A rabbi, priest and Imam walk into a bar and realize it is closed and there are signs asking everyone to social distance and wear masks. Welcome to life in the time of Covid and how everything is changed. Even old jokes.
Getting through the Pandemic is the current challenge, everyone is wearing masks, social distancing, staying home, etc. What will society look like and how effects will COVID have as we get past this phase?
What will be the lasting effects of the COVID pandemic? Will there be more green spaces? Will home building change? Will manufacturing, pharmaceutical, come back to America? There will be changes, some will last for a short period and others might involve changing what is considered normal for months or years.
Until there is a reliable vaccine, for many the lifting of “shelter in place” orders will not change their daily activity regimen. If you don’t have antibodies, indicating you have already been exposed to the Virus and are in a at risk group, diabetic, heart disease, immunocompromised or undergoing Cancer treatment, you will treat it as something which must be avoided. You will still avoid crowds and gatherings, you might request to continue to work from home, assuming you still have a job.
There is an innate human need to try and associate the current COVID experience to past events and extrapolate that to predict what will happen when the Pandemic is over. The same reasoning occurred when the financial markets began their rapid descent in March. Many “experts” tried to compare this to the 2008 financial crisis. Some picked other market corrections as a pattern.
The problem many of the so-called experts failed to recognize is this is not similar to any other event in American history! We have never stopped the economy over the period of a coupe weeks. We have never seen 30 million people lose their jobs over four weeks because the government said STOP. We have never declared some jobs essential, you get to keep working and others non-essential, you lose your right to work and your paycheck. For those working in business deem important, they could still have seen pay cuts of 20%, 30% or even 50% until activities return to normal, whenever that will be.
The comparisons to the financial crisis of 2008 do not apply as the banks were responsible for that crisis. Bank lending guidelines and lack of Government oversight caused the financial markets meltdown and the Great Recession. No business segment is responsible for the COVID pandemic. Because there is not a discernible cause, other than Chinese wet markets and bat soup, there will be a collective feeling of loss and a National guilt about those affected by this epidemic. The victims did nothing wrong, but were fodder for the economic Tsunami sweeping over the world. Thousands of charities have been established to raise funds for workers put out of work by the shutdown, something which did not happen in 2008 or did I miss the Lehman Brothers relief telethon?
Congress has already authorized $2.2 Trillion to cover the first two or three months of the shutdown. $1200 checks to millions and $600 a week extra in Federal unemployment benefits. Once the shelter in place orders are lifted, hopefully in June, business will begin to reopen and people will start going back to work. The returning workers will help reverse the dire economic indicators and skyrocketing unemployment rate. Unfortunately not everyone will go back to work, millions will not have jobs to go back to or changes have occured which make their position redundant or non-existent. Now what do they do? Does the government owe them a financial lifeline?
The collective guilt will be to support and try to make those affected financially solvent and keep them that way until they can get back into the workforce. This means there will be a second stimulus bill in Summer to help those who were left behind totaling about $1.4 trillion to cover the same benefits for another four months. Others will lose jobs as structural changes in the economy occur, Will delivery services need as many people as they did during the lockdown? Will eating establishments need as many busboys and cooks when the densities in dining rooms is halved due to continued social distancing. Rapid and accurate antibody testing will be available in early summer and will help determine those who still need to be concerned and the others who have had COVID, whether they know it or not assuming past exposure to the virus means future immunity.
The unemployment rate will peak near 25% in summer. Some businesses can’t just walk in & turn the lights on and put out the Open sign. Restarting the economy will take until the middle of Fall. Some firms will find they just don;t have as many customers and won’t need or can’t keep all the employees they had before the Shutdown. These changes along with failed firms will leave the unemployment rate near 13% by the end of year.
Those going back to work will face a different office environment. Worker densities will be lower, hand sanitizer will be plentiful and conference room meetings will be less frequent. Some people due to risk factors and lack of antibodies will continue to work from home. Offices might also go to a rotating schedule where some workers are in on odd days and others on even days to reduce worker density. By the end of the year about 23% of the workforce sitting in offices in February of 2020 will be working from home, either a full or part time basis.
A second wave of COVID with a different strain of the virus will return during the traditional flu season in fall and winter, sending many older Americans and those at risk back into shelter in place. There is no National lock down this time and the economic effect is a Q3 of negative economic growth.
GDP for Q2 will fall around 24%. The largest one quarter decline in American history. For the year,output will fall 9.1%. The Nation’s need to not leave behind those who have been damaged economically will take an enormous hit on the Federal budget, ballooning the deficit, due to both reduced revenue and higher spending, to over $5 trillion when the second stimulus is included. Fiscal 2021 starting in October will see a third stimulus.
