We need a different plan to deal with the economic situation created by Covid-19, and this is it.
Written By: Arnie J. Olsen
Well, nothing like a global pandemic to show just how unprepared our country is to deal with a real crisis, and at the same time show how truly unoriginal the Federal government is when it comes to ideas about what comes next. Basically, the knee jerk reaction is to spend money, and depending on which party you talk to, you see plans to help one segment of our society or another. While spending is not necessarily wrong (though the partisan preference are), there is no amount of spending that will make this go away, nor even make the effects of the situation any less lasting and harmful to the economy at all levels. To do that takes something much more creative, so take a deep breath, slow things down, and let’s make some rational decisions that get right to the heart of the matter. We need a plan that helps everyone, from top to bottom, big businesses to the minimum wage worker, and we need to not bankrupt the country in the process, yet the current plans being discussed could cost the country $1.25 trillion PER MONTH!
We need to PAUSE!
Of course, the top priority needs to be keeping everyone healthy and treating the ones who are unfortunate enough to catch this virus. There is much that goes into that, and it is far beyond my area of expertise to comment on it. The one thing we do know, however, something we can all do, is to keep from spreading the Covid-19 virus. To do that is simple…STAY HOME!
Okay, so we know what to do while we let the scientists, doctors and researchers apply their expertise to the virus itself and navigate us through this health crisis. The question we are left with is how do we stay home? What sounds overwhelmingly simple, is the most complex dilemma most of us can face simply because for most, without work, there is no life. You cannot pay your bills, you cannot eat, you ultimately have no shelter, and pretty much, the entire economy comes to a screeching halt.
It starts small, with some individual working two minimum wage jobs loses their apartment and struggles to eat. That domino effect continues upward, taking out one income class after another. On the business side, small businesses fail first, and like dominoes falling up a hill, the biggest, wealthiest corporations in America soon fail as well. Simply put, no one has a plan for what to do when the economy completely shuts down, and listening to the different ideas coming out of Washington, it is clear that our elected leaders have no idea either. The only knee jerk reaction is to spend money, lots and lots of money. They have passed legislation to extend unemployment benefits, they are expanding the food stamp programs, and trying to pass paid sick leave. It’s all nothing but a short term band-aid being applied when the entire country needs a tourniquet. In other words, spending money is one solution, I suppose, as it means that someone might be able to afford their rent this month, or buy another week’s worth of groceries, but in reality, the bleeding continues, barely slowed, and the nation bleeds out because all we have done is kick the can down the road. And yes, I am well aware that this is the standard operating procedure of American politicians of both parties…just push off to tomorrow what needs to be solved today.
Furthermore, what is that we are trying to save? An economy in which half of our population was near broke and living in poverty even before this health crisis showed up on everyone’s doorstep? No, the reality is basically that the best spending bills that could be put together essentially keep the working class alive, barely, and preserve the wealth and status quo of the people who were doing well before and will continue to do well. Is that really what we want to spend a trillion dollars or more to preserve?
I would argue the answer to that is a straight forward, unequivocal NO! We do not want to do that…it is a recipe for prolonged disaster like we may have never seen, and worse, one that we may not recover from. No, what we need is an unprecedented action that will both help us survive the immediate crisis, and actually set millions of Americans up for the kind of prosperity they have never known. What I am talking about is life changing improvements to the economic situations of millions of the hardest working Americans among us.
So, here is the plan:
So, now that everyone is thinking that they just wasted their time reading 6 paragraphs of lead in, to get that little “nugget of wisdom”, please bear with me. Before you write my idea off, let me explain the plan a little further.
