The COVID-19 novel coronavirus has caused a crisis for the world’s economy and markets. With over 137,000 cases confirmed in countries all over the world, the World Health Organization has declared the virus to be a global pandemic, meaning that it will have a sustained global impact. With many countries’ economies already slowing before the pandemic, COVID-19 poses a serious risk of sending many countries into recession and has sent the U.S. stock market, the largest in the world, into a bear market.
In response to this crisis, governments and central banks all over the world have enacted fiscal and monetary stimulus measures to counteract the disruption caused by the coronavirus. Here is a list of what each country or region is doing (all amounts have been converted to U.S. dollars):
- On March 3, 2020, it made an unscheduled cut to the fed funds rate. It slashed rates by 0.5%, double the amount of its recent moves, and the largest cut since the 2008 financial crisis.
- On March 12, the Fed massively expanded reverse repo operations, adding $1.5 trillion of liquidity to the banking system. This means that the Fed extended the amount of short term loans to banks to keep money markets (markets for very short term loans) stable and allow banks to have more cash on hand.
- On March 15, the Federal Reserve set out several pieces of monetary stimulus:
- It cut interest rates by a full percentage point, down to a range of 0.00% to 0.25%. This dropped the fed funds rate to the level it was before the rate increases starting in 2015.
- The Federal Reserve restarted quantitative easing with the purchase of $500 billion in treasurys and $200 billion in mortgage-backed securities.
- The Fed lowered the interest rate on the discount window by 1.5% to 0.25%. The discount window is another way the Fed lends to banks.
- The Fed, as part of a transition to a different type of bank reserves system, lowered reserve requirements to zero, effective March 26. This transition to a new system was already happening but the Fed says this will also help to loosen credit markets.
- The Fed encouraged banks to use their capital and liquidity buffers to lend, which are funds kept in reserve for tough times.
- On March 16, the Federal Reserve increased reverse repo operations by another $500 billion.
- On March 17, the Fed introduced two new programs to help preserve market liquidity:
- The Commercial Paper Funding Facility (CPFF) which allows the Fed to create a corporation which can purchase commercial paper, short-term, unsecured loans made by businesses for everyday expenses. The Treasury authorized up to $10 billion from the Treasury’s Exchange Stabilization Fund (ESF) to help cover loan losses incurred under this program. The program will end on March 17, 2021 unless it is extended. This is actually a re-launch of a program originally launched during the Great Recession, when many businesses were hurt when liquidity in the commercial paper markets dried up.
- The Primary Dealer Credit Facility (PDCF). Starting March 20, the PDCF will offer short-term loans to banks secured by collateral such as municipal bonds or investment-grade corporate debt . The program will run at least six months, and longer if needed.
- On March 18, the Federal Reserve announced the Money Market Mutual Fund Liquidity Facility (MMLF). This is a new program, to lend money to banks so they can purchase assets from money market funds, like with the CPFF, the Treasury is offering up to $10 billion to cover loan losses the Fed incurs from the program. In addition, lending under the program will not effect bank capital requirements. The program is scheduled to run until the end of September. This is similar to the AMLF program launched in 2008 after the collapse of Lehman Brothers caused a major money market fund to fail.
- On March 23, the Federal Reserve released another raft of monetary stimulus including:
- Expanding its asset purchases of both treasuries and mortgage backed securities by an additional $625 billion this week, and committed to continue purchasing however many assets are needed to “support the smooth functioning of markets”
- Expanding the scope of what Mortgage-backed securities it will purchase, now including agency commercial mortgage-backed securities. This means they will buy mortgages backed by government agencies like Fannie Mae for commercial properties like offices.
- Establishing the Primary Market Corporate Credit Facility (PMCCF) to buy bonds and loans banks give to large businesses.
- Establishing the Secondary Market Corporate Credit Facility (SMCCF) to purchase bonds and bond ETFs to provide liquidity for the corporate bond market.
- Re-establishing the Term Asset-Backed Securities Loan Facility (TALF) to purchase asset-backed securities backed by things such as auto loans, student loans, or small business loans.
- Each of these special purpose vehicles will run until September 30, 2020 unless extended, and the Treasury department will cover up to $10 billion in loan losses each from the ESF. In total they will provide up to $300 billion in new financing.
- Expanding the MMLF to include more different types of money market funds.
- Expanding the CPFF to include a wider variety of commercial paper assets, and a reduction in the interest rates for loans from the CPFF.
- It announced that it will soon be rolling out the a “Main Street Business lending Program'” to support small and medium businesses.
