14 BARRON’S March 16, 2020
I
t took a while before Congress,
the Federal Reserve, and global
policy makers were able to band
together during the financial
crisis to heal the global econ-
omy and set the foundation for
an 11-year bull market. As the
spread of coronavirus upends global
markets and the economy, the pres-
sure is on governments to introduce
measures to ease the crisis.
The challenge this time is notably
different: The center of the implosion
in 2008 was the financial sector. The
damage from the pandemic is more
widespread, globally and across sec-
tors. That makes it harder than just
bailing out a sector, like the banks. The
assistance needs to come not so much
from central bankers but policy makers
in the form of significant fiscal spend-
ing. “The most effective tools are going
to be targeted fiscal measures with
specific sectors,” says Sonal Desai, the
chief investment officer of Franklin
Templeton Fixed Income.
Unlike 2008, the coronavirus out-
break is at its core a health crisis as
cases of confirmed infections outside
China increase sharply and public
health officials warn about difficulties
with testing and concerns over hospi-
tal capacity. Macroeconomic policy
will be secondary to a direct health
policy response, Bank of America’s
economists wrote in a note to clients.
Goldman Sachs’ Abby Joseph Cohen
says investors will need to gain confi-
dence that public health officials are
taking the right steps, that government
policy is on track, andthat companies
see light at the end of the tunnel.
Here’s a look at stimulus efforts so
far—and those that are still needed.
HEALTH STIMULUS
On Friday, the stock market rallied
after President Donald Trump de-
clared a national state of emergency,
freeing up $50 billion in disaster relief
to help support and coordinate local,
state, and federal efforts to deal with
the outbreak and set up emergency
centers. The government also removed
constraints on doctors, and on local,
state, and federal officials working to
contain and mitigate the outbreak,
and said it would join with the private
sector to speed up testing. And the
U.S. fast-tracked a new test by Roche
and unveiled a screening site by
Google to facilitate testing.
That comes on top of an $8.3 billion
emergency-spending bill passed by
Congress earlier this month intended
to help finance vaccine research, assist
state and local governments, loosen
restrictions, and allow Medicare bene-
ficiaries to access telemedicine.
MONETARY POLICY
Though they have far less ammuni-
tion left after years of record low in-
terest rates, global central bankers get
an ‘A’ for effort in moving aggressively
in recent days. The Federal Reserve
cut interest rates by half a percentage
point on March 3, and is expected to
cut rates again.
The Fed also said it would inject $1.
trillion and expand the scope of
monthly bond purchases to keep short-
term loans flowing and ease stresses on
the financial system as companies and
investors rush to raise cash.
“The Fed is trying to make sure all
this clears without dysfunction in the
market, so whoever needs cash gets it
without sparking runs or panic,” says
Steven Blitz, chief U.S. economist at
TS Lombard. “Their job is to make
sure the plumbing is open and there
are no failures that cascade to other
parts of the system.”
FISCAL MEASURES
Economists expect two types of
fiscal measures—the immediate to
deal with the cash crunch millions of
people and small businesses will feel
as the country tries to halt the spread
of the virus, and the much broader
fallout from what just about everyone
now expects will be a recession.
Trump waived interest on all student
loans held by government agencies
and said the administration would
disclose other measures soon.
Economists expect targeted assis-
tance for millions whose livelihoods
are tied to industries that will suffer as
conferences and sporting events are
canceled, social distancing pushes
people to stay home and cancel vaca-
tions, and the sick are told to stay put.
HELP FOR COMPANIES
The bigger task is to help with the
economic fallout as industries contend
with spending grinding to a halt, sup-
ply chain disruptions, and a broader
economic malaise as the pandemic
wreaks havoc globally. Don’t expect
2008-like bailouts, in part because this
crisis is so broad-based. But in a press
briefing, Trump opened the door to
helping the airline and cruise-line in-
dustries. Among measures economists
say could be in the mix: payroll tax re-
lief, an infrastructure bill, a push by the
government to spark a capital spending
cycle by accelerating its own purchases
of everything from cars to computers.
Any such big move will take time.
The likely catalyst: A sharp rise in
initial claims for unemployment in-
surance. “When it starts to sky-
rocket—double and triple—that will
get the political attention of the Re-
publicans and Democrats—to get a big
effort together,” Blitz says.
HELP FOR FAMILIES
On Friday, the House passed a bill
to provide support to families, in-
cluding facilitating free coronavirus
testing for everyone including the
uninsured, strengthening food banks
and student meals as many schools
were closed. Economists are looking
at other measures like targeted tax
cuts, paid sick leave, and beefed-up
unemployment insurance.
Economists are looking for other
measures to act like a financial safety
net, such as paid sick leave, targeted
tax cuts, and beefed-up unemploy-
ment insurance. The administration
may seek other ways to help small
businesses with low interest rate
loans and other measures, the type of
measure economists have said is cru-
cial.
“You need to get the money into
the hands of the people who are go-
ing to spend it—consumers or com-
panies that are going to spend it right
away, not save it but rather use it, for
example, to keep workers in their
jobs and keep the economy sup-
ported,” says Deutsche Bank Securi-
ties U.S. economist Torsten Sløk.B
How to Ease the
Crisis: A Checklist
Policy makers have to act fast to restore faith in the markets. The Fed,
Congress, and President Trump have started, but there’s more to do.
BY RESHMA KAPADIA
Jim Watson/AFP via Getty Images“You need to
get the
money into
the hands of
the people
who are
going to
spend it.”
Torsten Sløk,
Deutsche Bank
Securities U.S.
economistPresident
Trump at the
White House
announced a
national emer-
gency for the
coronavirus
outbreak.