For starters, we cannot think about this from the perspective of people that have money and the only time they do not pay their bills is by choice. In that case, sure, if they see a short term downturn in income, a loan or a cash infusion will bridge the gap and they will be able to carry on just fine when the trouble has passed. Stop that thinking right now. Put yourself in the shoes of the person who lives paycheck to paycheck, and suddenly needs to repair their car. Put yourself in the shoes of a small business owner that already cashed out their 401(k) to start the business, and is using cash flow based loans to cover expenses. The reality for people and businesses in this position is that they cannot survive…period. Think of a payday loan…they NEVER solve the problem because they do not address the real problem which is not having enough income to support their expenses to begin with, and they certainly cannot add a loan payment on top of that. No, the ONLY way to survive in these situations is to cut the expenses, not take on more debt…and regardless of who carries the debt, in this case, it will eventually catch up to anyone, because it will not be repaid in the long term.
So, that brings me back to the “Pause Plan”, or call it a “Bill Holiday” if you want. Simply put, the best way to put money in the hands of people who need it to survive is to not make them spend what they have unnecessarily. And yes, making a mortgage payment this month is totally unnecessary in the grand scheme of things, just like paying an insurance premium is, and paying utility bills are, and making your car payment is. All of these only seem essential to life because it is ingrained in all of us, from the time we first learn what money is. As we get older, we know that the ramifications of not paying these bills is that our credit rating is shot, we lose whatever it is that we are making payments on, or “they” turn off whatever the service is that we stopped paying for, but at the end of the day, none of that really matters when it comes to what you really need. You need food, you need to not be kicked out of your home, and right now, you need to sit at home and stop spreading this damn virus.
Now, I know the first objection is that anytime someone doesn’t pay their bill, someone else gets screwed and if enough people stop paying their bills, entire businesses go under, industries die, and ultimately, the economy tanks, maybe for good…as it almost did in 2008.
So, how do we get the benefits of not paying their bills to the people and businesses that need to not pay their bills right now so they can focus on what is important (staying home, and eating), while not destroying businesses and the entire economy. It’s that one word again…PAUSE. EVERYONE needs to PAUSE, from the poorest individual to the wealthiest corporation and everyone in between, and here is how we do it.
Of course, their are many more details and specific situations that I am not going to account for here, but I will lay out enough that our leaders should be able to figure out the rest (provided they can stop worrying about profits for a moment), because profits will return, and everyone will be paid in full…just not right now.
Essential versus Non-Essential Jobs and Businesses
Like this entire article these lists are not all inclusive, but for starters:
Essential Businesses and Jobs include health care providers, first responders, grocery store clerks, pharmacists, truck drivers to keep the supply chain moving, news media (laugh if you want, but we all need information), garbage men, power plant workers, sanitation plant workers, manufacturers and their labor in essential industries ranging from medical supplies to HVAC equipment, farmers, food processors, pharmaceutical production workers, scientists, researchers, laboratory workers, mechanics, railroad workers that move freight, warehouse workers, etc. We need to basically keep necessary products and merchandise moving, and being made available to the people, and we need essential services like all of our utilities and communications working.
Non-Essential Businesses and Jobs include anything related to entertainment and recreation, cruise ships, a significant portion of the hospitality industry, including many hotels, bars, restaurants, casinos, landscapers, the majority of construction and building trades, sales people, lawyers, accountants, consultants, insurance agents, etc. There are plenty more, and businesses that fall in this category need to be shut down and people working in these fields need to stay home.
I will say there are examples like Louis Vuitton who are converting their operations from making perfume and cologne to make hand sanitizer instead, and we may need many more companies to do this for awhile, like the kind of effort we saw during World War II. And there are companies like 3M, that on one hand serve an essential purpose (making masks), but could probably shut down the Post-It Note operation.
The Unemployed and “Dark” Businesses
Obviously, the people and companies that are determined to be essential will be fine through this because their income, both for the business and the individual workers will remain at least consistent, if not increase due to increased demands, overtime pay, and the like, but by shutting down all of the non-essential businesses, and sending all of those people home is going to be the end of most of them. The businesses will never recover, and the people will starve if they are not provided some significant assistance, and we are talking about thousands of businesses, dozens of industries, and probably somewhere around 100 million people or more, including the dependents of the people no longer working.
