In: Accounting
In iMarch i2020, iU.S. ilawmakers iagreed ion ithe ipassage iof ia i$2 itrillion istimulus ibill icalled ithe iCARES i(Coronavirus iAid, iRelief, iand iEconomic iSecurity) iAct ito iblunt ithe iimpact iof ian ieconomic idownturn iset iin imotion iby ithe iglobal icoronavirus ipandemic. iOn iMarch i27, i2020, iPresident iTrump isigned ithe ibill iinto ilaw. iWith imost iforecasters ipredicting ithat ithe iU.S. ieconomy iis ieither ialready iin ia irecession ior iheading iinto ione, ipolicymakers icrafted ilegislation ithat idedicates ihistoric igovernment ifunding ito isupport ilarge iand ismall ibusinesses, iindustries, iindividuals iand ifamilies, igig iworkers iand iindependent icontractors, iand ihospitals.
1. $367 ibillion iloan iand igrant iprogram ifor ismall ibusinesses
2. Expansion iof iunemployment ibenefits ito iinclude ipeople ifurloughed, igig iworkers, iand ifreelancers, iwith ibenefits iincreased iby i$600 iper iweek ifor ia iperiod iof ifour imonths
3. Direct ipayments ito ifamilies iof i$1,200 iper iadult iand i$500 iper ichild ifor ihouseholds imaking iup ito i$75,000
4. Over i$130 ibillion ito ihospitals, ihealth icare isystems, iand iproviders
5. $500 ibillion ifund ifor iloans ito icorporate iAmerica i(which iDemocrats icalled ia islush ifund iwhen ithe iTreasury iwas isolely iin icharge) ioverseen iby ian iinspector igeneral iand ia icongressional ipanel, iwith ievery iloan idocument imade ipublic
6. Cash igrants iof i$25 ibillion ifor iairlines i(in iaddition ito iloans), i$4 ibillion ifor iair icargo icarriers, i$3 ibillion ifor iairline icontractors i(caterers, ietc.) ifor ipayroll isupport
7. Ban ion istock ibuybacks ifor ilarge icompanies ireceiving igovernment iloans iduring ithe iterm iof itheir iassistance iplus ione iyear
8. $150 ibillion ito istate iand ilocal igovernments
To ihelp iyou ibetter iunderstand ihow iCOVID-19 ilegislation iaffects iyour ifinancial iwell-being, ithe ilist ithat ifollows iincludes iprovisions ithat imay iapply ito iyour isituation. iExpect ithe ilist ito ichange iin ithe idays iand iweeks ito icome, ias inew iideas ibecome ilaw. iIn iother iwords, icheck iback. iHere iare ithe ikey ipoints, itied ito ithe ilaws ithey're ipart iof.
i i i i i i i i i i i i i i i i i iPhase i1 ilaw iestablishes ia i$20,000,000 i“Disaster iLoans iProgram iAccount” ito iprovide imoney ito ismall ibusiness iowners iin ithe iform iof ilow-cost iSBA iloans ito ihelp iovercome ithe ieconomic iimpact iof iCOVID-19 ion itheir ibusiness. iNeedless ito isay, ithis iaffects iemployees ias iwell, isince ia iclosed ibusiness ihas ino iemployees.
Phase i3 ioffers i$349 ibillion ito iprovide itax icredits ito ismall ibusinesses iand iallows ithem ito idefer ipaying ipayroll itaxes iso ithey ican icontinue ipaying iemployees. iBusinesses iwith i500 ior ifewer iemployees ican ireceive ia i"Small iBusiness iInterruption iLoan" iso ilong ias ithey icontinue ito ipay iworkers. iThe iloan ican ibe iused ito icover i100% iof isix iweeks’ ipayroll i(capped iat i$1,540 iper iweek iper iemployee). iThe ilaw icalls ifor ithe iloans ito ibe iforgiven iif ithe imoney iis iused ito iretain iworkers ior icover ibasic ioperational iexpenses.4
Phase i3.5 iadds i$310 ibillion ito ithe iSmall iBusiness iInterruption iLoan iprogram, ialso iknown ias ithe iPaycheck iProtection iProgram. iAt ileast i$60 ibillion iof ithat iamount imust igo ito ismall ilenders. iPhase i3.5 ialso iadds i$60 ibillion iin inew ifunding ito ithe iEconomic iInjury iDisaster iLoan i(EIDL) iprogram, i$50 ibillion ifor iloans iand i$10 ibillion ito irefresh ithe iup ito i$10,000 iper irecipient iforgivable iloan iadvance.
i i i i i i i i i i i i i i i i iA ibailout iis iwhen ia ibusiness, ian iindividual, ior ia igovernment iprovides imoney iand/or iresources i(also iknown ias ia icapital iinjection) ito ia ifailing icompany. iThese iactions ihelp ito iprevent ithe iconsequences iof ithat ibusiness's ipotential idownfall iwhich imay iinclude ibankruptcy iand idefault ion iits ifinancial iobligations.
