Nearly 3.3. million Americans applied for unemployment benefits last week as businesses struggling from the coronavirus fallout begin laying off workers.
The number is staggering. It’s more than quadruple the previous record set in 1982.
But the treasury secretary doesn’t think there’s much to see here. Once legislation passes, he argued, people will be fine again and the pain right now is temporary.
“I just think these numbers right now are not relevant, and you know, whether they’re bigger or smaller in the short term,” Steve Mnuchin said in a CNBC interview Thursday morning. “I mean, obviously, there are people who have jobless claims. And again, the good thing about this bill is the president is protecting those people.”
“So you know, now with these plans, small businesses hopefully will be able to hire back a lot of those people,” he added. “Last week, they didn’t know if they had protections. They didn’t have any cash. They had no choice. Now with this bill passed by Congress, there are protections.”
This is wishful thinking, to put it mildly. Despite its big price tag, economists believe the legislation passed by the Senate on Wednesday is far too modest to meet the scope of the coming economic crash.
The $349 billion the legislation sets aside for small businesses will be exhausted quickly, but experts also believe that it will take months for the aid to reach most small firms. During that time, many of them will simply fail, and you can’t rehire workers if you don’t have a company.
The key provision of the bailout bill is a $454 billion program overseen by Mnuchin that can be leveraged 10 times over by the Federal Reserve to do essentially anything Mnuchin and the Fed want to do with it. But firms that receive this money will still be allowed to lay off up to 10% of their workforces over the next six months ― and that figure would be calculated based on this week’s employment. The 3.3 million people who were laid off last week wouldn’t count.
The coronavirus crash isn’t a simple shortage of cash. It’s a crisis on several different economic fronts that will require months, if not years, of aggressive government action to combat.
Global supply chains are breaking down as companies that manufacture goods in other countries find themselves unable to access factories and materials that they have relied upon for years. The collapse in U.S. consumer spending won’t simply return to normal.
The legislation’s protections for people who are laid off or struggling to pay the bills are simply too paltry to restore the plunge in purchasing power from unprecedented layoffs, not to mention the fear that most families are now experiencing. Every household in America will be pinching their pennies for the foreseeable future, and that loss of spending translates into a loss of revenue for businesses, and lower payrolls. The loss of American purchasing power will resonate both at home and abroad. This may well culminate in a shock to the financial system akin to the meltdown of 2008.
Thursday’s unemployment number is likely undercounting how many people are without work as well. Some people who have tried to apply for unemployment benefits have reported phone lines and websites frozen and jammed up by the crush of applicants. And many people who are self-employed, undocumented, students or gig workers are ineligible to apply and therefore not counted.
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