So far, Congress is wasting days debating about two extra weeks of paid sick time and extending unemployment benefits. Great…talk about the dutch boy and the dyke. No one can pay their bills based on unemployment, and few could even if you doubled the payouts. And as for paid time off…what is two weeks going to accomplish? Does anyone really think we will hear he all clear sign in two weeks? Not if you are being even remotely realistic. The fact is that we do not know how long this will last, none of us do, but one thing is certain, those ideas Congress is working on will not last long. They won’t even get us through the month, neither individuals nor many businesses. And even if you are optimistic and think that this whole thing will blow over in a month, what will be left? Where will people go back to work?
No, we need a plan that will both sustain people NOW, sustain people a month, two months or three months from now if necessary, and that will preserve businesses to resume operations when this is all over…whenever that is. And just as importantly, we need to do it in such a way that we do not cripple the Federal government with $10 or $20 trillion of added debt that no one alive today will ever get out from underneath.
Close ALL Markets! There is no benefit to keeping the markets open and allowing for people to be guessing on what to invest in or sell off. We need to stop the bleeding, eliminate profiteering during a crisis and just leave them in place to resume once we are past this crisis. It’s unheard of, but speculation could tank the entire economy, and no one should be losing their wealth during this. There is no need, and no real benefit.
Declare a national mandatory “Bill Holiday”! The important thing to note here first and foremost is that this applies to everyone at every level…individuals, no matter how much money they have; businesses, no matter what they do, essential or non-essential, and no matter how big or small; and finally, other entities, that are involved in the economy, including things like public utilities, state and local governments, etc.
I will start at the bottom and explain how this works for regular working people and small businesses because ultimately, it all works more or less the same no matter how far up the economic ladder you go. And once again, I will qualify everything by saying that this is not intended to be a comprehensive list or plan, but it should be enough to get the conversation started by people who need to be having this conversation (i.e. Congress and the White House).
Mortgages, Rent and Business Occupancy Costs
In businesses, especially smaller businesses, cash flow is king, and in our personal lives, it is much the same situation. Even in larger businesses, a company that is not even turning a profit can survive for years with good cash flow and minimal, but steady growth. The enemy, however, is always time because it never works in your favor. At best, bills and income will both arrive on time, but the only certainty is that bills will be the only things that actually do that consistently, and the most unforgiving of all is your rent or mortgage payment. So, that is why this is the first element that must be addressed.
No rent or mortgage payments due for anyone until health emergency is over.
To solve this problem, whether a lease or a mortgage, the Pause plan would mean that for each month that Congress chooses to enact this emergency declaration, no one (meaning no individual and no business, would be required to make their rent or mortgage payment. They would not be considered late, they would not be subject to any penalties or any extra interest, and they would eventually make each skipped payment by adding the same number of months onto the end of their lease or mortgage. This way, the landlord or the lender still collects every dime they are supposed to, but we have simply made time our friend instead of our enemy. Simply put, you do not have to earn what you do not have to spend.
Now, there will be people and companies that may have the means to keep paying as scheduled, but this would be purely optional on their part, and since it would actually be a benefit to the entire financial system if they do, they would receive a small discount for doing so. For example, if their normal payment was $1,000, they would be able o pay $950 and receive credit for the full $1,000. Also, people that had the means may want to do it this way simply to avoid adding to the length of their lease or mortgage. Regardless though, the key is that it is entirely up to them what they do.
Of course, there is a price to be paid somewhere down the line for this flexibility, first with the landlord, in a lease situation. Frequently, they are operating an income property as a business, and have their own expenses that rent payment must cover, including very likely, a mortgage. Because of this, they get the same freedom to defer their payments. The same principle applies here…they do not have to collect, if they do not have to pay. Ultimately, however, you do get to the bank. Someone is holding the mortgage on that property, and they will not be receiving their money. And for them, there are two ways of dealing with this. First, by temporarily modifying the rules pertaining to banks and asset ratios, etc., not being quite as well capitalized could be temporarily overlooked, or in more extreme cases, this is where the Federal government comes in with a no interest loan of capital to the bank to keep them solid and functioning like normal. This is far better than the government providing financial assistance directly to people, because that never comes back. By this being a loan, specifically, a zero interest loan, it costs the bank nothing to access, and the government knows they will eventually get their money paid back. In addition, unlike loaning an individual or a small business money to get through a period of depressed income, you know the bank has the revenue coming in, eventually. With an individual or a business, that lost time can never be regained, and loan repayments on top of normal expenses, even once income does return can be an impossibility for many.
