On March 27, 2020, the American House of Representatives passed a historic stimulus package known as the Coronavirus Aid, Relief, and Economic Security or “CARES” Act-2020. It delivered an unprecedented $2.2 trillion for financial relief for businesses, public institutions and individuals hit hard by the COVID-19 pandemic.
Here is how this whopping Coronavirus Economic Relief Package will be used for the Americans
1. Direct payments in bank accounts of Individuals:
Direct payments to lower and middle-income Americans will be made. Individuals get $1,200, and married couples get $2,400 ($1200 per 2 persons) plus $500 per child younger than age 17.
Payments phase out for individuals with adjusted gross incomes over $75,000 ($150,000 for couples). Anyone making over $99,000 would not get a payment ($198,000 for couples). Money is expected to go out by April 6 in their bank accounts.
2.Direct Economic Stimulus Funding to States, Territories, Local and Tribal Government
The relief package provides $150 billion to states, territories, local and tribal governments to use for expenditures incurred due to the public health emergency concerning COVID-19 in the face of revenue declines, and allocated by population proportions.
The distribution is based on the population. No state shall receive a payment for the fiscal year 2020 that is less than $1.25 billion.
Over 45% of a state’s funds are set aside for local governments, with populations that exceed 500,000, with certified requests to the US secretary of Treasury. Certification requires a signature by the chief executive of the local government that the uses are consistent with certain requirements.
The funds remaining from the 45% are set aside for localities to revert to the state.
Over $3 billion has been set aside for District of Columbia, Puerto Rico, Virgin Islands, Guam, Northern Mariana Islands, and American Samoa.
Over $8 billion is set up for the tribal governments.
The funds can be used for costs that:
Are necessary expenditures incurred due to COVID-19
Were not accounted for in the budget most recently approved as of the date of enactment of this section
Were incurred during the period that begins March 1, 2020, and ends on December 30, 2020
3. Emergency reliefs and Taxpayers protection
Through this relief package, the government authorizes the Secretary of the Treasury to make loans, loan guarantees, and other investments in support of eligible businesses, states, and municipalities that do not, in the aggregate, exceed $500 billion.
4. Health provisions
Over 40.4 billion for the Department of Health and Human Services has been set up.
Over $127 billion has been set up for the Public Health and Social Services Emergency Fund, including $100 billion for grants to hospitals, public entities, not-for-profit entities, and Medicare & Medicaid enrolled suppliers and institutional providers. It helps cover unreimbursed healthcare-related expenses or lost revenue as a result of COVID-19. Over $16 billion for the Strategic National Stockpile has also been marked. The stockpile funding can help procure personal protective equipment, ventilators, and other medical supplies. Over $11 billion is marked for the vaccine, diagnostics, and other medical needs with $3.5 billion to help advance construction, manufacturing, and purchasing of vaccines and therapeutic delivery.
The government has set up $250 million to improve the capacity of facilities to respond to medical events.
Over $275 million is marked to expand services and capacity for rural hospitals, telehealth, poison control centers, and the Ryan White HIV/AIDS program through the Health Resources and Services Administration (HRSA). The legislation would also allow community health centers to use the fiscal year 2020 funding to maintain or increase staffing and capacity to address COVID-19.
Over $4.3 billion will be used for the Centers for Disease Control and Prevention (CDC) and to assist with agency efforts on public health preparedness and response including funding to state and local public health responders and reimbursements. There are also $500 million designated to invest in public health data surveillance and infrastructure modernization to help states in developing COVID-19 tools.
Over $425 million has been set up for the Substance Abuse and Mental Health Services Administration (SAMHSA) for mental health and substance use disorders as a result of the COVID-19 pandemic with certified community behavioral health clinics receiving $250 million. SAMHSA gets $50 million for suicide prevention and $100 million in flexible funding to address mental health, substance use disorders, and providing resources to youth and the homeless during this time.
Over $200 million marked for the Centers for Medicare and Medicaid Services (CMS) with $100 million to support additional infection control surveys for facilities that house populations that are at high risk from contracting and having severe illness from COVID-19.
Some important provisions which need to be looked upon are as under:
Dollar exchange rates
The dollar value has been going up across the world. In 2019, the average rate of dollar to Indian Rupee was as under:
Today’s rate – 76.19 Indian rupees (INR)
2019 average – 70.3 INR
2018 average – 68.4 INR
2017 average – 65.1 INR
It indicates that the dollar has risen only. Will this go down as the dollar supply has gone up so technically yes and the rule of demand-supply says that in case the supply goes up, the rates can come down. However, it’s not the case as even if the US is increasing the dollars in circulation, their prices are not coming down.
Dollar and Crude oil linkage
The crude oil and US Dollar share an inverse relationship. A strengthening US Dollar tends to drive the price of crude oil down. Likewise, weakening US Dollar tends to drive the prices of crude oil higher. At this point, it is imperative to note that both these assets have their supply-demand dynamics influencing their price movement; however, they are also somewhat linked to one another.
If you do an image search for ‘Crude Oil versus Dollar,’ you will find many charts that display this inverse relationship. So when the prices for crude go down, the dollar goes up.
Dollar going down – is that a possibility
There is still a substantial demand for the dollar since, in the global market, this is a safe currency. With Europe going down and options of safer investments becoming less, global investors will always treat US dollars as a more reliable and liquid asset, so chances of dollar coming down are less.
Does the US Federal Bank have enough liquidity?
There is still a doubt in that regard with additional cash flowing in. Also, we don’t think the Federal Bank will have enough gold or other reserves as a backup to the currency payout, but as it says, the situation may not also arise as long as the country is running.
Is this right?
No way. That’s not correct economics since the currency says that it is backed up by adequate security by means of reserves in their custody. However, the current scenario does not reflect that since these additional currencies issued are not adequately backed up. Ideally, this should lead to devaluation of the currency, but the reality is it’s not happening. So, economics now need another theory to explain the prevailing phenomena.