Mortgage forbearance and rent strikes have been growing since the early days of the shutdown.While mortgages firms have not invoked penalties for missed payments, the amounts are still due and payable. Many homeowners have been off work for three, four or more months and don’t have the past due amount available to pay in addition to the current month’s payment. There isn’t a way to add the unpaid amounts on to the loans as many borrowers thought would happen. Similar issue exists in the rental market, renters now owe three or more months back rent, but don;t have the funds to pay the arrearages. To help resolve the issue the Government will pay the mortgage firms interest on the unpaid amounts and the lien holders will get first claim on tax refunds for 2020 to repay past due payments. A similar deal is proposed for renters, with late fees paid by the Feds.
Civil unrest continues as this isn’t a “generous enough” deal, it is amended to allow homeowners to receive tax credits for up to three months of rent or mortgage payments, for primary residences only, missed because of COVID related unemployment. They also agree to add $1000 to any person in this group to cover late fees and penalties. Mortgages firms have been prevented from foreclosing on residences while the Federal payments are processed, and once funds have been disbursed. A borrower has to be six months or more behind before a home foreclosure filing can be made. Some states and municipalities have extended the period to nine months. A similar process for rental properties is passed by Congress. Those with no job since the lockdown started, or are working multiple part time jobs have seen their numbers soar into millions and major American cities see daily and weekly protests calling for more help and local action to prevent people from losing their places and demanding government subsidies for those affected. By the end of 2021 seven million plus homeowners will be “under water” on their mortgages and continuing to pay.
In the Spring of 2021 a bipartisan bill, to assist those who have not been able to find work since the lock down began, offering a Universal Basic Income (UBI) is introduced in the House. The bill would provide a means tested payment of $2,500 a month for those who have not been able to regain 75% of their income from before the outbreak. This would apply to approximately 15 million Americans costing about $37 billion per month. Once passed and implemented the number receiving UBI grows to 20.7 million in month three, raising the price tag to over $50 billion per month or $600 billion annually.
Unemployment fell in the months once the lock down was removed, but has been slowly growing in 2021 as many firms’ business has not returned to past levels for various reasons. Fewer workers in offices and over a million small business failures have reduced the demand for office space, leading to a 17% vacancy rate nationwide.
States and local municipalities have been deeply affected financially, and many are near insolvency. Congress is under pressure to act and give them a bailout to prevent interruption in local and state services. After three months and the bankruptcy filing by the City of Los Angeles, a compromise was struck on a $1.2 trillion funding package, with the caveat that no more than 25% of the funds can be used to fund pensions. California used the maximum 25% of its $138 billion to backstop CalPers and CalSters pension liabilities. The rest will go towards repaying 2020’s tax return warrants and balancing the state budget.
Rapid and accurate antibody testing has been available for over a year, but those lacking the antibodies are helped when a COVID19 vaccine is released in summer. The public is asked that unless you are at risk due to underlying health issues or over 65 to wait until Fall to request a shot. The 30 million at risk and without antibodies are immunized by Thanksgiving.
The Federal deficit for 2021 is lower than the record set in 2020, but is still the second largest in American history, coming in at $3.6 Trillion and bringing the National Debt to $32 Trillion. Interest payments on the debt have almost doubled in the last ten years to over $500 billion annually.
GDP growth for 2021 comes in at 1.2% leaving the US with lower output than for 2019. Unemployment rate falls to 11.5%, but is still higher than predicted over a year past the end of the lockdown. The weak economy has kept interest rates low, but the Federal Government’s borrowing needs have added approximately 25 basis points to the Prime Rate.
Introduction of UBI has reduced the labor participation rate to under 60% for the first time in over 50 years and lower than than seen during the Obama administration. By the end of 2021 over five million small businesses in existence at the end 2019 are now gone, pushing over 13 million Americans into unemployment.
Investment markets are hoping for economic growth, but other than certain sectors the market as a whole is lower in 2021 than it was during the March plummet in 2020. All indexes, sans the NASDAQ are at levels lower than March 30th 2020. Publicly traded firms filing for protection under the Federal Bankruptcy Code have risen to levels not seen in almost 20 years.