Edit: Listening to President Trump say that he is going to order that no one be evicted or foreclosed on during this time. Seriously? What does that help? Will someone who is barely able to afford their rent or mortgage now, be able to bring their payments current by making double payments three months from now to prevent the eviction or foreclosure that will ensue as soon as the order is lifted? That is what I mean by knee jerk reactions and band-aids, and they are coming from EVERYONE in both parties, not just the President.
So with this one fairly simple element, you have just solved the entire problem surrounding real estate, both places of business and housing, through a devastating economic time, and no one takes a loss, including the government. The other element that makes this particularly attractive is that time, nearly always, benefits the owner of a property, as real estate generally does appreciate, so they are not losing anything the way say a vehicle leasing company might lose a little in residual value by extending a lease an extra three months with no extra revenue to cover the extra depreciation, but we can address that a little differently. For right now, businesses will still have a place to start working in again when the crisis is over, and people will have a place to live.
On top of that, essential businesses in particular will receive a very unique advantage here. They are continuing to operate during the crisis, meaning they have the revenue their plan is built around, and maybe even more than usual if demand is especially high, but they have the same option to defer their rent or mortgage payments as everyone else, and that gives them an incredibly rare opportunity to save cash, increasing the overall stability of their business and providing a much more solid base from which to grow in the future, improve operations, pay employees more or offer better benefits. In the grand scheme of things, given their importance as an essential business, this is a fair and just reward and only serves to stabilize our economy overall in the long run.
Utility Bills (Gas, Electric, Phone, Internet, Cable, Water, Trash Collection)
This is a little bit of a different situation than mortgage and rent payments, but nearly as critical. These bills for individuals and small businesses can add up to a hefty sum, and with no income, can also be untenable, yet, we obviously cannot “shelter in place” without many or all of these services. There are two challenges we face then. First, the companies or government agencies that provide these services need to continue to function themselves, so they need to maintain their stream of revenue during this time in order to pay their employees that need to continue working, and they need to continue to maintain all equipment and the system that provides their respective services, whether that is the electric grid or garbage trucks. Second, we cannot simply add months to the end of a mortgage or lease to defer payments.
The plan for these bills would be to allow all customers, businesses and individuals, to stop paying their bills during each month of the declared emergency, but continue to accrue the balances due without interest, penalties or threat of discontinuation of services. Once the emergency is lifted, customers of these services would have the option to pay this “delinquent” amount in equal monthly payments spread over either 12 or 24 months, on top of their normal bill. For example, if a customer normally pays around $300 a month for these various services, and the emergency goes on for 3 months, they will have a $900 bill due. We could offer them a discount to pay it all right away as soon as the emergency is lifted, or they could choose the 12 or 24 months plan that would allow them to pay either $75 or $37.50 extra per month until it is paid off…or rather, something that is manageable.
In the interim, if these businesses or local governments needed a cash infusion to be able to continue to function, they would also be eligible for interest free loans from the Federal government to sustain them, and these would be paid back as the company is paid back by customers. The end result is that just like mortgages and rent, the total amount originally owed is paid by the customers who received the services, and the taxpayers are not saddled with the expense long term, but we took another burden off of the economy during this health emergency.
Revolving Credit, Term Loans and Student Loans
Term loans such as car loans/leases and student loans would be handled just like mortgages and rent, with monthly payments suspended wit no interest, penalties or negative credit reporting, and the number of months skipped will simply be added to the end of the term. Payments on revolving credit, such as personal credit card balances and business lines of credit, would have a $0 monthly minimum payment and interest would not be accrued during the emergency. Access to remaining available credit would continue to be available to the debtor, and no negative credit reporting or cutting off of credit would be allowed. Interest and payments would resume once the emergency is over, and in the interim, if the banks or financial institutions needed a cash infusion to float the emergency period until payments are resumed, the same interest free loans from the Federal government would be offered.
