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Cash can't fix the economy's problems until the coronavirus is curbed

There's plenty of money. It's just not moving to where it's needed.

Driving the news: Thursday's jobs report showed 4.8 million jobs created in June, but those were overwhelmingly people beginning to return to places where they had been temporarily laid off. The number of "permanent job losers" went up, not down, rising 25% in just one month to 2.8 million from 2.2 million.


Why it matters: We just ended a quarter in which economic activity is estimated to have fallen at a 37% pace. Unemployment stands at 11.1%, while the "full recall" unemployment rate, which assumes that 100% of temporarily laid-off workers return to their old jobs, is north of 7%. Most worryingly of all, the number of newly confirmed COVID-19 cases just rose by more than 50,000 in a single day — another new record.

  • The big unanswered question: Whether money can fix any of these problems.
  • We've already thrown $6 trillion at this crisis. Much of it seems to have found its way into the stock market, which rose 20% in the second quarter. A new stimulus bill could add another $1 trillion or so. But far too much of that money just isn't being put to effective use.

The big picture: Cash is deferred expenditure. If money flows into a bank and just sits there, that's a sign of severe economic malaise — the "paradox of thrift." In a healthy economy, individuals and corporations spend freely, and that free spending causes more money to come in tomorrow. In an unhealthy economy, cash gets hoarded and does not contribute to economic activity.

By the numbers: Americans saved 32% of their income in April, and 23% in May — numbers vastly higher than all previous records. Money-market funds now hold $4.7 trillion. Corporate cash balances are similarly surging, and now stand at well over $2 trillion. And the total amount of cash available for spending in checking accounts and other readily-accessible locations is now over $5.2 trillion.

Between the lines: Insofar as the CARES Act was designed to ensure that America didn't run out of money, it succeeded. And the individually-focused elements of the act — the $1,200 stimulus checks and the $600-per-week extra unemployment benefit — worked to cushion the economic blow that hit millions of Americans.

  • The other side: Much of the corporate aid in the act — from $500 billion in emergency relief for businesses to the Fed's Primary Market Corporate Credit Facility — has ended up almost entirely untouched. Even the Main Street lending facility has lent almost nothing.

Small businesses did take advantage of $521 billion in PPP funding, but that money had no visible effect on small-business employment.

  • A huge new NBER paper by Harvard's Raj Chetty and many others takes a detailed look at the effects of the PPP on employment by looking at what happened to employment at companies just above and just below the 500-employee PPP cutoff.
  • Employment trends in the different groups turned out to be "extremely similar," whether or not they were eligible for PPP funds. "There is no evidence that employment went up" in PPP-eligible companies relative to those who didn't receive funding, the authors write, concluding that "the PPP had little material impact on employment at small businesses."

The bottom line: Until the virus lets us truly reopen the national and global economy, very little of that money is going to be spent on hiring, and America will continue to see employment lower than even during the 1950s, before most women entered the workforce.

Schumer: Trump impeachment trial to start week of Feb. 8

The Senate will begin former President Trump's impeachment trial the week of Feb. 8, Majority Leader Chuck Schumer announced Friday on the Senate floor.

Why it matters: Trump is the only president in U.S. history to be impeached twice for “incitement of insurrection" after a violent pro-Trump mob breached the U.S. Capitol, resulting in five deaths.

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CDC shifts COVID vaccine guidance, expanding minimum interval between doses for exceptional cases

Patients can space out the two doses of the coronavirus vaccine by up to six weeks if it’s "not feasible" to follow the shorter recommended window, according to updated guidance from the Centers for Disease and Control and Prevention.

Driving the news: With the prospect of vaccine shortages and a low likelihood that supply will expand before April, the latest changes could provide a path to vaccinate more Americans — a top priority for President Biden.

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Texas attorney general sues Biden administration over deportation freeze

Texas Attorney General Ken Paxton is suing the Biden administration in federal district court over its 100-day freeze on deporting unauthorized immigrants, and asking for a temporary restraining order.

Between the lines: The freeze went into effect Friday, temporarily halting most immigration enforcement in the U.S. In the lawsuit, Paxton claims the move "violates the U.S. Constitution, federal immigration and administrative law, and a contractual agreement between Texas" and the Department of Homeland Security.

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Biden administration unveils 3-pronged plan to combat domestic extremism

White House press secretary Jen Psaki announced at a briefing on Friday that the Biden administration will roll out a three-pronged, interagency plan to assess and combat the thread by domestic violence extremism.

Why it matters: The federal government's approach to domestic extremism has come under scrutiny in the wake of the Jan. 6 attacks on the Capitol by a pro-Trump mob. In his inaugural address, Biden repudiated political extremism, white supremacy and domestic terrorism, vowing to defeat them.

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Senate confirms retired Gen. Lloyd Austin as defense secretary

The Senate voted 93-2 on Friday to confirm retired Gen. Lloyd Austin as secretary of defense. Sens. Mike Lee (R-Utah) and Josh Hawley (R-Mo.) were the sole "no" votes.

Why it matters: Austin is the first Black American to lead the Pentagon and President Biden's second Cabinet nominee to be confirmed.

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House will transmit article of impeachment to Senate on Monday, Schumer says

Senate Majority Leader Chuck Schumer (D-N.Y.) announced that the House will deliver the article of impeachment against former President Trump for "incitement of insurrection" on Monday.

Why it matters: The Senate is constitutionally required to begin the impeachment trial at 1 p.m. the day after the article is transmitted. Minority Leader Mitch McConnell (R-Ky.) had been pushing for the trial to begin in mid-February, arguing that it will force the Senate to delay other important business.

This story is breaking news. Please check back for updates.

Private equity bets on delayed tax reform in Biden administration

In normal times, private equity would be nervous about Democratic Party control of both the White House and Congress. But in pandemic-consumed 2021, the industry seems sanguine.

Driving the news: Industry executives and lobbyists paid very close attention to Treasury Secretary nominee Janet Yellen's confirmation hearings this week, and came away convinced that tax reform isn't on the near-term agenda.

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New Energy Department roles look to animate Biden's campaign themes

The burst of Biden administration staffing picks announced yesterday revealed that the Energy Department (DOE) has newly created roles that reflect what President Biden called campaign priorities.

Driving the news: One new position is "director of energy jobs," which is being filled by Jennifer Jean Kropke. She was previously the first director of workforce and environmental engagement with Local 11 of the International Brotherhood of Electrical Workers.

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