The ‘Worst Recession Since the Great Depression’

Plus, where Paycheck Protection Program money is going By Yuval Rosenberg and Michael Rainey The ‘Worst Recession Since the Great Depression’ The coronavirus pandemic is likely to cause the world economy to sink into “its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago,” the International Monetary Fund said on Tuesday. In its 2020 [World Economic Outlook]( the IMF projects that, as a result of what it calls “The Great Lockdown,” the global economy will shrink 3% this year before rebounding partially to grow 5.8% in 2021, less than pre-pandemic projections. The U.S. economy is projected to contract 5.9% this year, the worst downturn [since 1946]( and then grow 4.7% in 2021. The projections are a sharp reversal of forecasts issued in January, when the IMF said it expected global growth to come in at 3.3% this year and U.S. growth to be 2%. Gita Gopinath, the IMF’s chief economist, [told reporters]( that under the best-case projection, global GDP would likely suffer a cumulative loss of about $9 trillion over two years, an amount greater than the economies of Germany and Japan combined. Risks are to the downside: The IMF report noted that its new forecasts were subject to “extreme uncertainty” given the many factors that remain in question, including the path of the pandemic, progress in developing a vaccine and treatments, the effectiveness of containment measures and changes in people’s behavior and spending patterns. The forecasts assume that the pandemic will fade in the second half of the year and containment measures can be “gradually unwound,” allowing economic activity to normalize over time. “Much worse growth outcomes are possible and maybe even likely,” the report said, noting that “risks to the outlook are on the downside.” A longer outbreak this year, a new outbreak in 2021 or a combination of the two could further reduce global GDP by 3% to 8%, the IMF said. The report also noted that the United States and other advanced economies have implemented “swift and sizable” fiscal responses to the crisis, but that “fiscal measures will need to be scaled up if the stoppages to economic activity are persistent, or the pickup in activity as restrictions are lifted is too weak.” Goldman Sachs sees highest unemployment since WWII: Goldman Sachs analysts are forecasting a similar level of pain, projecting that the global economic hit could be four time worse than the financial crisis, with second-quarter GDP plunging 11% year-over-year and 35% from the previous quarter on an annualized basis, according to [CNBC](. Goldman reportedly says that the U.S. unemployment rate could reach 15%, much higher than the IMF forecast of 10.4% — and Goldman warns that even its higher rate “understates the severity of the situation” given that many sidelined workers won’t be looking for jobs and thus won’t be counted in the data. On the bright side, Goldman reportedly projects a potentially “unprecedented” economic rebound, with third-quarter growth up 19% from the miserable second quarter followed by a 12% increase over the final three months of 2020. A decade of job gains lost in four weeks? We’ll get another reading of the turmoil in the labor market on Thursday, when the government announces the number of first-time unemployment claims filed last week. Torsten Slok, chief economist at Deutsche Bank Securities, forecasts another record-shattering number, with 8 million Americans filing new claims for unemployment benefits. “If our forecast is close to the mark, it would push the four-week total to almost 25 million, over 10 times the prior worst four-week period in the last 50-plus years,” Slok wrote to clients. A number that big would have the unemployment rate peak at more than 17% this month — and it would mean that the U.S. has lost more jobs in the past four weeks that it gained since the 2008-2009 financial crisis. Slok’s projections might be high, though. Axios’s Dion Rabouin [notes]( that economists Aaron Sojourner and Paul Goldsmith-Pinkham, expect a slightly less horrific 4.8 million claims this week — still enough to put the four-week total of job losses close to the 22 million total Slok says were created since July 2009. Where Paycheck Protection Funds Are Going A [presentation]( by the Small Business Administration Tuesday provided some high-level details about where the nearly $250 billion in approved loans from the Paycheck Protection Program is going. Jim Tankersley of The New York Times said the data show two big winners in relative terms so far: construction companies and the state of Texas. The losers include the hotel and restaurant industries. “Restaurants and hotels, which have taken the largest economic hit so far from the pandemic, have received less than one-tenth of the special federal assistance for small businesses that Mr. Trump approved earlier this month,” Tankersley [wrote](. In terms of geography, the “flow of the funds is not lining up thus far with the economic damage from the virus,” Tankersley said. While firms in Texas have received more than 88,000 loans worth nearly $22 billion, New York, the epicenter of the coronavirus crisis, has received less than half that number of loans, worth about $12 billion. Senate Delays Return Until May 4 at the Earliest As lawmakers seek to break a stalemate over the next coronavirus relief legislation, Senate Majority Leader Mitch McConnell announced Tuesday that the full Senate will not reconvene before May 4, two weeks later than previously scheduled. McConnell said the decision was made in consultation with Senate Minority Leader Chuck Schumer and other Senate leaders. House Majority Leader Steny Hoyer said Monday that the House is also not expected to meet before May 4. McConnell also made another push for an additional $250 billion in funding for the Paycheck Protection Program, warning that the $350 billion provided for the small business relief program under the CARES Act will run out this week. “While other CARES Act programs such as hospital funding and assistance for state governments are just beginning to push out money, 70% of the PPP’s funding has been already allotted in just a week and a half,” McConnell said in a statement. “There is no time to insist on sweeping renegotiations or ultimatums about other policies that passed both houses unanimously.” Schumer