This is a unique category, but one that is a significant burden on employers/businesses and individuals, and like utilities, you cannot simply stop providing the service, so they would be handled similarly. Premiums would not be required to be paid, but insurance policies would remain in effect. Accrued premiums that went unpaid would ten be paid off interest and penalty free over a period of time, on top of future premiums. The term would need to be flexible enough, and may need to be longer than the options for utility bills, possibly extending to 36, 48 or even 60 months, but the concept is the same…everyone pays everything they owe over time, the insurers collect everything they are owed, and if cash is required to pay claims during this time period, interest free loans would be made available by the Federal government up to the total amount of deferred payments.
While other taxes, such as income and sales tax, would continue to be paid as normal, in real time (i.e. withholdings), property tax payments would be suspended, and due dates would be extended beyond the emergency period. The accrued unpaid taxes would be ultimately paid over a period of 12 or 24 months, with discounts offered to prompt, lump sum payments, and the same interest free loans offered to float the local municipalities as needed so that they can continue to fund the education system, police, fire, and everything else property taxes are required.
By doing this, you have eliminated nearly all of the financial burden on every individual and business, large and small, during this time, with only consumables such as food or gas in your car still requiring money, as well as payroll for businesses that are still operating, and therefore, you have eliminated the need for huge cash outlay in the form of government aid, and just as importantly, eliminated the scenario of crushing debt once the crisis is over.
Loans directly to individuals and businesses, even interest free, DO NOT help, because while they may offer a bridge for the short term, once repayment begins, they will frequently be untenable. The additional loan payments will likely be more than anyone can handle because in both cases, income or revenue is not going to be any bigger than it was before the health crisis, and what was lost during the crisis cannot be made up for. In other words, when I hear people suggesting they offer a small business a loan to help them with expenses during a shut down, that is the very definition of wasted money. You need to eliminate these expenses because there is no revenue to support them, and that revenue will never be made up.
Loans that I AM proposing are only being extended to entities that actually will recoup all lost revenue over time, above and beyond their typical revenue once the health emergency is over, so they all have a clear path to repayment without crippling their business for years to come.
Just think of a payday loan for a poor person if you want to see what a recipe for disaster this is.
The Best Solution for Sort Term Survival and Long Term Recovery
This really solves the two major short term issues:
- Short term survival of all individuals, by eliminating virtually all financial burden without major cash outlay.
- Preservation of all businesses during this time, regardless of size, by eliminating the expenses that currently do not have a revenue stream to support them.
Long term recovery, it follows, is then not really an issue, as businesses can effectively resume operations shortly after the health crisis is over, and should be able to pick up where they left off without the financial burden and debts that would have normally been accrued during the period of shut down. As a small business owner myself, I can promise you that this debt, no matter how favorable the terms would cripple and even bankrupt a significant number of small businesses, which means millions of people out of work, billions in unpaid debts trickling up and hurting other industries, and ultimately leading to a variety of government bailouts that could cost trillions.
Alternatives Being Proposed by Congress
The two things I am predominantly seeing being discussed are both recipes for disaster.
First, with the notion of sending checks for $1,000 to individuals, you are looking at a single payout of roughly $275 billion each time it needs to be done, and we have no idea how long this emergency will last. This could need to go on for a year or more given the number of businesses that will never re-open and the subsequent job loss, and the worst part is that $1,000 a month, if unemployment ends up running 20% or more as some predict, isn’t even enough to sustain people. It helps, but it is not enough. The second worst part of this concept is that this money will not even be spent in a way to stimulate the economy. It’s not going to be disposable in that sense. It will go to banks and it will go to insurance companies, not the economy at large because the first thing it will be used to pay by most is rent or mortgages…so it is effectively a handout to the banking industry, even if it does pass through the hands of struggling people.
