Dividends and Premature swing to austerity poses threat to US economic recovery

The results of COVID show there are 2 distinct economies at the moment and government political parties do not know what to do. In normal times during elections, one party typically on the right side of the political spectrum campaigns on smaller government and lower taxes for all; the party on the left side of the political spectrum tends to believe governments should be bigger and taxes can be higher. This year with the shutdowns of the economy by the government to protect public health, governments around the world gave money to all those could not work and stayed at home.

We have seen those people who had to go to work tended to be on the lower wage scale than those who tended to stay home. The governments noted it, but did not add money to their wages. For those that stayed home, outside the grocery store and e-commerce there was little to spend the money on which increased savings. The emergency programs are scheduled to be stopped at the end of July.

What should governments do? The Republican Party is leaning to paring back support. The Democrats want another stimulus bill to go forward, although less than $1 trillion.

In an article by Ian McGugan, he writes a key question is how much of the cash that governments are giving people will actually filter through into the rest of the economy?

Frances Donald, global chief economist at Manulife Investment Management noted in April total wages in the US dropped by $1 trillion. However, government transfers jumped by $3 trillion or personal income was up by $2 trilllion. Some of that money went into savings resulting in the highest personal savings rate in decades.

The US economy is 60% dependent on consumer spending, that money can be spent but only if consumers feel confident enough to spend.

The political parties have different solutions, the Republicans want the country to be opened, less support and people go back to jobs. The Democrats are pushing for the an extension to January of the extra $600 a week in emergency unemployment insurance to people who have lost their jobs.

Linking to dividend paying stocks, there tends to be a balancing act with most things in life and government support is one of them. Can all the states open up to phase 3 and 4? will people be confident to visit and meet in groups? are you confident to meet in a group larger than 10 people? time will tell. in the meantime utility like revenues or consistent revenues is what you need to invest in.

There are more questions than answers, till the next time – to raising questions.

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