COVID-19: US Economy in a Free Fall Amid Lockdown and Quarantine - Essay Sample

Introduction

The outbreak of the COVID-19 pandemic has ripped through some of the biggest cities of the United States hence paralyzing most economic activities. The implementation of measures such as quarantine and lockdown has increasingly frozen the economy in an unprecedented manner. The American stock market has gone through a gradual process of sinking since the peak of Coronavirus disease hence wiping profits of the last three years. A significant proportion of the American economy is made up of consumption which has significantly declined as a result of the closure of businesses and the decline in household purchases due to the effects of COVID-19 on companies and jobs (Chris, n.d.). However, the U.S Congress has sanctioned a considerable stimulus budget that would provide hundreds of billions in new expenditure, which would enhance support to unemployment insurance and also facilitate cash handouts to Americans of low and middle-class income. The stimulus bill would support the laid-off workers to meet their daily needs until the economy begins to rise again.

Effects of COVID-19 on the American Economy

The novel COVID-19 has significantly affected the American economy as several businesses are mandatorily closed down as a result of the lockdown. Hence, the increase in closure of companies has resulted in more layoffs, thus the high cost of the crisis. Therefore, the increase in layoffs is likely to result in increased unemployment cases, which implies the decline in the rate of consumption. Additionally, the immediate impact of COVID-19 on the GDP is expected to result in a financial crisis as businesses and consumers are likely to default loans. Even though the Federal Reserve has implemented measures to offer liquidity to economic markets, there is still a need for more action to keep credit available to business enterprises and individuals (Chris, n.d.). Hence, despite the USD 2 trillion stimulus package that was enacted as an emergency response, there is no doubt that most Americans are yet to be faced with economic hardships that should be addressed.

The COVID-19 pandemic has led the American economy to enter contraction as there are claims from unemployment insurance showing reasonable spike and the possibility of the contraction. Several Americans have even now lost their professions at a higher rate than that which jobs were lost at the peak of the Great Recession. Also, COVID-19 has paralyzed the American economy through the implementation of social distancing rule but also through the decline of the global demand in the world markets, which has complicated the supply chain hence causing a significant decrease in the American economy. The factors of the decline in need in the global market, together with economic disruption in response to the virus outbreak, have led to significant economic contractions in the history of the United States (Shambaugh, 2020). Hence, the American economy faces not just the problem of lack of liquidity but also a temporary stop in the operation of economic activities due to health restrictions and even the concern for solvency for several organizations and individuals.

Role of Federal Reserve in Economic Defense

The American Federal Reserve has always been in the frontline in circumstances of economic defense. However, it has reduced interest rates to zero and commenced on the purchase of assets besides injections of liquidity into financial markets in the current case of COVID-19. However, there is still the possibility of contraction of the economy despite the measures of the Federal Reserve as businesses are shut and travel bans imposed. Moreover, the Federal Reserve has by now limited the charges to almost zero as it is out of conformist shells to motivate the budget hence exposing it to the use of alternative facets like the purchase of assets or presumptuous management. Generally, the Federal Reserve can help the economy by creating stimulation of more comfortable and cheaper borrowing and also motivating organizations and consumers to enhance their investment and increase purchase decisions (Shambaugh, 2020)s. However, COVID-19 has caused uncertainty regarding the eventual outcomes, and the financial fallout that may complicate the borrowing process for organizations despite the rates, and also, the option value of the pending resolutions of the pandemic would equally slow economic investments.

Coronavirus Aid Relief

Despite the economic downturn, several fiscal policies have been embraced by the United States to cushion the downward shock and set the circumstances for the economy to enable effective bound back after the set constraints are lifted. For instance, the American House of Representatives passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which the president signed into law. The bill is established upon the pre-existing version of the CARES Act except that the recently signed statement is intended to provide more robust support to individuals and businesses as well as the changes to the tax policy (Garrett et al., 2020). Some of the aspects of the bill include the Expanded unemployment insurance (UI), which is meant for employees besides $600 weekly together with other benefits set aside for people who are not qualified for the UI funds such as the entrepreneurial, autonomous workers or even people with limited work history. Another component of the bill is $350 billion, which is assigned for the Paycheck Protection Program, which is intended to support small companies that have been influenced by the COVID-19 pandemic and the subsequent economic downturn.

