President Biden has outlined his spending relief package, a moderate sum of $1.9 trillion, about two-thirds of the combined spending from the $2.3 trillion and $900.0 billion emergency spending packages enacted by the previous administration. This program reveals insights into how the new administration plans to tackle some of the most pressing and complex problems facing the economy as a result of the COVID-19 (coronavirus) pandemic, such as impending evictions and foreclosures, state and local government financing and vaccine rollouts.
Housing and forbearance
The current administration is seeking to put direct payments into hands of cash-strapped Americans, sending $1,400 stimulus checks to those earning an annual gross income less than $75,000. These checks are expected to help cover expenses, particularly for homeowners and renters who may be facing eviction or foreclosure. Direct payments are likely to prevent a financial meltdown within the Real Estate sector in the United States, specifically within the Apartment Rental industry in the United States, while also helping to stave off insolvency in the Commercial Banking and Real Estate Loans and Collateralized Debt industries in the United States. Along these lines, the current administration has also extended forbearance until March 2021, which has bought some time for renters, borrowers and creditors alike; however, with back rent and higher mortgage payments looming, problems may still arise.
State and local finances
The proposed spending includes $350.0 billion for state and local governments to bridge budget shortfalls. For many states, budget revenues are dwindling as liabilities pile up in the form of unemployment insurance, likely necessitating a future increase in taxes. This increase would send states into a downward spiral of capital flight, similar to Illinois and, to a lesser extent, New York.
Overall, these funds for states from the federal government would get state-sponsored projects moving again, specifically in the Construction sector in the United States, such as the Elevated Bridge and Highway Construction industry and the Municipal Building Construction industry in the United States. This expansion in social services, funded by the national government rather than by an increase state taxes, will likely serve to attract more enterprise formation and population growth, serving to reverse the downward trajectory in state economic performance.
COVID-19 response
Lastly, the current administration has outlined $400.0 billion for direct pandemic relief to accelerate vaccine rollouts and to bolster the vaccine supply chain. These funds will likely be dedicated to purchasing and distributing more vaccines, which is expected to improve performance in the Brand Name Pharmaceuticals Manufacturing and Generic Pharmaceuticals Manufacturing industries in the United States. Increased funding may also ease constraints on the Medical Supplies Wholesaling industry in the United States, which is of critical importance in getting vaccines from manufacturers to distribution centers and the offices of primary care doctors to be given to the population.
Despite this, as more Americans get direct payments and get vaccinated, and as state and local financing improves, growth is on the horizon. However, a massive increase in the budget deficit and entitlement spending, as well as in the debt to gross domestic product ratio, spells trouble in the form of higher inflation, possibly higher taxes and overall reduced economic efficiency.