On the fiscal side, of things, the following measures have been taken or proposed:
- On March 6, 2020, President Trump signed an $8.3 billion spending bill, currently called “Phase One” of stimulus efforts, to fund efforts to fight the pandemic. Among other things it:
- Funded research on a vaccine
- Gave money to state and local governments to fight the spread of the virus
- Allocated money to help with efforts to stop the virus’s spread overseas
- On March 13, the Democratic-controlled House of Representatives passed a stimulus bill, currently called “Phase Two” of the stimulus, which is waiting on a vote in the Republican-controlled Senate, that included, among other things:
- Free virus testing
- Expanded unemployment benefits
- Additional funds for Medicaid
- A provision requiring paid sick leave for some workers affected by COVID-19
- Also on March 13, President Trump announced a state of emergency, allowing the Federal Government to distribute up to $50 billion in aid to states, cities, and territories.
- On March 17, Treasury Secretary Steven Mnuchin announced that individual and businesses will have an extra 90 days past April 15 to pay their tax bills. he estimates this will free up $300 billion in extra liquidity over this period. Individuals can delay taxes up to $1 million and corporations up to $10 million. Notably, tax return form are still due April 15.
- Also on March 17, Secretary Mnuchin and President Trump suggested a roughly $1 trillion stimulus package, nicknamed “Phase Three,” to the Republican-controlled Senate. The package is just a proposal, many of the details are undecided, and any plan would need to be passed by Congress. Included in the proposed package were:
- $500 billion in direct payments, including a more than $1000 payment to all U.S. adults, excluding millionaires and billionaires
- $50 billion in bailouts for the airline industry
- Upwards of $500 billion for small businesses and other expenditures
- March 17 also saw Democratic leadership in the House of Representatives revise their paid sick leave proposal. In the original version, companies would be required to give workers affected by COVID-19 and qualified for the program, 2 weeks of sick leave at full pay and 10 weeks at 2/3’s pay. The revised proposal limits it to 2 weeks with the next 10 only allowed for workers caring for children whose school or day care is closed down. Among other exemptions the mandate to provide paid sick leave only applies to businesses with fewer than 500 employees. It also sets up a program to reimburse the employers for sick leave pay through a tax credit.
- On March 18, the Senate Republicans approved the Phase Two stimulus package passed by the House earlier in the month without changes. President Trump signed the bill later that day. Senate Majority Leader, Mitch McConnell said that the Senate will stay in session until “Phase Three” of the stimulus is passed.
- On March 19, Senate Majority Leader Mitch McConnell released a draft bill of the “Phase Three” stimulus package. The Republican plan (which you can read, here) includes the following, among other things,
- A tax credit of $1,200 per adult and $500 for each child for some families. The amount would be lower for people making between $75,000 and $99,000 a year, and none for people making over that amount. For people who pay less than $1200 in taxes the amount goes down, down to a minimum of $600 for the poorest people who have no federal income tax liability. And even that $600 is dependent on making at least $2,5000 in qualifying income.
- $300 billion in loans to small business with under 500 employees, with loans capped at $10 million. Part of the loan would be forgiven if the companies don’t lay off any employees through the end of June.
- $50 billion in loans and loan guarantees for passenger airlines
- $8 billion in loans and loan guarantees for cargo airlines
- $150 billion in loans and loan guarantees for “other eligible businesses” The Treasury Department has a lot of latitude to decide what falls into this category.
- The legislation would also cap compensation for “any officer or employee” of the firms receiving loans at $425,000 a year until March 1, 2022.
- On March 20th, the U.S. Secretary of Education, Betsy Devos announced that, “All borrowers with federally held student loans will automatically have their interest rates set to 0% for a period of at least 60 days. In addition, each of these borrowers will have the option to suspend their payments for at least two months.” Borrowers can contact their student loan providers to request a suspension of payments for 60 days after March 13, with people who are more than 31 days behind on payments as of March 13 receiving an automatic suspension.
- On March 23, Speaker of the House Nancy Pelosi released the Democratic-controlled House’s plan for Phase Three of stimulus. You can read a draft here. Among its highlights are:
- $1,500 per person (up to $7,500 for a household of 5) available to anyone with a taxpayer identification number.
- Eliminates cost-sharing for coronavirus treatments and vaccines, increased subsidies for the individual market place, increased incentives for states to expand Medicaid, and a new open enrollment period.
