President Donald Trump has signed four executive orders, with which the President aims, among other things:
- To pay an additional $400 per week in unemployment benefit for which states will be asked to cover 25 percent of the cost.
- To suspend (tax holiday) the payroll tax and possibly make it permanent.
- Extending the zero interest on student loans payments and extending the suspension of the student loan payments through the end of the year.
- Helping struggling renters by extending a moratorium on evictions that applied to properties with government-backed mortgages, and that concerns about one-third of the renters.
Some members of both the Republican and the Democratic parties have described the orders as unconstitutional, MarketWatch reported.
This immediately raises a question as to whether there will be any stimulus benefit from the executive orders.
Clearly, if money is paid to unemployed people, that helps to limit the damage of unemployment for millions of U.S. citizens, although there are also questions about whether the money “can” be paid as 25 percent of it is supposed to come from the states, while the additional jobless benefits will be paid from the Disaster Relief Fund, the government’s primary source of money for emergency costs, usually from natural disasters.
Trump’s action plans to set aside $44 billion from the Disaster Relief Fund und, which currently has a balance of about $70 billion, The Wall Street Journal reported.
On a personal level for millions of U.S. citizens, if unemployment benefits are paid, things will seem more or less OK, at least for the moment and at first sight.
However, economically speaking, what is important is the wider fear of unemployment and the fear of the consequences of unemployment. If there is legal uncertainty about the payments of the unemployment benefits, or indeed the payroll tax suspension, then fear of the risk of unemployment and the consequences of that, is likely to remain high. Under this scenario, I don’t think it’s an overstatement to say that this would make the executive orders in fact economically “impotent”.
Therefore, the narrative in the U.S. media and politics around these executive orders is likely to dictate whether they have any economic impact.
Over in China, overnight, consumer inflation data was published and we saw the Consumer Price Index (CPI) rising 2.7 percent year-on-year in July, and up from 2.5 percent in June because of rising food prices. Pork was up 85.7 percent year-on-year, the South China Morning Posts said.
For investors it could be advisable to keep an eye on this because this is part of a global pattern that has recently emerged. There are relative price moves in a general low inflation environment. One very important issue is that food prices are rising faster than overall price levels, and that’s the case in developed as well as in emerging economies in the world today.
Now, because food is a high frequency purchase that affects inflation expectations. It must be said that consumers are generally of little help at forecasting inflation and tend to be biased by the prices of things that they buy frequently. This explains why consumer price inflation perceptions’ and expectations’ readings are for making median term investment decisions too high at the moment, because of the high food prices. That said, I personally wouldn’t expect a surge in inflation, certainly not in the near term.
The Chinese Producer Price Index remained negative in July at 2.4 percent year-on-year. The PPI is somewhat more relevant for the rest of the world.
China’s industrial production rose 4.8 percent year-on-year and 1.30 percent month-on-month in June, which are of course good numbers that underline that China’s industrial activity is climbing back towards pre-coronavirus levels, Reuters reported.
"Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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