When I was a kid, I was an early riser. I was the youngest of three children who lived with my single Mom, a school teacher, as well as my grandparents, who also lived with us. On weekend mornings, my Mom would love to sit on the couch, sip her coffee and read the newspaper in a house that was for the moment, quiet. Then comes in little Jason. For the record, I have always had very vivid dreams and I have always talked…a lot. I would come out, sit down next to Mom, and begin to tell her about my dreams or thoughts I had at the moment. Mom says she would finally put the paper down after reading the same sentence for the third time. She was relenting after her attempts at placating me did not work. My Mom was not the only person who noticed my proclivity for chatter. My grandmother, who was a lot like the character Sophia Petrillo from the TV show Golden Girls, affectionately named me “motor-mouth.”
To sum it up, if you ask me for the time, I may tell you how to build a clock. The goal of this blog is to fight this tendency and not ramble too much. In an age of constant news updates, I would like to provide you with some acute points to consider. The goal is to help to provide a lens for you to view the environment around us, specifically as it applies to finance, business, retirement, innovation and economics. This first post will focus on the current economic situation we are all experiencing, specifically the players that you are reading about in the headlines and their plan.
When many Americans watch the news, especially regarding fiscal or monetary policy, they hear a combination of terms and concepts that are “Greek” to them. My hope is to clear up these blurry concepts and give you my “two cents.”
One of the main facets of the early stages of the coronavirus pandemic is how our federal government has responded. This response, however, comes from two different places, the Federal Reserve (Monetary Policy) and Congress (Fiscal Policy). I would like to highlight some important elements of the actions taken from each of these sources.
What is Monetary Policy?
When we hear about the Federal Reserve or the Fed. Reserve Chairman Jerome Powell, Monetary Policy is being referenced. This is the central bank. One very important point worth noting is that the original $1.5 trillion dollars from the Federal Reserve was not a bailout. Taxpayer dollars were not used; this was not a subsidy. These were short-term loans to institutions that were collateralized by Treasury securities. Basically, the Federal Reserve said, “I will loan you the money, however, you have to give me something in return as collateral.” In turn, this has allowed companies and government entities to obtain cash so that they could pay various obligations. This is extremely critical to the structure of our financial system. If there is a lack of liquidity (easily accessible cash), history has shown us that hysteria can ensue (think of a run on the banks like in the classic movie It’s a Wonderful Life).
What is Fiscal Policy?
The management of taxpayer dollars (if, in fact, our representatives actually kept to a budget). Most Americans are familiar with how Congress spends money as if it simply grows on trees. This is Fiscal Policy. However, focusing on current events, we are talking about bailouts and emergency loans to keep individuals, as well as both small and large corporations, afloat. One aspect of the bill that I will applaud is the Paycheck Protection Program (PPP). This program will provide a loan to small businesses so that they can continue to pay their employees and as well as other bills. If small business owners maintain or quickly rehire employees, as well as maintain employee salary levels, the principal of the loan will be forgiven. One important aspect I think everyone should be aware of is that 75% of the money must be used for payroll costs, with the remaining 25% allowed to be spent on other expenses such as rent, utilities or mortgage interest.
Okay, I understand the players and their plan, but will any of this really help me and my family?
I think as Americans watch the news there is a desire to understand the basics (the players and their plan), but the question remains, will this help? I believe it will help, but to what extent, is too early to tell. Unfortunately, there are numerous pragmatic challenges that arise when trying to execute the plans contained in stimulus legislation. My hope and prayer are that the government keeps things simple for individuals and businesses to get what they need. However, as I am sure we can all agree, it is sometimes difficult for the government to keep things simple. The best thing you can do right now is stay informed despite the confusion and noise. As I previously mentioned, while every blog post won’t be devoted to the COVID-19 pandemic, hopefully I can help provide a little clarity during this challenging time.
These days “2 cents” won’t buy you much, however, hopefully it will provide some value to you and your family.
The information contained in this material is for informational purposes only. It is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and J. Biance Financial are not affiliated companies. 589962