- Temporary $600 a week for workers made unemployed by COVID-19
- $150 billion in support for hospitals to expand treatment for Coronavirus Patients and an additional $80 billion in additional healthcare funding including loans to hospitals.
- Expanded paid family and medical leave
- $500 billion in aid to small businesses in grants and loans
- $200 billion stabilization fund for state governments and $15 billion for local governments to deal with the disruption of the Coronavirus
- Almost $60 billion for schools and universities
- Nationwide 15 days early voting and vote by mail to ensure the 2020 election can operate smoothly despite the COVID-19 pandemic, and $4 billion in assistance to help states implement the requirement.
- On March 25, Congress supposedly reached a deal on the Phase 3 stimulus package, there are limited details as it has not yet passed, but the deal is said to include the following among other things:
- The $1200 a person stimulus checks from the republican bill
- $600 a week in additional unemployment for 4 months, similar to the democratic bill
- $350 billion in small business loans
- Significantly greater oversight for the $500 billion in corporate aid, which was originally entirely up to treasury department discretion.
- $150 billion to state and local governments
- A ban on buybacks for companies receiving government loans for as long as the loans last plus a year
- Late on March 25, 2020 the Senate unanimously passed a $2 trillion Phase Three stimulus bill, before adjourning until April 20. Although it has not yet been passed by the House or signed by the president, both of those are expected to happen this week. (For even more detail, check here) Included in the bill are:
- $301 billion in direct cash payments, totaling $1,200 for those earning up to $75,000 and $500 per child.
- $500 billion government lending program to companies impacted by he crisis, with a possibility that the government can take equity states in companies receiving the loans. Any company receiving assistance will have a ban on stock buybacks for the duration of the loan plus a year. Unlike the previous version of the bill, it will be overseen by an inspector general and a congressional panel. Every loan will be documented and publicly available. This includes $17 billion for companies deemed important for national security, including Boeing. It also includes $29 billion in loans and loan guarantees for airlines. Companies receiving loans would have restrictions on buybacks and dividends and may not make layoffs for 6 months.
- $367 billion in federally guaranteed small business loans, with whatever is spent on rent, utilities, or payrolls, not needing to be paid back. Repayment of loans is deferred for six months to a year. Loans would be capped at $10 million per company and cover up to $100,000 a year in wages per company.
- $250 billion to expand unemployment insurance to include gig and freelance workers, increase the length to 39 weeks, and add $600 dollars a week for four months.
- $221 billion in business tax cuts including allowing businesses to defer payroll taxes for the rest of the years, and would temporarily allow businesses to claim deductions for current losses against past profits to claim refunds.
- $150 billion in money for state governments
- $130 billion for hospitals and other healthcare providers
- $25 billion for public transit to make up for lost revenue
- $32 billion in cash grants to cover wages at airlines, airlines that that receive the money cannot issue dividends or make stock buybacks, in addition they cannot make furloughs or pay cuts through September. Executive pay is also capped.
- $48 billion for agriculture and nutrition programs
- $27 billion to fund drugs and vaccines for the coronavirus
- $10 billion for the postal service to help cope with problems caused by the pandemic.
- The bill requires companies that service federally backed mortgages to grant a forbearance of up to 360 days to borrowers hurt by the virus, In addition they cannot start or process foreclosures or foreclosure-related evictions for a 60 day period backdated to March 18.
- Owners of multifamily properties who have federally backed mortgages can get a forbearance for 90 days, on the condition that they do not evict tenants for nonpayment of rent or fees.
- Student loan payments will be suspended without interest accruing until September 30
- The bill extends the repayment time people going through bankruptcy to repay part of their debt from 5 to 7 years, and ensures that people filing for bankruptcy don’t have to use their stimulus check to pay past debts.
- The bill delays a new accounting rule that would require banks to hold more capital and allows the comptroller of currency to allow banks to make larger loans than normal. Banks with under $10 billion in assets will have a higher maximum leverage ratios.
- Banks will also get more leeway to work with borrowers who are falling behind on payments on consumer loans.
- Waives early withdrawal penalties for 401(k) of up to $100,000
- Australia has announced an $11.4 stimulus package on March 12, 2020 including:
- Payments to small businesses to encourage hiring
- One-time payment to people collecting government benefits such as old-age or veterans benefits
- Business subsidies to businesses in industries such as a tourism, which have been hit hardest by the coronavirus
- On March 22, a second stimulus package worth $54.2 billion including, among other things:
- $15.3 billion in cash payments equal to payroll withholdings for small businesses, up $60,000 each
- $24.3 billion in small business loans
On the monetary side the Reserve Bank of Australia, Australia’s central bank, has taken the following measures:
- On March 3, it lowered interest rates by 0.25% to 0.50%
- On March 16, it announced the start of new types of repo operations.
