A future phase 4 package may also materialize. Many states face financial struggles and huge deficits resulting from the economic slowdown. Whether phase 4 includes any funding for states remains to be seen. Senator Mitch McConnell suggested that states file for bankruptcy rather that having the federal government provide any funding. That would have significant, detrimental impacts to states and the municipal bond market. It could cut funding for first responders, health care, education, and other essential state programs. In addition, it also creates questions as to why large corporations should be bailed out with states left on their own. Any state or local government defaulting on bond obligations would also have a major detrimental impact on the municipal bond market, with investors losing money. According to a report by the Rockefeller Institute of Government, forty-two states had a positive balance of payments with the federal government for 2018, meaning those states received more money from the federal government that what they remitted in federal taxes and other federal revenues. McConnell’s Kentucky enjoyed being number three – Kentucky provided only $32 billion in federal tax revenue yet received $77 billion in federal expenditures. New York, the hardest hit by the coronavirus, subsidizes Kentucky. New York ranked 50th, meaning the federal taxes paid by New Yorkers exceeded federal expenditures by a greater amount than any other state. New York provided $247 billion in federal tax revenue yet received only $225 in federal expenditures. Wisconsin ranked 29th, generating $53 billion in federal revenues and receiving $57 billion in federal expenditures.
For further information on the CARES Act: 1. From the Tax Foundation: Tax Foundation - CARES Act 2. From NPR: NPR - CARES Act 3. Federal Reserve actions:
Federal Reserve March Federal Reserve April 4. Federal Receipts and Disbursements by State: Rockefeller Institute - State Balance of payments with Federal Gov.
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What Happened: A Review of the Stock Market The stock market is not the economy. However, the stock market reflects what is expected to happen to the economy. Although some political leaders doubted the impact of the coronavirus on the United States, a growing uncertainty was becoming evident in U.S. financial markets. As the coronavirus worked its way through China, South Korea, and Italy, U.S. stocks became increasingly volatile and returns became negative. According to Morningstar, the return of the S&P 500 was -0.16% in January and -8.24% in February. Clearly, the markets were reflecting the increasing concern of the economic impact of the virus on the world and the United States. The coronavirus created great uncertainty – in terms of both healthcare and the economy. And it wasn’t just the United States, it was global. The year-to-date returns through February were down significantly for most stock markets around the world. Stock market declines in the first two months of 2020 included: Canada -5%, Mexico -7%, Germany -11%, France -12%, Japan -9%, and China -7%. The global economic and healthcare crisis was clearly reflected in financial markets around the world. March began with another week of stock market turmoil. 7%, 13%, and 20% - those are the magic drops in the S&P 500 that trigger “circuit breakers” for the New York Stock Exchange (NYSE). Circuit breakers are when stock market trading is halted to give investors and traders a breather to assess what is going on and avoid panic selling. A decline of 7% triggers a 15-minute halt in stock trading; a 13% decline triggers another 15-minute halt. If the S&P 500 declines by 20% on a given day stock trading is stopped for the day. On Monday morning March 9, the S&P 500
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Center for Business and Economic Insight - CBEI EXTRA!
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