Many businesses in the U.S. may not survive another month, according to Atlanta Federal Reserve Bank President Raphael Bostic. Banking officials announced that they were about to run out of Small Business Administration funding for the Paycheck Protection Program, designed to provide a direct incentive for small businesses to keep their workers on the payroll during the pandemic.
“Time is not our friend,” Bostic said in a videoconference with Birmingham, Alabama civic groups. “The goal is really to get as many key companies as possible to still be around at the end.”
Retail sales fell 8.7 percent in March and manufacturing fell to its lowest level since the end of World War II, according to the latest economic data.
“What we are hearing from our contacts is that May is going to loom as a large month in terms of the transition of concern from this being a liquidity issue — one where we are really talking about cash flows — to this perhaps translating and transferring into a solvency issue, and whether companies can exist at all,” Bostic said.
The U.S. The Federal Reserve has stepped in to help credit markets. The Fed injected as much as $2.3 trillion into lending while cutting interest rates to almost zero.
“It also is buying up junk bonds. At the same time, the $2.2 trillion coronavirus rescue package provided $349 billion for the paycheck protection program for small businesses and $500 billion for midsize and large businesses,” Bloomberg reported.
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Reopening the economy will depend a lot on “the health-care policy response and how quickly American workers and businesses feel confident they can return to work,” Bostic said.
“What we are seeing and hearing is credit challenges are becoming more widespread and more acute, and as that happens solvency becomes more into play. There are wide swaths of the economy seeing significant drops in demand, so the cash flows are so low they are eating through whatever savings they had at a more accelerated pace.”
Bostic sent out warnings about the economy weeks ago. In March he said, “We all need to be thinking about as a Fed and also as a government is how do we creatively provide support to those institutions most exposed? For small businesses, their challenges are going to be more acute and come faster.”
Bostic advised that the second quarter would be “rough” for families and businesses, MSN reported.
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