- On March 19, it took several measures including:
- Lowering interest rates by 0.25% to 0.25%
- Starting a $54 billion lending facility for small and medium sized business
- Announced bond purchases to lower the yield of the 3-year Australian treasury bond to 0.25%
China (Hong Kong)
Hong Kong announced a significant fiscal stimulus package as part of its 2020-2021 budget on February 26, 2020. Among other things, it includes:
- A $1200 cash subsidy to all adult permanent residents
- Paying one month’s rent for people living in public housing
- Cutting payroll, income, property, and business taxes
- Low-interest, government-guaranteed loans for businesses
- Extra month’s worth of payments to people collecting old-age or disability benefits
China’s central bank, the People’s Bank of China (PBOC), has implemented several policy measures aimed at providing monetary stimulus:
- On February 3, 2020, the PBOC expanded reverse repo operations by $174 billion. This means that the central bank extended the amount of loans to keep money markets (markets for very short term loans) stable and allow banks to have more cash on hand. It added another $71 billion on February 4.
- The PBOC also cut the one-year medium-term lending facility rate (the rate at which it lends to banks) by 0.10% on Feb. 16. It followed this up by cutting its one-year and five-year prime rates (the rate at which banks lend to the most credit-worthy corporations) by 0.10% and 0.05%, respectively.
- The PBOC lowered bank reserve requirements on March 13, freeing up about $79 billion to be lent out.
As of mid-march, many local governments in China have been giving out prepaid spending vouchers to boost consumer spending, but the amounts are relatively small.
China has yet to implement massive fiscal stimulus, as it did in 2008 during the global financial crisis or again in 2015 to fight slowing growth. However, the Chinese government has asked banks to extend the terms of business loans and commercial landlords to reduce rents.
South Korea announced a $9.8 billion stimulus package on March 3, 2020. Among other things, it includes:
- Small and medium business subsidies to help companies pay workers
- Child-care subsidies
- Job retraining for people who have lost jobs
- On the monetary side, the U.K.’s central bank, the Bank of England, rolled out stimulus measures on March 11, 2020, including:
- Lowering interest rates by 0.5%
- Lowering capital requirements for U.K. banks, allowing them to use a reserve they call a “counter-cyclical capital buffer,” which is money kept in reserve to increase banks’ resistance to global financial shocks. Allowing nearly $390 billion in new loans.
- The Bank of England continued monetary stimulus with an unscheduled announcement on March 19. The BOE said it was buying $228 worth of U.K. government bonds and corporate bonds and cutting interest rates by 0.15% to 0.1%.
- On the fiscal side, the U.K. finance minister Rishi Sunak announced a budget with nearly $37 billion in fiscal stimulus on March 11. Among other things, it includes:
- A tax cut for retailers
- Cash grants to small businesses
- A mandate to provide sick pay for people who need to self-isolate, and a subsidy to cover the costs of sick pay for small businesses
- Expanded access to government benefits for the self-employed and unemployed
- On March 17, the U.K. unveiled another, larger stimulus package. It includes, among other things:
- $379 billion in business loan guarantees
- $23 billion in business tax cuts and grant funding to businesses hit worst by the virus, such as retail and hotel businesses.
- On March 20, the U.K. government announced another round of fiscal measures including
- A program to issue grants to companies covering up to 80% of worker’s salaries if companies keep them on payrolls rather than lay them off. It will be up to $3,046 a month per person. this is expected to cost $95.1 billion.
- An increase in safety net tax credits for people who are out of work by $1,200 a year, with spending worth $8.5 billion pounds. T
- $1.2 billion to support renters
- Deferring the next quarter of Value Added tax, estimated to be about $36.6 billion.
European Central Bank
- On March 12, European Central Bank (ECB), the central bank for the Eurozone, announced several monetary stimulus measures:
- It announced an additional $128 billion in bond purchases over the course of 2020.
- It loosened capital requirements on banks allowing them to lend more.
- It lowered the interest rate on and eased lending requirements for its targeted long term refinancing operations (TLTRO), a program of long-term loans to banks to keep liquidity steady. This is not the main benchmark interest rate, which the ECB has left unchanged.
- On March 19 the ECB announced an asset purchasing program it calls the Pandemic Emergency Purchase Programme (PEPP). It says it will purchase roughly $800 billion of additional bonds throughout 2020.
