CLOSINGS: View Closings

How Washington's stimulus gamble could backfire

There was a dramatic drop on Wall Street as coronavirus cases reached record numbers and talks remain stalled on a new stimulus package to provide Covid-19 relief. CNN's Alison Kosik reports.

Posted: Oct 27, 2020 4:51 PM
Updated: Oct 27, 2020 4:51 PM

The fragile economic recovery is losing steam. The pandemic is getting worse again. The risk of post-election chaos has never been higher.

And yet lawmakers in Washington won't agree to a fiscal rescue package that is so obviously needed.

Both sides of the aisle are betting they'll avoid the wrath of voters, despite this historic failure. The livelihoods of countless Americans will be worse off because of this political roll of the dice.

"Politicians in both parties are tempting fate by not agreeing to another round of fiscal aid," said Joe Brusuelas, chief economist at RSM International. "This is more about politics than economics or finance. That's the unfortunate reality of the matter, because real lives do hang in the balance."

Without federal aid, more small businesses will close. Those on unemployment will struggle to get by without enhanced benefits. Renters could face eviction. Families won't receive another round of stimulus checks. Hotels, airlines and other travel businesses will shed tens of thousands more jobs.

And the deadlock in Washington -- on top of the surge of coronavirus infections -- casts a shadow over what is already an uneven economic recovery. Although the stock market and housing market have sharply rebounded, the parts of the economy most exposed to the pandemic remain troubled.

Uneven recovery at risk

The CNN Business Recovery Dashboard shows hotel occupancy is 29% below pre-crisis levels. US airports are processing fewer than half the travelers they did at this point last year. OpenTable restaurant reservations are down 56% from before the pandemic.

"These are still dark economic times," said Mark Zandi, chief economist at Moody's Analytics. "The recovery is at significant risk because of the failure of the administration and Congress to pass another fiscal rescue package, particularly given that the pandemic is intensifying and the rancor over the election threatens to boil over."

Hopefully, the recovery will prove resilient to the political and health uncertainties while Washington debates whether to provide more stimulus in a lame-duck session of Congress, or in January. But the risk is that the American economy plunges back into recession after what economists expect was a record third quarter.

"A double-dip recession is a significant threat," said Zandi.

Even if the United States avoids a return to negative GDP, Zandi said, the economy could begin shedding jobs again on a monthly basis, pushing unemployment higher.

"It may not go down in history as a double-dip, but it will surely feel like it," he said.

'Tale of two consumers'

Jobs growth is clearly slowing. After recovering about half the 22.2 million jobs lost during the pandemic, the United States added 661,000 jobs in September -- a significant deceleration from August, when 1.5 million jobs were added.

And a new round of layoffs is just beginning. Recently, major companies including Disney, American Airlines and Charles Schwab have announced mass job cuts.

The biggest concern is how the fading fiscal stimulus and worsening pandemic will impact consumer spending, the biggest driver of the US economy.

"While consumers have some cushion in savings, that's going to run out very quickly -- especially with the holidays approaching," said Lindsey Bell, chief investment strategist at Ally Invest.

Already, 28% of Americans say they will spend less on holiday gifts this year -- the highest percentage since 2012, according to Gallup. Just 12% of shoppers plan to increase spending.

"If you look beneath the surface, you see a tale of two consumers," said Bell. "Those in the hardest-hit industries who have lost their jobs, those are the folks who are really struggling. The other side of the equation is the people who can work from home. Our lives haven't been completely disrupted."

'Detached' from economic reality?

Democrats passed a $2.2 trillion stimulus package in early October. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have recently been close to an agreement on a stimulus package of around $1.9 trillion. But the two sides remain at odds in part over a plan to address the pandemic.

Democrats may also be looking at favorable polling and betting that a potential blue wave will enable a bigger and perhaps better stimulus package early next year.

But some Democrats have criticized Pelosi for refusing to take the deal on the table, given that people are hurting now.

"She's most certainly making a mistake here," Rep. Max Rose, a Democrat from New York City, told CNN's Poppy Harlow on Tuesday.

Rose said lawmakers have "become so detached that they are not hearing or seeing the pain of the American people -- folks who cannot wait until February or March for another stimulus check or extended unemployment or state and local aid."

Repeating the mistakes of the last recession

Even if Pelosi and Mnuchin do reach a deal, many Senate Republicans remain opposed to a nearly $2 trillion stimulus package.

Some Republicans may not want to pass a large relief package now, when Joe Biden could become the president in January. Others are expressing dismay over the budget deficit -- even though the Trump tax cuts created $1 trillion deficits long before the pandemic erupted.

"The Republican majority in the Senate is engaged in a gamble of historic proportions that they will not be held responsible," said RSM's Brusuelas.

Most economists say now is not the time to worry about the deficit. That's why Federal Reserve chief Jerome Powell has urged Congress to act, warning of the "tragic" impact of another wave of coronavirus infections.

The risk is that Washington repeats the mistakes of the Great Recession, when Congress prematurely removed fiscal stimulus -- and even cut spending -- contributing to a weaker economic recovery.

