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  • Abiye Alamina

National Emergency Declared in the US over COVID-19

President Trump has declared a national emergency in the US as a major move by the world's largest economy to tackle the coronavirus pandemic.

The announcement does a number of key things:

  • Frees up to $50 billion to be spent towards all efforts to address the coronavirus and any associated costs and fallout associated with it.

  • Removes all constraints within the healthcare system and related departments and empowers the Secretary of Health to waive as necessary any within facility or cross state restrictions in the practice of healthcare delivery needed to fight the pandemic.

  • Provides financial assistance to support particular groups for instance, interest on student loans held by Federal Agencies are being waived for the time being.

  • Increases purchase of as much oil as necessary at reasonable prices to increase storage in the strategic petroleum reserves in a bid to aid domestic oil producers currently hurt by low oil prices.

Stocks increased sharply in reaction to the announcement gaining about 9.3% by the time of closing.

Why did the markets seem to give this a positive vote?

It's a big response. Declaring that the world's largest economy and world power is in a state of a national emergency is not a thing that is done lightly.

It's a private-public partnership. It was a response that had the President flanked by key cabinet members and corporation executives from Walmart, Target, Walgreens, CVS, Roche and others, each coming out to laud the new initiative being taken to battle the pandemic, and with executives pledging to do what is necessary to contribute toward fighting the disease and alleviating the hardship imposed on the economy.

It's the no resources will be spared reaction by the government that assures investors that the full might of the US government will be brought to bear upon the issue, and not in a restrictive fashion but in a massive relaxation of constraints and cutting of government red tape in order to get goals achieved.

In a very real economic sense it is a supply side push that addresses in a fairly clear way the supply side crisis brought about by the coronavirus:

Funds are made directly available toward a resolution of the problem and fast-track approval of actions taken by the private sector in addressing the problem such as in the provision of test kits and ultimately vaccines or cures for the disease. A good faith proof of this was already provided earlier in the fast track approval given by the CDC to Roche Holdings to provide COVID-19 tests that have a fast turn around time for results. Also, Thermo Fisher Scientific would also be granted approval to provide additional testing kits, both of which would increase the amount of testing kits available to approximately 5 million in a very short time.

It provides for the credibility that markets were looking for indicating a full commitment by the administration toward addressing the problem which until the announcement seemed like it was being downplayed despite the policy measures that were being put in place. Being pressed during the Q&A that followed after, President Trump acknowledged that he would be get tested at some point, having been in close contact with someone who tested positive for the virus.

This should calm markets... at least for a while. The problem still remains, but is now being tackled headlong. How long markets will remain upbeat about this remains to be seen.

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