The package takes pandemic-related spending in the US to over $6 trillion since the start of the crisis.
Its effect will be felt far beyond the shores of the United States. The package takes pandemic-related spending in the US to over $6 trillion since the start of the crisis.
The latest package includes plans to send cheques for $1,400 to most Americans below certain levels of income. The idea is to encourage the recipients to spend the money and thereby boost demand for consumption goods. In turn, that could bring idle capacity into productive use, thus generating more jobs. The jury is out on whether the recipients will spend all the money they get. It is quite likely that part of the amount will be saved or parked in various asset classes.
Most governments around the world have pumped in money to cope with the economic slowdown due to lockdowns and Covid-19-related relief measures.
Central banks have also cut interest rates and flooded the banks with easy money. Invariably, excess liquidity in the system tends to flow into asset prices. Already, the prices of oil and metals have shot up significantly. There are signs that even food prices are on the rise. So, the imminent danger is that commodities inflation will spike.
Another concern is that of serious disruptions in supply chains due to skewed demand for services of transportation of goods. Increased demand in the US could result in more shipments of consumer goods from East Asia to the US. This could nudge the shipping lines to divert more vessels to meet the shipping demand in that sector. In turn, that could result in fewer vessels coming to the shores of India and many other countries. Already, serious imbalance in imports and exports in India has caused a shortage of empty containers.
President of the Federation of Indian Export Organisations (FIEO) says that rising exports from China have led to the shortage of containers in the region. This is because most of the empty containers are available only for exports from China as shipping lines and container companies are being paid hefty premiums for bringing empty containers back to China.
Traffic to ports in the US West Coast is so heavy that vessels have to wait for almost a week to get berthing space. Even the unloading of vessels takes longer as port operations are less efficient due to pandemic-related restrictions. The unloaded goods also block the port space as evacuation of the products from the ports is seriously constrained due to reduced availability of trucks for inland transportation. Even at efficient transshipment hubs like Singapore, delays of about a week to get berthing for vessels has become quite common. Congestions at other major transshipment ports have also become a regular feature. Capacities to carry air cargo have also not picked up due to fewer passenger flights that also carry goods. Consequently, the freight rates for exports and imports have gone up by over 100 per cent in some sectors.
Biden’s package may help many economies revive faster but the risk of higher commodity prices besides disruptions and higher costs in transportation of goods cannot be ruled out.email: firstname.lastname@example.org