The irony is a weak recovery from the pandemic will only make it harder to address America's mountain of debt. The government will be forced to support more people on unemployment, while slow growth will restrict tax revenue.

"The very thing they're trying to avoid will happen: bigger budget deficits and debt load," said Zandi. "It makes a lot more sense to err on the side of doing too much, not too little."

Minnesota Coronavirus Cases

Data is updated nightly.

Cases: 312969

Reported Deaths: 3637
CountyCasesDeaths
Hennepin661641115
Ramsey27766505
Anoka22149228
Dakota22015190
Washington13999115
Stearns13733116
St. Louis8747112
Scott846255
Wright775843
Olmsted665634
Sherburne587641
Clay498457
Carver474213
Blue Earth414116
Rice412836
Kandiyohi408122
Crow Wing359634
Otter Tail314322
Chisago311611
Nobles308730
Benton299451
Winona276930
Mower261623
Douglas260337
Polk256324
Morrison231629
Lyon218711
Beltrami217117
McLeod212812
Becker205415
Goodhue203228
Steele19497
Isanti190617
Itasca190423
Carlton185816
Todd181214
Nicollet162525
Mille Lacs153631
Freeborn15336
Le Sueur147011
Cass143710
Brown141315
Waseca139211
Pine13658
Meeker12879
Roseau11964
Hubbard114925
Martin113320
Wabasha10561
Redwood94619
Chippewa8877
Cottonwood8664
Renville86527
Dodge8600
Watonwan8544
Wadena8016
Sibley7934
Rock7779
Aitkin76730
Pipestone72518
Fillmore6990
Houston6984
Yellow Medicine64812
Pennington6478
Kanabec61913
Murray5873
Swift5838
Faribault5612
Pope5391
Clearwater5248
Stevens5103
Marshall4979
Unassigned49359
Jackson4881
Lake4226
Koochiching3926
Wilkin3895
Lac qui Parle3773
Lincoln3591
Norman3497
Big Stone3182
Mahnomen2964
Grant2796
Kittson2248
Red Lake2133
Traverse1481
Lake of the Woods1001
Cook720

Iowa Coronavirus Cases

Data is updated nightly.

Cases: 227398

Reported Deaths: 2368
CountyCasesDeaths
Polk33642336
Linn14352165
Scott1124986
Black Hawk10893135
Woodbury10372126
Johnson955336
Dubuque923291
Story678822
Dallas637257
Pottawattamie631970
Sioux370325
Webster358535
Cerro Gordo357144
Marshall348546
Clinton331344
Buena Vista305414
Des Moines291520
Muscatine289268
Warren281914
Plymouth276042
Wapello255772
Jones232313
Jasper217944
Marion205320
Lee203917
Carroll198422
Bremer195212
Henry18307
Crawford174616
Benton170619
Tama154340
Jackson144613
Delaware144221
Washington141314
Dickinson139210
Boone137011
Mahaska126827
Wright12456
Clay11784
Buchanan117010
Hardin115810
Page11374
Hamilton11199
Clayton11175
Cedar108413
Harrison107729
Kossuth10667
Calhoun10617
Floyd105016
Mills10487
Fayette103910
Lyon10338
Butler10216
Poweshiek99313
Winneshiek97613
Iowa95812
Winnebago93023
Hancock8677
Grundy86311
Louisa86216
Sac8608
Chickasaw8574
Cherokee8484
Allamakee81811
Cass81623
Mitchell7984
Appanoose79312
Humboldt7715
Union7706
Shelby76511
Emmet76424
Guthrie75415
Franklin73921
Jefferson7142
Madison6864
Unassigned6690
Palo Alto6554
Keokuk5997
Howard5599
Pocahontas5584
Greene5250
Osceola5241
Ida48913
Clarke4874
Davis4709
Taylor4653
Montgomery46311
Monroe44412
Adair4418
Monona4352
Worth3630
Fremont3583
Van Buren3585
Lucas3256
Decatur3170
Wayne3007
Audubon2962
Ringgold2112
Adams1702
Rochester
Clear
28° wxIcon
Hi: 29° Lo: 14°
Feels Like: 19°
Mason City
Clear
30° wxIcon
Hi: 30° Lo: 14°
Feels Like: 23°
Albert Lea
Clear
28° wxIcon
Hi: 30° Lo: 15°
Feels Like: 22°
Austin
Clear
28° wxIcon
Hi: 29° Lo: 14°
Feels Like: 22°
Charles City
Clear
28° wxIcon
Hi: 30° Lo: 14°
Feels Like: 19°
Colder Conditions To Start The Workweek
KIMT Radar
KIMT Eye in the sky

Latest Video

Image

Kindness tree on display in Rochester

Image

Advice for safe holiday decorating

Image

Aaron's Sunday Night Forecast

Image

Active shooter police standoff resolved after 9 hours

Image

Standoff in Albert Lea after 3 people shot

Image

Christmas tree shopping

Image

MC 'grateful' to play, adjusting with schedule changes

Image

Small business Saturday

Image

Sean's Weather 11/28

Image

Sidelined in quarantine: Coach Fennelly talks about his experience away from the game

Community Events