Businesses iand igovernments imay ireceive ia ibailout iwhich imay itake ithe iform iof ia iloan, ithe ipurchasing iof ibonds, istocks ior icash iinfusions, iand imay irequire ithe irecused iparty ito ireimburse ithe isupport, idepending iupon ithe iterms.
i i i i i i i i i iBailouts iare itypically ionly ifor icompanies ior iindustries iwhose ibankruptcies imay ihave ia isevere iadverse iimpact ion ithe ieconomy, inot ijust ia iparticular imarket isector. iFor iexample, ia icompany ithat ihas ia iconsiderable iworkforce imay ireceive ia ibailout ibecause ithe ieconomy icould inot isustain ithe isubstantial ijump iin iunemployment ithat iwould ioccur iif ithe ibusiness ifailed. iOften, iother icompanies iwill istep iin iand iacquire ithe ifailing ibusiness, iknown ias ia ibailout itakeover.
i i i i i i i i i iThe iU.S. igovernment ioffered ione iof ithe imost imassive ibailouts iin ihistory iin i2008 iin ithe iwake iof ithe iglobal ifinancial icrisis. iThe irescue itargeted ithe ilargest ifinancial iinstitutions iin ithe iworld ithat iexperienced isevere ilosses ifrom ithe icollapse iof ithe isubprime imortgage imarket iand ithe iresulting icredit icrisis. iBanks, iwhich ihad ibeen iproviding ian iincreasing inumber iof imortgages ito iborrowers iwith ilow icredit iscores, iexperienced imassive iloan ilosses ias imany ipeople idefaulted ion itheir imortgages.
Central ibanks ihave ithree imain imonetary ipolicy itools: iopen imarket ioperations, ithe idiscount irate, iand ithe ireserve irequirement. iMost icentral ibanks ialso ihave ia ilot imore itools iat itheir idisposal. iHere iare ithe ithree iprimary itools iand ihow ithey iwork itogether ito isustain ihealthy ieconomic igrowth.
1. Open iMarket iOperations
Open imarket ioperations iare iwhen icentral ibanks ibuy ior isell isecurities. iThese iare ibought ifrom ior isold ito ithe icountry's iprivate ibanks. iWhen ithe icentral ibank ibuys isecurities, iit iadds icash ito ithe ibanks' ireserves. iThat igives ithem imore imoney ito ilend. iWhen ithe icentral ibank isells ithe isecurities, iit iplaces ithem ion ithe ibanks' ibalance isheets iand ireduces iits icash iholdings. iThe ibank inow ihas iless ito ilend. iA icentral ibank ibuys isecurities iwhen iit iwants iexpansionary imonetary ipolicy. iIt isells ithem iwhen iit iexecutes icontractionary imonetary ipolicy.
2. Reserve iRequirement
The ireserve irequirement irefers ito ithe imoney ibanks imust ikeep ion ihand iovernight. iThey ican ieither ikeep ithe ireserve iin itheir ivaults ior iat ithe icentral ibank. iA ilow ireserve irequirement iallows ibanks ito ilend imore iof itheir ideposits. iIt's iexpansionary ibecause iit icreates icredit. i
A ihigh ireserve irequirement iis icontractionary. iIt igives ibanks iless imoney ito ilend. iIt's iespecially ihard ifor ismall ibanks isince ithey idon't ihave ias imuch ito ilend iin ithe ifirst iplace. iThat's iwhy imost icentral ibanks idon't iimpose ia ireserve irequirement ion ismall ibanks. iCentral ibanks irarely ichange ithe ireserve irequirement ibecause iit's idifficult ifor imember ibanks ito imodify itheir iprocedures.
3. Discount iRate
The idiscount irate iis ithe ithird itool. iIt's ithe irate ithat icentral ibanks icharge iits imembers ito iborrow iat iits idiscount iwindow. iSince iit's ihigher ithan ithe ifed ifunds irate, ibanks ionly iuse ithis iif ithey ican't iborrow ifunds ifrom iother ibanks.
Using ithe idiscount iwindow ialso ihas ia istigma iattached. iThe ifinancial icommunity iassumes ithat iany ibank ithat iuses ithe idiscount iwindow iis iin itrouble. iOnly ia idesperate ibank ithat's ibeen irejected iby iothers iwould iuse ithe idiscount iwindow.
Central ibanks ioften ihold ithree imajor imonetary itools ifor imanaging imoney isupply. iThese iare:
Open imarket ioperations, iReserve irequirement, iand iDiscount irate
These itools ican ieither ihelp iexpand ior icontract ieconomic igrowth.
Monetary ipolicies iare iaimed ito icontrol:
Inflation, iConsumption, iLiquidity, iGrowth
Perhaps ithe imost istaggering igovernment ibailout ihas ibeen ithe iresponse ito ithe iCOVID-19 ipandemic ithat iswept ithe iglobe iin iearly i2020. iAs ia iresult iof ithis ideadly inew idisease, ihospitals iwere ioverwhelmed iand icitizens iaround ithe iworld iurged ito istay iat ihome. iThis iled ito ia idrastic idrop iin iconsumption ias iwell ias ia ispike iin iunemployment inot iseen isince ithe iGreat iDepression. iAs ia iresult, ithe igovernment icoordinated ia iseries iof iphased ibailouts iof ilarge iand ismall ibusinesses, iextended iunemployment ibenefits, iand igave ievery iworking ifamily iin iAmerica ia icash ihandout iof i$1,200 iper iadult iand i$500 iper idependent ichild i- iAmerica's ifirst itaste iof iuniversal ibasic iincome i(UBI). iTo idate, inearly i$4 itrillion ihas ibeen ideployed ito ikeep ithe ieconomy irunning iin ithe iface iof ithe ipandemic.