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Good intentions are always top of mind, but what happens when we don’t see what could happen. We get unintended consequences. Our first episode that covered this was widely appreciated so we are bringing you another one.

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Episode 026 – Unintended Consequences Pt2

This is Market Insights from Southwest Investments, where we dig into current events and how they affect the markets but also how they might impact your financial future.

 

Rick:                 Welcome to Southwest Investments. I’m Rick Zich, your host. I’m a manager and financial advisor here at Southwest Investments. Joining me is Bart Schannep. How are you doing Bart?

 

Bart:                 I’m doing terrific. Thanks for having me on.

 

Rick:                 Excellent. I’ve been going back to some of the videos that we’ve been doing. One of the most popular and things that we’ve received the most feedback from is the one that we had about unintended consequences. Remember that?

 

Bart:                 Yes.

 

Rick:                 That was a lot of fun. Let’s do another one because I’ve got a really interesting one.

 

Bart:                 Part two?

 

Rick:                 Part two.

 

Bart:                 Okay.

 

Rick:                 Unintended consequences part two.

 

Bart:                 Bring it.

 

Rick:                 Alright. Here are the two things that have been happening. Number one, the government increased unemployment benefits to the people that have been furloughed because of the whole COVID-19. The amount that they increased it by, this isn’t what they increased it to. What they increased it by was $600 a week, which is about $15 an hour, which is what the Democrats think the minimum wage should be. That’s what it’s been increased by, so it’s pretty good for people.

 

Bart:                 Well, that’s pretty good. However, as we learned from not just the most recent recession but how we relearn about every recession is the more lucrative you make unemployment benefits, the longer people remain unemployed.

 

Rick:                 That leads us to this next thing. That was part one of this thing. The Republicans in this relief package wanted to make sure that businesses also got support. We got the employees getting the support through the unemployment, increased unemployment. Now the businesses are getting this paycheck protection program, PPP. A lot of people are hearing about it, heard about it, how it ran out of money in two weeks.

 

Bart:                 Right.

 

Rick:                 This is where a company can get a loan from the government through the SBA, Small Business Administration and that it’s a portion. There are some calculations.

 

Bart:                 It’s a ratio.

 

Rick:                 Exactly. The really good thing about this is that if you use it to pay wages to employees that have been either furloughed, laid off, whatever the case might be, you bring them back, and you can then ask the government to basically give that money for free.

 

Bart:                 Right.

 

Rick:                 You don’t have to pay it back.

 

Bart:                 Right.

 

Rick:                 That’s fantastic. Businesses are loving this. Tell me the problem.

 

Bart:                 Well, if you don’t bring them back, it’s a loan you do have to repay, but it’s only at one percent interest.

 

Rick:                 That’s right.

 

Bart:                 What you’ve got is you’ve got companies that can take that cash and either use it as a super low loan or it can work out that if you’re getting free labor from employees, that increases your profits.

 

Rick:                 That’s right. Now, the one other thing about that is if you’re increasing profits, you’re increasing taxes. The government is really getting a lot of that money. I shouldn’t say a lot of the money back. They are getting some of the money back.

 

Bart:                 Yes they are.

 

Rick:                 There are quite a few unintended consequences in this whole thing that wasn’t necessarily thought of all the way through because all of this legislation got done in roughly three weeks.

 

Bart:                 Right, during the scariest times when the virus was the scariest.

 

Rick:                 Absolutely.

 

Bart:                 Yes.

 

Rick:                 Very interesting things. Thank you for joining us today. If you have any comments about this, I’d love to hear them again. Go ahead and send us an email. Visit us on the website. We look forward to seeing you next week.