Good Morning!

Welcome to Newsletter 2 of 3, Coming out of the Pandemic. In this letter, we are going to evaluate COVID’s impact on the US economy and what that might mean for you in the long term. The goal is to use this knowledge to make practical decisions towards your goals.

Newsletter 1) Basic Cash Flow Principles – life changing items you can use TODAY.
Newsletter 2) Macro Perspective – what the virus did to the US economy
Newsletter 3) Micro Perspective – important items to plan for your TOMORROW

Depending on which headline you read, this year has been one of the most financially turbulent times in US History. Continuing jobless claims (aka Unemployment) as of June 12th were at a record high of almost 21 million people. Compare that to 1.6 million this time last year. It was especially hard on small businesses, who may have lacked the infrastructure or capital to continue operating business solely online.

As we write this second newsletter, the jobs report for June just came out – adding 4.8 million jobs in the month alone. We have seen record job losses and record jobs being added back. We have a long way to go, but I’ll take even the small wins these days.

There are dozens of factors to evaluate when looking at the economy as a whole, and to keep things simple, I’m going to focus on Monetary and Fiscal Policy.

1. Monetary Policy

Who’s heard the term “The Fed”? It’s short for the Federal Reserve Board. It is basically the big bank that our banks use. They have various tools to ease or tighten monetary policy. The cost of doing business is closely linked to the cost of money (aka interest rates)

Easing Monetary Policy: to stimulate a slow economy, gets cash flowing

    –   Lower the “discount rate” (the interest rate that banks pay for loans from the FRB). When interest            rates are low, it makes it more enticing for people / businesses to borrow money, which in turn                stimulates the economy.
    –   Inject cash into the system by buying US Bonds.
    –   Lower reserve requirements. (banks are required to have a certain amount of cash in the building            before closing their doors each night) By lowering requirements, the bank can instead put that                  money into the economy.

Tightening Monetary Policy: To prevent inflation

   –   Raise the discount rate
   –   Sell US bonds, which helps shift cash OUT of the banking system
   –   Raise over-night reserve requirements for banks

Here’s a quick recap of the moves made by the FRB throughout COVID
 Federal funds rate were lowered by 1.5% in March to 0-0.25
 Introduced facilities to support the flow of credit
• Temporary postponement of Fannie Mae / Freddie Mac mortgage loans, foreclosure sales and evictions for 60 days

2. Fiscal Policy

If the FRB is responsible for Monetary Policy, then the US Government is responsible for Fiscal Policy. This includes all the powers that congress and our president have to stimulate or cool down the economy. This includes

Increasing / Decreasing:
-Federal spending (programs like unemployment, welfare, etc)
-Federal budget deficits or surpluses

Here’s a quick recap of the moves made by the Government throughout COVID
Spent $483 billion for the PPP (Paycheck Protection Program)
• Spent $2.3 trillion on CARES Act
• Spent $200 billion on other Acts for virus testing and development of vaccines

So What?

How does the Macro economy affect me? After accounting for the present crisis, the average millennial has experienced slower economic growth since entering the workforce than any other generation in U.S. history.

Not to mention, the US was already in pretty bad debt before this pandemic. The amount of federal spending, paired with decreased productivity due to shutdowns, is likely going to follow us the rest of our lives.

We have no way of knowing the precise long-term implications. However, there are measures we can take within our control. The next newsletter will connect the dots between the Macro and Micro. It’s our job as advisors to help relate what is going on in the big picture to your own money situation.


If you want help with money goals – please schedule a meeting.

Russel & Greg