You may be wondering how all the losses being incurred during the COVID-19 crisis are going to covered. Many households and businesses are experiencing staggering shortfalls of income from their outlays. These shortfalls are being dealt with in various ways:
Drawing down assets;
Borrowing from banks and others;
Receiving assistance from the Treasury and others; and/or
Falling behind on loans and rent.
For those who are drawing down a nest egg—including 401(k) retirement savings —they are going to have less to spend in the future. Similarly, those who borrow—if they can still get a loan—are going to have to spend less in the future to be able to repay their debt. Those getting assistance in the form of cash payments from the Treasury or loan forgiveness are passing the burden onto others…their children and grandchildren. In this case, the spike in Treasury borrowing to cover Treasury assistance efforts is being pushed onto future generations. They will be the ones tightening their belts.
In the growing number of cases in which the costs are being passed along to lenders and landlords, it is the lenders and landlords who will be picking up the tab for missed payments. This could result in restructurings of loan and rental agreements and filings for bankruptcy. The bankruptcy courts are likely to get very busy.