Other facets of the CARES Act also include the Recovery Rebate for specific taxpayers meant to provide $1,200 refundable tax tribute for individual taxpayers. However, the rebates are not intended to be counted as taxable income for recipients because it is a credit in contradiction of tax obligation and is refundable for taxpayers with no tax accountability to offset. Therefore, the CARES Act is an essential approach towards the provision of monetary relief to people and productions that are faced with hard economic times as a result of the novel Coronavirus pandemic (Garrett et al., 2020). However, there are facets of the bill that could be improved, for instance, representatives should deliberate agreeing various states and even metropolises more agility to use the reprieve funds for expenditure associated to coronavirus like it was earlier intended in the budget. Also, some tax provisions in the bill that do not address the public health catastrophe or the economic recession should be revised, such as the fractional above-the-line deduction for generous offerings.

Government Response to Economic Downturn

Companies usually become bankrupt under normal circumstances due to various reasons such as bad decision making, market competitors, or even bad luck. Hence, the government cannot take responsibility for all economic failures. However, the American government must maintain employment and business relationships to prevent the economy from bouncing back. Therefore, support is necessary amid the current crisis in cases where bankruptcy is most likely to disrupt employment and supply chains. However, it would also be essential to consider how the economy would bounce back after the contraction (Shambaugh, 2020).

Moreover, the government should not only help particular companies but relatively emphasize on the general operation of the economy. Minor and medium companies may demand support when more substantial companies have access to economic markets for liquescency and even more significant cash investments. However, organizations that have remunerated out all their finances to stakeholders through buybacks can be susceptible, although the stakeholders can recoup the significant returns.

Generally, the government can also make unswerving contributions to account for some of the payroll expenditure or returns losses. Considering the hesitation of economic progress, several firms may not take on more debts and can limit their operations if liquidity is offered on stringent conditions. However, covering part of the expenditure of various organizations or even making up revenue shortfalls can keep several organizations in operation. Consequently, the government is a critical play in the economy because vast amounts of money are paid to the administration and also paid out by the same administration daily (Shambaugh, 2020). Hence, the most significant policy would aim at delaying payments such as tax filings, payments of student debts, and even payment of small business loans to enable families and also organizations to survive through the challenging moments of economic downturn. However, the government can increase payments to contractors and sellers to enhance their cash flow during the awkward moment of the crisis.

Conclusion

In summary, the COVID-19 pandemic has ripped through some of the biggest cities of the United States hence paralyzing most economic activities. The epidemic has wiped significant profits out of the American stock market by affecting consumers who make up the most significant percentage of the American market. The Coronavirus pandemic has led to an economic downturn as a result of the precautionary measure put in place like the lockdown. However, the government has mandated stimulus to help the country through the current economic challenges and the downturn. The stimulus bill would support the laid-off workers to meet their daily needs until the economy begins to rise again. The American House of Representatives passed the Coronavirus Aid, Relief, and Economic Security (CARES), which is intended to provide more vigorous support to people and businesses as well as the changes to the tax policy. Hence, the American government has embraced measures to provide support to households and organizations to limit their expenditure amid this crisis.

References

Chris Miller. (n.d.). The effect of COVID-19 on the U.S. economy. Foreign Policy Research Institute. https://www.fpri.org/article/2020/03/the-effect-of-covid-19-on-the-u-s-economy/

Garrett Watson, Taylor LaJoie, Huaqun Li, & Daniel Bunn. (2020, April 22). Congress approves economic relief plan for individuals and businesses. Tax Foundation. Retrieved April 30, 2020, from https://taxfoundation.org/cares-act-senate-coronavirus-bill-economic-relief-plan/

Shambaugh, J. (2020, March 27). COVID-19 and the US economy: FAQ on the economic impact & policy response. Brookings. https://www.brookings.edu/blog/up-front/2020/03/23/covid-19-and-the-u-s-economy-faq-on-the-economic-impact-policy-response/