Analysis: $2 trillion virus relief bill is massive, but it won't prevent a recession

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Congress and the White House have nearly finalized a $2 trillion relief package for the economy - the biggest in U.S. history.

The good news is the majority of the money is going to laid off workers, small business owners, hospitals and state and local governments. The bad news is it won't be enough to stop a recession. And it's an open question whether the nation can avoid an economic depression, the likes of which haven't been seen since the 1930s.

"By any measure this is a huge stimulus package. One thing that it cannot stop is the recession that is coming," said James McCann, senior global economist at Aberdeen Standard Investments

Looking back at the Great Recession, economists consider Congress' response too slow, too stingy and too focused on big Wall Street firms. Many analysts say Congress deserves some credit for doing better this time. This relief package is more than double the $830 billion that Congress passed in 2009. It came together in a few days, and it's far more targeted at Main Street.

Roughly a quarter of the money will go to large companies, including billions earmarked for Boeing and airlines, but middle class and low-income Americans are slated to get $1,200 checks (more for people with kids). Small business owners look likely to get access to $10,000 grants and millions in loans, and there's additional money set aside for the unemployed.

But economists say two key problems remain: Fixing the health crisis and getting money to people in time.

Constance Hunter, chief economist at KPMG, predicts it will take at least 6 to 10 weeks for the government to get a significant amount of the money dispersed. That's a long time for laid off workers and small business owners with no money coming in to wait. It makes it less likely they will bounce back quickly.

"There isn't some magic restart button for the economy," said Hunter. "Before the money arrives, there will be a lot of collateral damage to the economy. That's going to make restarting it difficult."

The nation is choosing to shut down much of the economy to save lives, maybe as many as hundreds of thousands of lives, according to one estimate. The nation has to get the pandemic under control before daily life and business can go back to anything remotely normal. It's still a big unknown how long that will take. President Trump has floated the idea of getting people back to work by April 12. Yet, public health officials don't think that is realistic and going back too soon could cause a second spike in coronavirus cases and deaths, forcing more shutdowns.

Senate Major Leader Mitch McConnell, R-Ky., declared on the Senate floor Wednesday that "this is not even a stimulus package, it is emergency relief." Economist agree. This $2 trillion isn't about boosting the economy, it's about trying to compensate people for what could be $2.5 trillion in lost business and wages in the coming weeks. And that's a best-case scenario. Losses will be deeper if the pandemic last into the summer.

To prevent a depression, the relief payments have to get to workers and business owners fast enough to prevent a chain reaction of pain where one person goes out of business and that triggers another failure and another.

James Bullard, a noted economist and head of the Federal Reserve Bank of St. Louis, put out a dire forecast of what's ahead for the nation in the coming months: He expects 46 million Americans to be unemployed (30 percent of workers), and an unprecedented 50 percent decline in economic output.

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But Bullard is hopeful that the economy will bounce back in the second half of 2020. He compares this to driving a car 70 mph on the highway and then having to slow to a crawl for a construction zone. The hope is the car can pick back up quickly, after exiting the construction zone, but it's not a given.

"It's not enough to have Congress pass something or to have the Fed put new programs into place to preserve liquidity, it's actually the execution of those programs" that matters, he said.

To get a reality check on what's happening to the U.S. economy, call a small-business owner. Nearly all will tell you that business is severely down - or closed - and they have no clue when that will change. In recent days, most of these owners have talked to anyone they can think of - bankers, insurers, politicians, friends, customers, Small Business Administration officials - about getting a loan or aid. But everyone is waiting to see what Congress does first, leaving business owners fearful they will run out of money before help arrives.

John Russell started the small tech company Webconnex in 2008, but he says this crisis is even harder than during the Great Recession, because it's so uncertain when it will end or whether the recovery will be swift or slow. His company makes affordable software for fundraising and events and processed nearly $1 billion in credit card payments last year. Nearly all of their 2020 events are canceled, leaving almost no money coming in.

"If we don't get relief from this bill in Congress, we have no choice but to do massive layoffs," said Russell, a co-founder of Webconnex, which employs 41 people. "Our team is like our family. For us, 100 percent of our focus is on saving those jobs."

Russell has taken an ax to his budget. Advertising spending is gone. He cut up the credit cards. They company managed to end its lease in Sacramento at the end of the month. All trips are canceled. Those decisions are already rippling across the economy, cutting revenue for other businesses.

If he has to do layoffs, like so many restaurants and hotels have, Russell knows the pain will escalate. But taking on a hefty loan right now feels risky given the uncertainty.

It's a similar story for many states and cities hardest hit by the pandemic so far. New York Gov. Andrew Cuomo, a Democrat, is furious at the latest congressional package, saying about $4 billion in aid is not nearly enough as the state tries to battle the virus and beef up health care and safety personnel during the crisis.

"I'm telling you these numbers don't work," Cuomo said to reporters.

There is no economic playbook for how to handle this health crisis. Congress and the White House have taken a first attempt at aid, but most economists anticipate more will be needed. And the only thing that will truly turn this around is ending the pandemic.

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