Incomes are collapsing throughout the economy, and both businesses and individuals face a crisis in meeting fixed payments they can’t control. The most direct step we can take is to temporarily suspend these payment obligations.
Suppose the government were to announce that, starting immediately, all stipulated debt and real estate rental payments were to be suspended for all borrowers and renters. This moratorium could have an ending date of, say, two months in the future, with the option of extending it if circumstances require. No interest would accrue to any of these obligations; in effect, we would be stopping the clock on them for a period of time.
Of course, if nothing else were done this would shut down the credit and rental systems completely for the duration of the moratorium, so a stipulation would have to be added that it applies only to debt or rental obligations established at the time of the announcement. We’d all have to keep two sets of books, one for pre-announcement loans and rentals, the other for post.
International obligations are somewhat more complicated, but the economic heft of the US is great enough that these conditions could probably be imposed unilaterally on foreign counterparties, especially if the logic of this step persuaded other countries to adopt a similar course of action.
A debt moratorium would dampen some channels of financial instability and provide greater security for most participants in the economy. By itself, however, it would not address the gaping hole in the real economy caused by shutting down whole sectors of goods and services production. That requires other forms of stimulus.
Yes
I have been thinking that such a proposal is needed and would be of great benefit except for one thing.
Rent. I’m sure there are many huge real estate companies that could afford this. But I know around here, there are many people who own 1 or 2 or 3 buildings with 2 to 4 units. Some may be able to go without the rent paid especially if they are not having to pay the mortgage.
However, how does one recoup the unpaid rent? The mortgage still has to be paid at some point. People renting tend not to be people that have the means to catch up on a payment as significant as rent.
Are we expecting the land lord to in essence donate a few months of use of the unit? Are we creating a mass flood of evictions in the future?
I have only 1 building. It has 2 newly completely rehabbed apartments. It has a mortgage. I’m actually thinking of not renting them currently just to prevent what I mentioned above.
DB, I agree completely. Noncommercial landlords should be treated as self-employed persons, with net income from rent (as defined by the IRS) treated as any other self-employment income. Then whatever relief is provided on that front would become available. Commercial landlords are businesses in the ordinary sense and eligible for relief through that channel.
I don’t like it really. Try to keep things as normal as possible and if proposed actions are predicted to create problems with debt and rental burdens, just take that into account when deciding on those actions. Public health is a competing interest for a state. It is an important one, but it is not the only one. Pretty sure nobody can reliably tell you how “flat” an infection curve can be made by how much economic contraction, but that for darn sure is the game here. Keep the scorecard honest as possible by not deviating from norms you expect to be there a year from now. You owe rent? You pay rent. Etc.