Defense procurement programs are beginning to feel the effects of the ballooning Deficit. Due to costs and lack of patience, the F-35 program is cut to 1,100 planes from a planned 1,800 plus and further cuts are penciled in for 2023 and forward years unless the deficit can be cut, including possibly affecting the Ford Class Aircraft carrier project and the number of personnel in uniform. NASA funding for the projected 2024 moon landing is cut and resources are shared with SpaceX to save funds and give the best chance to meet the Trump administration’s timeline of returning to the moon.
There are extensive debates on lowering the amount UBI covers or tightening the requirements to push people back into the work force.where the labor participation rate is hovering near 54% After heated discussions in Congress and throughout America for those who had their lives affected and faced loss due to the Pandemic shutdown. Over 30 million citizens are collecting UBI or almost 10% of the Population. Congress introduces a bill to increase the monthly payment to $3,000 per month at an annual cost of over $1 Trillion. Anti-deficit Republicans threaten to vote No, but public opinion in favor of the increase is over 60% and slogans invoking the “National Guilt” of the COVID epidemic and those who sacrificed and continue to suffer economically allows the bill to pass both houses of Congress with little opposition. Those collecting under the expanded UBI will increase to 35 million by the end of the year and the program’s cost to $1.25 Trillion.
The growing commercial property vacancy rate has led to a series of foreclosures, but the glut in the property market makes them a tough sale, even at discounted prices. Some are purchased and converted into rental properties for lower income housing with the Federal Government backing the loans and allowing for tax breaks to fund the conversions. Other buildings become home to squatters and are simply torn down. Cities will see a 5% increase in green spaces by the end of 2023 because of a reduced need for commercial square footage.
Homebuilders, trying to find ways to sell homes in a very weak real estate market, have begun to include designated home offices in development of all price ranges. One developer has seen its homes sales rise by 17% in new communities where residences included designated home offices.
Residential mortgage rates are near record low levels but the continued instability in employment has slowed the resale market to levels not seen in decades, with less than 4 million existing home sales and the rate slowing every month. Rent strikes continue in San Francisco Bay Area, New York metroplex and Los Angeles as UBI will not is not enough to live on and jobs are hard to find and pay less than Government subsidies
Professional sports leagues and college football are struggling as many people still are not comfortable attending events in person. New TV contracts negotiated since the end of the Pandemic reflect the lower attendance levels and most leagues have seen player salaries fall over levels in 2019. College Football has been able to recover most of its in person attendance with Baseball and Hockey having the most issues getting fans back into seats. Many indoor arenas have been reconfigured to reduce seating density and/or adding plexiglass between and behind seats.
With entitlement programs, including UBI increasing at a rate far greater than inflation and the growing interest payments on the National debt, the ability to control the deficit is limited. Defense spending is the largest single source of discretionary spending. Congress has targeted a number of defense programs which will need to be restructured or cut to lower the deficit going forward. Because of the very high cost of operation, the F-22 fleet will be cut to 102 planes by the end of 2025, or about seven active squadrons. The remaining gaps will be filled with F-35s which will also be cut to 875 total aircraft. The fifth Ford Class aircraft carrier, the unnamed CVN-82 is cancelled. CVN-81 has been pushed to a 2025 start date to reduce defense spending costs by 15% annually by 2025. 20% of US Military active force personnel will be cut during fiscal 2023-25. half will be hired back as Contractors, the rest moved to Reserve status or discharged.
Reduced Defense spending and general economic malaise is offset by increases in the number of people on UBI thereby keeping the Unemployment rate over 11%. Labor participation rate falls to about 58%, the lowest in almost 70 years. GDP falls by 2% for the year. The Federal budget deficit is $4.5 Trillion pushing the Debt to almost $37 Trillion. US Government deficits and growing need to borrow in credit markets is affecting interest rates, raising rates by about 50 basis points.
The Social Security shortfall grows rapidly with lower workforce participation, more contracting roles and higher levels of unemployment. Congress passes a bill to increase SSI taxes to 14.4%, 7.2 for each side, and the tax will now top out at $160,000 annual income. Future benefit reductions are possible if the increase does not reduce the shortfall. The age at which benefits begin was not changed. The higher taxes will keep the program solvent through 2050.
By the end of 2023 13.7% of existing office space in 2019 has been converted to low income housing or torn down and replaced with green spaces. Property management employment has seen its ranks fall by 21% since 2019 and further reductions in workforce are expected. Only three new office buildings have been completed since 2021 and commercial construction has lost 1.6 million jobs in the last three years.
