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Better Economic News, but Beware

Updated: Mar 11, 2020

Today the stock market rebounded to recover more than half of its 2,000 point loss Monday on news that the Trump administration is working on a bailout plan to help affected industries, small businesses and workers.

That was the good news.

But the bad news is that we must understand that this is an election year, so experience instructs us to be cautious, especially in today's divisive political climate when the presidency as well as control of Congress is at stake. The temptations for politicians to use this situation for their own advantage will be many, and that could spell disaster.

It's typical that what finally prompted Trump to act was the cratering of the stock market and the overall threat to the economy, which is his major claim for reelection. It wasn't really the health threat, or the deaths that have occurred and no doubt will continue that prompted his alarm. No, Dr. Donald knows all and really doesn't think the situation is all that serious.

But when money is involved? Or when his reelection could be threatened? That's a different story entirely.

"Markets are trying to force a policy response -- from central banks and from Washington, DC," said David Bahnsen, chief investment officer of the Bahnsen Group. "A basket of more aggressive monetary policy action is coming and how markets respond is the big question."

So Trump said he will ask Congress to cut payroll taxes and provide relief to hourly workers as well as provide assistance to the airline, hotel and cruise industries, which are all walloped as travelers cancel their plans. The CEO of Southwest Airlines even said he would take a 10 percent pay cut as a result of the situation.

But in typical Trump fashion, he met with Republican senators today, saying he wanted to reduce the payroll tax through at least the end of the year -- which, of course, would take him through the Nov. 3 election.

While he said afterwards that it was another beautiful meeting with all sorts of happy unity, press reports -- that nasty news media again -- indicate that his proposal was not all that warmly received by Republicans. Plus Democrats, with whom Trump did NOT meet, are planning their own package of emergency economic measures. And remember, Democrats control the House of Representatives.

So that indicates that a fight will be brewing on Capitol Hill over what can be done to ease the economic impact of the coronavirus, what provisions should be included, how much it will cost, and how it will be paid for. If that happens -- if a stalemate results -- it's only common sense that the market will hit the skids again.

And, the solution will take time -- certainly weeks if not longer. Competing proposals could well be passed by the House and the Senate, resulting in a contentious conference to work out differences and negotiate an ultimate final package, which then would need to be passed by both chambers and signed by Trump.

The Washington Post reported that one area of consensus could be paid sick leave for employees, which Democrats support and in which Trump has shown some interest. But even on that, the two sides previously have taken different approaches, so can an agreement be reached? Who knows?

What is clear, however, is that the lack of paid sick leave is a major problem for thousands of Americans if they are forced to miss work for a couple weeks or more, so it seems logical that such coverage must be included in whatever package emerges.

How Washington responds to the economic impact of the coronavirus will be a major test for lawmakers.

Can they put aside petty political differences and traditional ideological positions to come up with an effective and workable plan? Or will this simply devolve into an effort by both sides to make political points in the heat of the campaign season, thus leaving the American people holding the bag?

We should all be watching this carefully to see what develops from all of this, who acts responsibly in the interest of the American people, and who does not.

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