Germany announced a program by its state bank (a bank run by the government, but not a central bank), KfW, to lend out as much as $610 billion to companies to cushion the effects of the coronavirus.
On March 25, Germany authorized the above-mentioned $610 billion lending fund, along with $172 billion in increased spending. Included in the spending package are
- $55 billion to help small businesses and the self-employed avoid bankruptcies with cash payments up to $16,225.
- $8.5 billion for safety net prgrams for the self employed
- $3.9 billion for personal protective equiment and development of a vaccine
- $60.7 billion in as yet unknown other fiscal measures.
On March 17, French Finance Minister, Burno Le Maire announced a $49 billion aid package that includes the following things:
- Substantial social-security tax cuts
- Unemployment benefits for people forced to work part time
- A fund to help shopkeepers and the self-employed
In addition, Minister Le maire said that they would guarantee bank loans of up to $327 billion to help businesses.
Italy announced a $28 billion plan on March 11 to be divided over two separate spending packages. Among other things, it includes:
- Adding money to a fund guaranteeing loans to small and medium businesses
- Money to companies who have been hit especially hard by the virus
- Help for workers who are facing layoffs
Japan has passed two packages of small business loans, one $4.6 billion package in February, and a $15 billion one on March 11. The most recent spending bill also included $4 billion for a number of programs including boosting mask production and stopping the virus from spreading to nursing homes.
On the monetary side of things, the Bank of Japan announced a significant increase in QE on March 16. It said it would be doubling the rate it which it was purchasing ETFs from $56 billion a year to $112 billion, and also increased purchases of corporate bonds and commercial paper. In addition it announced a new program of 0% interest loans to increase lending to businesses hurt by the virus.
The Bank of Canada announced a number of measures to provide monetary stimulus:
- On March 4 it lowered interest rates by 0.50%
- On March 12, it announced it was expanding its bond-buying and repo operations
- It announced an unscheduled interest-rate cut of 0.50% on March 13
- On March 16, it announced it was broadening what could be used as collateral for repo operations, and also increased purchases of mortgage-backed securities
On the fiscal side of things, the Canadian government announced $7.1 billion in loans to businesses to help them cope with the damage the coronavirus is doing to the economy.
On March 20, Russia announced it was creating a $4 billion fund to help its economy during the COVID-19 crisis
On March 26, Indian announced a $22.5 billion spending plan to help the nation’s poor better cope with the pandemic, included in it are:
- Free grain and other staples for poor families for three months
- Expanded insurance for health care workers
- One-time cash payment to 30 million senior citizens
- Front-loading cash payments to 87 million farmers as part of an existing program
- Free cooking gas to women in rural areas for three months
- Establishing a fund to help construction workers effected by the quarantine
On March 16, Brazil announced $30 billion in fiscal stimulus. The package isn’t new spending, as the government said it will not relax its tight fiscal rules, so the package is made up of deferrals, payments that are moved up in the year, and money that will need to be moved from elsewhere in the budget. Included in it is:
- Moving payments for retirees up to may form December
- Three-month deferral for small and medium sized businesses
- Expansion of cash aid to the poorest families
Multi-Country or International
On March 15, the central banks of Canada, the U.K. Japan, the U.S., Switzerland, and the European Central Bank all agreed to lower the price of U.S. dollar liquidity swap line arrangements. These are a type of foreign currency swap, that helps central banks ensure there are dollars available for people and businesses who want to take out loans denominated in dollars, as opposed to the local currency. By decreasing the price of these swaps, it makes it easier and cheaper to borrow money in dollars outside the U.S.
On March 19, the Federal Reserve announced that it is establishing dollar liquidity swaps with the central banks of Australia, Brazil, Denmark, South Korea, New Zealand, Singapore, and Sweden.
On March 4th, the International Monetary Fund made $50 billion in loans available to deal with the coronavirus, including $10 billion of zero-interest loans to the poorest IMF member countries. On March 16, the IMF said it, “stands ready to mobilize its $1 trillion lending capacity to help our membership.” In the same statement, the IMF said it has $200 billion in current lines of credit, some of which could be used for this crisis, and that they have “received interest from about 20 countries and will be following up with them in the coming days.” It also mentioned that it is aiming to boost its debt relief fund to $1 billion from its current level of $400 million.
On March 3, the World Bank announced an initial package of up to $12 billion in loans for countries to help cope with the effects of the coronavirus. $8 billion of the funding is new loans and the remaining $4 billion is redirected from current lines of credit.
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