The cruise industry has never been able to return to its 2019 levels. Numerous mergers and bankruptcies have reduced the number of cabins available by 56% versus March 2020. Some cruise ships have been converted into floating homeless shelters, others mothballed, hoping they will one day be needed and the rest scrapped or scuttled. The industry has been producing a “Love Boat” like program since 2021, but it has done little to spur demand. Industry employment levels are down 39% as some are retained due to increased cleaning and sanitation which occurs daily.
Home and commercial cleaning and sanitation business in one business experiencing growth since the Pandemic. Unfortunately many jobs go unfilled and firms have raised wages as UBI has become a “competitor” for firms looking to hire. While inflation has been slightly over 1% for the last four years, there is still an issue with people on UBI not being able to make ends meet.
Democrats in the House introduced a Bill to index UBI to the cost of living based upon where a recipient lives. People in San Francisco and New York would receive a higher payment than those in Bozeman Montana or Roswell New Mexico. The bill would also raise the highest payment to $3,700 per month and the lowest would be $2,750 for new UBI applicants in the areas with the lowest cost of living. Those currently on the program would not see a decrease in their payments, only those who applied to the program after the date of Bill passage. By the end of the year 42 million Americans will be collecting UBI at a cost of almost $150 billion per month or $1.8 Trillion annually.
GDP fell 3% for the year and unemployment rose to 12.5% due to cutback in numerous industries, including defense and construction even with the increases in UBI. Lower tax revenue from decreased economic activity, weak stock market along with growing Entitlement spending pushes the Federal Deficit to $4.5 Trillion for fiscal 2023 and the national Debt over 40 Trillion. We now have the second highest debt to GDP ratio in the world, second to only Japan at over 200%.and the need to borrow large sums of capital is driving up costs for everyone.
The United States has put together a Congressional committee to cut the deficit, but there are few places to cut as mandatory spending has become 75% of the Federal budget, including almost $1 Trillion annually in interest payments on the Debt. Growing UBI payments are the main source of the deficits. Higher income taxes are proposed, but weak economic activity limits the effectiveness of those as revenue generators. The payroll tax increase was not popular and cost some Congressional seats in the 2022 midterm elections making Congress hesitant to increase taxes again.
Defense spending is the single largest area of discretionary spending which can substantially impact the deficit. The debate falls along partisan lines. But even the pro-defense hawks have few options if the deficit is to be cut, considering the Nation’s dependence on UBI and entitlement payments. The final compromise involves further cuts to defense programs including early retirement of three nuclear powered aircraft carriers. At a time when China’s third home built carrier is undergoing sea trials, the United States is forced to reduce its active carrier fleet to nine once the retirements are done and CVN-81 is ready in 2028. The total active ships in the US Navy will fall to about 250 ships, lowest level in almost a Century. USN will still have a 2:1 advantage over China in carriers, but their aggressive stance in the Western Pacific and South China Sea will test America’s ability to project power and influence.
Total military personnel will fall to under 1 million by 2026 down from 1.35 million in 2019. 10 bases are targeted to be closed to reduce costs, including key ports overseas which will be abandoned including Guantanamo Bay, Cuba which the US has occupied for over 120 years.
It has been only four years since the COVID pandemic swept around the world and created the largest economic disruption since the Civil War. The changes that have occurred have been dramatic and long lasting. Yes the concern of another outbreak has slipped into the back of people’s minds, but the effects are in plain sight daily. From lower traffic, for those who still commute to work, 32% of workers still work at home, to more green spaces as office buildings have been demolished or shuttered. Almost everything can be home delivered within 24 hours via an app or website. Many grocery stores have closed or been replaced by fewer larger food centers where one can shop or deliveries made from.
As we enter another Presidential election year, the economy is topic one. Never has the nation faced a question of requiring work or being allowed to collect UBI indefinitely. As the reminders from the Outbreak are still visible on a daily basis, to the collective guilt from those affected by the economic shutdown and job losses are beginning to fade. Many still feel we must do whatever it takes to support those impacted, while others feel that after four plus years they need to fend for themselves, or have a lower level on UBI as we can not afford to continue payments at these levels.
The Left argues that if the wealthy simply paid more or we passed a wealth tax as proposed by Elizabeth Warren during the 2020 campaign, we would have all the funds we need. They see it as a revenue problem and not a spending issue. The fiscal conservative reminded the Left that even when the Government had record revenues Congress couldn’t pass a balanced budget. Now with the additional debt and interest payments, that seems like decades ago.
There has also been an ongoing debate on should we have enacted a lock down and crashed the World’s economy or would we have been better in the long run to let the virus run its course. Those at risk, who wanted to shelter in place, could have done so, but the rest could have gone on.