Our World on Hold

With Our World on Hold, it seems that most news and conversation is about the current pandemic. For business people, the questions seem to be:

1. How long will it last?
2. How bad will it be?
3. When will life return to normal?

I’m going to be sending out a three-part series with my views on this. However, the three parts won’t be exactly along the lines of the three questions above. Rather, I’ll be sharing three installments on:

1. My take on the current situation and the government response.
2. When I think we’ll get back to semi-normal and what that might look like.
3. When I think we’ll get back to full normal, or maybe a new normal, and what I think that will look like.

So, let’s get started.

Current Situation

Everyone knows we’re in lockdown, life is on hold and we are in uncharted territory in terms of the economy. From record levels of employment, in a matter of weeks, we will experience the worst unemployment in our lives. This sub-cellular piece of ‘bad news wrapped in a protein,’ seems as sudden as September 11^th and far worse than the subprime mortgage bust of twelve years ago.

The federal government’s response has been slow, then sweeping and chaotic. The rollout of the SBA loans was a mess, although the kinks are currently being worked out. The loans require the banks to make loans they really don’t want to make. While guaranteed by the SBA, the banks have to use their own money to make the loans and some don’t have that kind of liquidity. The Fed will probably step in to provide this liquidity and surely the program will need to be expanded.

While getting lots of money into the system was and is important, there are a couple of concerns I have. First, most of the SBA program money isn’t getting to the businesses who most need it. It was written so that almost any business would qualify, whether they needed the money or not. And businesses like retail and hospitality won’t qualify for forgiveness of these loans since their payrolls have gone down.

My second big concern about these programs is the amount of debt the country is accumulating at an alarming rate. We had a trillion-dollar annual deficit before Covid-19, which was completely irresponsible in my view for a ten-year economic expansion. The country should have been running a budget surplus the last few years, but our elected officials seem to be like sailors on shore leave when it comes to spending. Now the deficit will be multiple-trillions of dollars. Someday there will be a reckoning.

How long will the current situation likely to last? I think a few more months, not a few more weeks, although there will be gradual loosening of the lockdowns. Kids aren’t going back to school until September at the earliest. Summer activities involving a gathering of any size will be cancelled.

Next week, more thoughts on how fast things will start returning to semi-normal.