What You Need To Know: Coronavirus And Dealing With Economic Uncertainty

Georgia Public Broadcasting’s new series What You Need To Know: Coronavirus provides succinct, fact-based information to help you get through the coronavirus pandemic with your health and sanity intact. 

On Second Thought host Virginia Prescott speaks with Emory's Goizueta Business School associate professor Usha Rackliffe about the effect the coronavirus crisis is having on the economy and dealing with that uncertainty.

INTERVIEW HIGHLIGHTS

We already know that the response to the coronavirus has been pretty devastating for the economy and predictions are that we'll get much worse. But global markets appeared a little more positive after a pretty raucous week. U.S. stock futures did rally before the opening bell this morning. What's changed?

This has been a hideous week for the market. This is like the worst from 2008. Earlier today, the market did bounce, but then it’s given up all its gains and it has retreated as of now. What the market is doing, it’s looking for any good news that there is out in the economy.

So, two things happened yesterday: first, the Fed announced a temporary loan program where they would give out money to central banks across the world for a very low or zero interest rate. And that was huge because it helps with liquidity across the globe. So that was a big deal. The second thing was the Senate Stimulus Plan, which affects all of us in the United States. It has a lot of help for businesses and individuals. It’s supposed to top at about $1 trillion and it’s going to be taken up by Congress early part of next week.

Even with that good news in the morning, it’s not dropped because there is a sense of fear because the feeling is that the jobless claims are going to go up dramatically this week and the next week when the numbers get reported. On Google, one of the most searched words was “unemployment.” So there’s a feeling like, “Oh my gosh. Are people nervous? Are people concerned about their jobs and what’s going to happen?” So that’s what is driving the market down, this uncertainty and fear.

Unemployment claims here in Georgia up 400% in the last couple of days. So this 1 trillion dollar economic stimulus bill still being worked out. No one's talked about how you're going to pay for it. Does this just become part of the deficit?

Absolutely. This is because when the country spends more--just like any of us--if you spend more than what you bring in, you’ll be in a deficit situation. The country has already been in a deficit situation over $20 trillion. So here’s another trillion that’s been tacked onto that. However, this a much needed measure to help people and small businesses and to help stabilize and get to the other side. Any and all help is welcome at this point.

So we're talking about one or two thousand dollar checks being mailed out to people who need them. Now, July 15 is now the new official tax date. Are people expected to pay taxes on these checks?

No. Generally, when the government helps people, they give out a stimulus rebate check like this and you don’t have to pay tax on it. That’s probably the good thing about it because the government can’t give you money on one hand and take it away and tax it on the other. The overall goal is to put money in the hands of the consumers so they can spend money and that’s going to help the economy.

You talked about fear earlier. Confidence in the market is what makes it tick, on some level. And not just for investors, but personal investors, people who are watching their 401(k)s shrink. We've been advised: do not look at your statements right now. But how about people who are nearing retirement age? What would you advise them at this point?

This is so nerve-wracking because, regardless of who you are, you see your 401(k) drop by a third, that is a shock to the system and especially so if you’re nearing retirement because now, you’re asking all these questions like “Can I afford to? Can I do it and what should I do?” The rule is to never have a knee-jerk reaction and to panic never.

You have to think of it this way--if you’re retiring now, you must be between 60 and 65. So you really do have time because you’ve another 20 years or so and that is still the long-term. There’s plenty of time for the market to come back and recover. So all you have to think about is “What do I need for the here and now? For the next year, do I have enough to make it work? Do I have enough cash flow to make my life the way I want it?”

However, one does need to pause for a minute and talk to a personal financial planner and see a couple things to look out for: you have to assess risk and rebalance your portfolio. You never know when the market is going to come back. The expectation now is that the mark will get worse before it gets better, but what we don’t know is how long it’ll take to get worse and how long it’ll take to get better. You have to take the market where and when it is. No matter what, there’s a resilience of the American people and the market will eventually bounce back and people will be spending money.