COVID-19

Liquidity will be key to weathering COVID-19 slowdown

Meghan McCarty Carino Mar 13, 2020
HTML EMBED:
COPY
Spencer Platt/Getty Images
COVID-19

Liquidity will be key to weathering COVID-19 slowdown

Meghan McCarty Carino Mar 13, 2020
Spencer Platt/Getty Images
HTML EMBED:
COPY

As businesses around the world grapple with the fallout of the COVID-19 pandemic, the health of the economy could come down to liquidity.

Companies have all kinds of assets, from tangible real estate to intangible patents. Liquidity is how quickly those assets can be turned into something you can spend, said economist Joseph Haslag at the University of Missouri.

Businesses need enough cash on hand to keep the lights on and pay employees, especially when faced with huge disruptions to revenue streams as they are right now.

“It’s really just a giant smoothing process in the face of some bumpy rides,” said Haslag.

On the last bumpy ride for the U.S. auto industry during the financial crisis, Ford was the only “Big 3” automaker that wasn’t pushed to bankruptcy and bailed out by the government — in part because the company had a lot of cash on hand.

Years before the crash, Ford was already facing plummeting sales. “They put everything they owned up as collateral, including the brand, Ford,” said Kristin Dziczek at the Center for Automotive Research.

Leveraging all their assets for cash loans early helped the company weather the downturn. General Motors and Chrysler, on the other hand, had to borrow from the government because by then credit within financial markets had dried up — which in itself made the crisis worse.

“Credit is the mother’s milk of economic activity,” said Mark Zandi, chief economist at Moody’s Analytics. “When there’s not enough credit that’s lethal to the real economy.”

Today, big tech firms like Microsoft and Apple have tens of billions of dollars on hand. But smaller companies in many other sectors could find their cash streams quickly drying up.

COVID-19 Economy FAQs

Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?

This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.

Could waiving patents increase the global supply of COVID-19 vaccines?

India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

Read More

Collapse

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.