and House Speaker Nancy Pelosi said Monday that they won’t back off their demands that additional funding for small business loans be paired with more money for hospitals, state and local governments and food stamp recipients. Schumer and Treasury Secretary Steven Mnuchin are reportedly expected to [reach a broader deal]( along those lines this week. The U.S. coronavirus death toll [passed 25,000]( today. Send your feedback to yrosenberg@thefiscaltimes.com. Follow us on Twitter: [@yuvalrosenberg]( [@mdrainey]( and [@TheFiscalTimes](. And please tell your friends they can [sign up here]( for their own copy of this newsletter. Coronavirus Relief Bill Has a Special Treat for Some Wealthy Taxpayers The roughly $2 trillion coronavirus relief package signed into law last month includes a provision that will cut the tax bills for some Americans who make more than $1 million a year, according to a new analysis from the congressional Joint Committee on Taxation. Inserted into the legislation by Senate Republicans, the provision temporarily suspends the limits on excess business losses that can be claimed by non-corporate taxpayers, referred to as “pass-through” businesses. The primary beneficiaries of the suspension are “far and away” hedge-fund operators and real-estate owners, Steve Rosenthal of the Tax Policy Center [told]( The Washington Post. The JCT provided a distributional analysis of the tax law tweak, which applies to 2018, 2019 and 2020, with the largest effect occurring this year. In 2020, the total cost of the tax law change would be about $86 billion in lost revenue, JCT found, with more than 80% of the benefit flowing to filers with incomes of $1 million or higher. Less than 3% of the benefit accrues to taxpayers earning less than $100,000. The analysis was performed at the request of Sen. Sheldon Whitehouse (D-RI) and Rep. Lloyd Doggett (D-TX). In a [letter]( Thomas Barthold of the JCT said that while there is considerable uncertainty about how the economy will perform for the rest of the year, the analysis provides a sense of the “potential scale of revenue changes associated with this provision.” The Democratic lawmakers accused Republicans of pursuing tax cuts for the rich in the middle of a national emergency. “It’s a scandal for Republicans to loot American taxpayers in the midst of an economic and human tragedy,” Whitehouse said in a [statement](. “Congress should repeal this rotten, un-American giveaway and use the revenue to help workers battling through this crisis.” Doggett charged that the total cost of the provision “is more than total new funding for all hospitals in America and more than the total provided to all state and local governments.” Defending the provision back in March when the relief bill was being written, Alan D. Viard of the right-leaning American Enterprise Institute said it corrects a flaw in the 2017 tax legislation. “The tax relief gives businesses badly needed liquidity during the coronavirus pandemic while also reducing the tax penalty on risky business investments,” Viard [said](. The New York Times previously [reported]( that the special provision could cost as much as $170 billion over 10 years, and could benefit real estate investors close to President Trump, including his son-in-law and senior adviser, Jared Kushner. News - [Another Task Force: Trump's New Committee Opens With Confusion]( – CNN - [The $1,200 Stimulus Checks Are Arriving. People Are Mostly Spending Them on Food]( – Washington Post - [US Airlines Agree to Accept Stimulus Funds, Treasury Department Says]( – CNN - [Pressure Grows on Congress for More Small Business Aid as Banks Pump Out Billions]( – Politico - [7.5 Million Small Businesses Are at Risk of Closing, Report Finds]( – CNBC - [Kudlow Says Small Business Loan Funds to Run Out This Week]( – Bloomberg - [Fauci: 'We're Not There Yet' on Key Steps to Reopen Economy]( – Politico - [Trump Administration to Unveil $15.5 Billion First Phase of Coronavirus Farm Aid: Sources]( – Reuters - [Hedge Fund Managers Are Claiming Bailouts as Small Businesses]( – Bloomberg - [Highway Fund’s Shortfall Deepened by Plunge in Gas Tax Revenue]( – Roll Call - [These Democrats Want Automatic Triggers to Keep Coronavirus Relief Flowing]( – Roll Call - [Trump Set to Preside Over Record Spending, Deficits as Coronavirus Costs Explode]( – Fox News - [More Than 2,100 U.S. Cities Brace for Budget Shortfalls Due to Coronavirus, Survey Finds, With Many Planning Cuts and Layoffs]( – Washington Post - [With Millions Unemployed, Hotel Industry Lobbies to Spend Stimulus on Other Needs]( – Washington Post - [Federal Workers Should Get More Coronavirus Benefits, Leading House Democrats Say]( – Washington Post - [Mitch McConnell Tried to Gut a CDC Program Directed at Detecting and Responding to Infectious-Disease Outbreaks]( – Business Insider Views and Analysis - [America Can Afford a World-Class Health System. Why Don’t We Have One?]( – Anne Case and Angus Deaton, New York Times - [Here’s What Reopening the Economy Is Likely to Look Like: More Masks, Fewer Workers, High Unease]( – Heather Long, Washington Post - [The Trump Administration’s Guide to Federalism]( – Alexandra Petri, Washington Post - [How to Spin a Giveaway to the Rich]( – Paul Waldman, Washington Post - [Your Coronavirus Check Is Coming. Your Bank Can Grab It]( – David Dayen, American Prospect - [Who Should Pay For The Economic Relief From The COVID-19 Crisis?]( – C. Eugene Steuerle, Tax Policy Center - [Republicans Don’t Want to Save Jobs]( – Paul Krugman, New York Times - [Virus May Dash Trump's Plan for a 'Big Bang' Economic Opening]( – Stephen Collinson, CNN - [Amid Coronavirus, Republicans Embrace Big-Government Solutions]( – Gerald F. Seib, Wall Street Journal (paywall) - [Why This Recession Will Be Different (and How to Keep It Mild)]( – Joseph Guinto, Politico - [America Needs Public Service to Rebuild the Nation in the New Era]( – Joseph Moreno and Sharad Samy, The Hill [Like Us on Facebook]( [Like Us on Facebook]( [Read Us On the Web]( [Read Us On the Web]( Copyright © 2020 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website, thefiscaltimes.com, or through Facebook. Our mailing address is: The Fiscal Times 399 Park AvenueNew York, NY 10022 [Add us to your address book]( Want to change how you receive these emails? [Update your preferences]( or [unsubscribe](.