion, but the magnitude and duration of the recession are difficult to accurately predict by the market. The bottom of the market ”remains to be seen. Investors need to see a trend of economic reversal.

According to WHO's data as of March 25, the cumulative number of confirmed cases in the United States has exceeded 50,000, with nearly 10,000 new cases added in a day. Many experts have stated that monetary and fiscal policies can only stabilize market sentiment, solve the problem of liquidity shortages and bail out the affected real economy, but they cannot directly control the spread of the epidemic and cannot reverse the economic recession, so it is also difficult Fundamentally calm market turmoil.

Are there any side effects of large-scale economic stimulus?

May increase government debt risk

Such a large-scale economic stimulus plan is the first time for the United States and it is not common worldwide. Will it bring potential side effects?

Wang Qing said that any macro policy must have both positive and negative effects, especially in large-scale economic stimulus plans. From a negative perspective, these measures will directly increase government spending and increase government debt. According to its estimates, the fiscal deficit rate of the US government at all levels in fiscal 2020 (October 1, 2019 to September 30, 2020) will increase significantly from 5.6% in the previous fiscal year to about 16.0%, exceeding the global level in 2008. A high of 13.2% during the financial crisis; the ratio of total debt to GDP of governments at all levels will also reach a record 116.2%, a significant increase of about 10 percentage points from the previous fiscal year, and further away from the 60% debt security line. The sharply increasing deficit and debt growth will quickly consume fiscal policy space and weaken the government's ability to spend in the future. At the same time, it will also inhibit the growth potential of the US economy in the medium and long term.

Pan Xiangdong pointed out that the increase in US debt risk will undermine the US dollar's strong position. Due to the strong economic, political, and military strength of the United States and the lack of buyers of U.S. debt, the United States has been charging an "international coinage tax". Even if the United States prints money to repay debt, it will also cause worries about the depreciation of the US dollar, which will lead to the sale of US debt and will undermine the US dollar's strong position.

Major Projects in the Largest Stimulus Program in American History

Directly to Americans

Part of the total cost paid is

$ 500 billion

For unemployment assistance

Expected to spend

$ 250 billion

For large enterprises

$ 500 billion

Stability Fund

For small businesses will provide

$ 350 billion

loan

Will be the state government

Provide 150 billion

USD funds

For hospitals

Over 100 billion

Dollar aid

Source: Beijing News reporter Gu Zhijuan according to Reuters report

Beijing News reporter Gu Zhijuan