The second problem is that industry bail outs really do not help either. The money goes to pay expenses during a time when there is no revenue, but again, it does nothing to help in the future, and is really just wasted money, when you can just as easily insure the survival of businesses during this emergency by eliminating the burden of expenses. For example, with two of the largest industries crippled by this pandemic, airlines and cruise lines…airplanes that are parked and not being flown have no expenses…no maintenance, no flight crew, no fuel, suspend airport fees, and the airline does not bleed money while shut down. Cruise ships are the same…they do not cost anything if they are simply docked while this passes, assuming payments on the original purchase are suspended temporarily.
The real frightening numbers:
The United States has an annual Gross Domestic Product (the total value of all goods and services produced in the United States for the year) of $19.39 Trillion, and we have a total combined individual reported income of roughly $11 trillion. Of course, because of essential services and businesses, the country is not being completely shut down, but even if you take approximately 50% of those figures, you are looking at $15 trillion (or $1.25 trillion per month) that would need to be replaced by the Federal government for each month this pandemic has us shut down if you want the country to resume as it was before the emergency began.
$1.25 TRILLION PER MONTH
Anything less than this, and someone or something will be financially crippled…and sadly, that is to just support the status quo of an economy that wasn’t working for half of the people in this country to begin with. This is of course compared to essentially zero cost to implement the PAUSE plan because the cost of money right now is basically zero.
Secondly, do you trust Congress, or if you are in Congress, do you trust the other side of the aisle to dole out this $1.25 trillion as legitimately needed, or do you see, as I do, a system that is more ripe for corruption and political favor than anything we have ever seen? Do you trust THIS President to dole it out in a way that benefits everyone, or do you assume, like I do, that it will be spent to buy re-election, first and foremost.
The Positive End Result
The positives of PAUSE, are many:
- Everyone can now afford to do what they should be doing, which is to stay home if they do not perform an essential service and stay safe, reducing the burden on the health care system that puts everyone at greater risk.
- If people are unemployed, by eliminating all expenses, traditional unemployment compensation is actually sufficient to cover remaining expenses such as food and medicine.
- When this health crisis passes, ALL businesses can get back to work without excessive burden meaning they are at least as sustainable as they were before the pandemic struck, meaning the economy also picks up where it left off and people can go right back to work at the jobs they had previously.
- It is a flexible program that can be extended for as long as necessary, and could also allow for a staggered return to normalcy, allowing each industry to resume to normal operations as the situation dictates. Given the nature of this pandemic and the fact that no one has any idea how long this may last, it is sustainable for any period of time. The other proposals are basically an open check book using tax dollars and we have no idea where the bottom is.
- It does not explode the deficit while simultaneously helping everyone IMMEDIATELY and for as long as necessary.
- It means the Federal government preserves its biggest bullet in this situation, which would be to do some sort of cash infusion to actually stimulate the economy by providing people with disposable income once all of this is over if it is needed to get growth jump started.
- For essential businesses and employees that continue to work during this time, by still offering them the same flexibility to defer all of these expenses, it gives close to 100 million people an opportunity to actually get ahead in life for the first time ever. Just think about your own situation, or the situation of a small business if they could operate with no expenses for a few months, yet still maintain their usual or likely slightly increased revenue. That could literally be life changing for many, and worst case, it is a HUGE amount of disposable income that is suddenly available for people to spend right back into the economy…healthcare workers taking vacations, buying new cars, paying off debts that have hamstrung them for years…all of it…LIFE CHANGING.
- For businesses and individuals that have the ability to continue paying their bills during this time…they can do so, and receive a discount on the expenses for a period of time. It adds to the bottom line of successful businesses, and helps individuals save some money, while also reducing the overall burden on the system and the need for Federal loans.
- This plan eliminates the possibility of political corruption, favors and partisan divide/priorities. In fact, either Congress, not the President gets to decide who gets what benefits, they only get to decide how long to continue the plan.
It’s not how much you spend, but rather how you spend it, and our government, including both parties, need to do things a little differently than the way they have always been done. This plan is good for EVERYONE.
When is the last time you could say that about ANY legislation?