The U.S. government has responded forcefully in a bid to head off a recession. With layoffs approaching 15%, the Senate has already approved a $2 trillion stimulus package, with House Democrats seeking a second $3 trillion package. The Federal Reserve has stepped in as well, using quantitative easing to inject money into the financial system, reports Shanna Fuld.
Unlike the 2008 recession, which saw the Federal Reserve buying U.S. Treasury Bonds, the Fed is also buying corporate and municipal bonds this time. The Fed can effectively do this at its own discretion, as it has the unique ability to simply print the money that it needs at will. And printing they are, to the tune of $2.8 trillion thus far.
What Will Come Next?
Consumers will largely be insulated from the worst impacts of quantitative easing, as it will mainly impact asset costs, although they may see their purchasing power affected. Companies, on the other hand, are experiencing upheaval in a rapidly shifting financial landscape.
Jeff Kauflin notes fintechs have been hit particularly hard. As once-promising startups have seen their market value wiped out amid disappointing 1st quarter losses, this has prompted a series of buyouts as financial companies are taking advantage of bargain-priced acquisitions.
For example, Visa stated that they’d be purchasing San Francisco’s Plaid for $5.3 billion. Likewise, Intuit is entering a deal to acquire Credit Karma for $7.1 billion. Other companies, such as Motif, despite having been backed by the likes of JP Morgan and Goldman Sachs, are shutting down entirely and throwing in the towel – selling off their intellectual property to Charles Schwab.
While Corporations Are Feeling The Pain, Lenders Have Been Insulated From The Crisis
The picture has been more promising for lenders during the economic upheaval. With unemployment around 15%, Congress has pumped some $500 billion into distressed U.S. businesses. Couple that with the Fed’s quantitative easing, and business has been strong for banks.
Even with a reported $20 billion loan loss, banking institutions were still reporting profits in the 1st quarter. The picture hasn’t been uniformly rosy, though, as institutions globally have had varying degrees of success. Negative interest rates in Europe and Japan have pummeled banking institutions and Russian banks have been hit particularly hard amidst the market turmoil.
Virtual Currency Grows In Importance
While the price of Bitcoin saw an initial drop in value at the start of the pandemic, it has since recovered back to pre-coronavirus levels. In fact, trading has peaked to record levels in some countries (such as Argentina, Chile, Venezuela, and Morocco).
Analysts have noted the apparent correlation between rates of virtual currency trading and the stability of a nation’s economy – with unstable and economically challenged economies leading in higher trading rates. This comes as little surprise as people in affected nations seek to protect their personal capital.
Cybercrime Rises As Well
Unfortunately, the rise in digital coin trading, coupled with the large increase in employees working remotely, has also ushered in a sharp increase in cybercrime. The Financial Crimes Enforcement Network (FinCEN) had already reported a significant rise in dishonest activities, citing some 70,000 cases regarding cryptocurrency fraud since 2013.
Now, with the virus affecting how people work remotely, FinCEN Director Ken Blanco says, “[Since] employees are doing their jobs from home, cybercriminals are targeting vulnerabilities in remote applications—including virtual private networks and remote desktop protocol exploits—to steal sensitive information and compromise transactions.”
The Long-Term Outlook
While market stability has varied from country to country during the pandemic, all is not bleak. Thanks to early measures by Congress and the Federal Reserve, U.S. markets and, perhaps more importantly, the U.S. dollar, remain fairly healthy. While rampant unemployment has caused hardship for individuals, there have been clear winners and losers amongst companies. While each recession brings its own challenges, this one has been rather unique due to its cause. As companies adapt and move to a remote work mode, flexibility has been a key factor in keeping businesses running smoothly. Likewise, the pandemic has seen a significant rise in virtual currency trading as a means to protect assets in more challenged and unstable economies. So, while there are risks, there are also opportunities – infrequent economic turbulence means great opportunities for the most active entrepreneurs and savvy investors.