In the U.S.A., the lockdown due to Covid-19 began about a month ago. The news has been saturated with it. As of this posting in April 2020, we’re not sure when the lockdown order will be lifted. Most of us are abiding by the order. In our state of Michigan, however, the Governor’s rules to restrict the purchase of seeds and plants in the spring-planting season – but not high-tax items such as lottery tickets, liquor, or marijuana – angered many of us. Such orders seem nothing short of the Governor’s attempt to control the civilian population in the name of “saving lives.” The worst part is that domestic violence, child abuse, and suicides are on the rise due to uncertainties about the future of the economy.
Enough said. Below, you will see how we are personally being impacted by it, how we are managing so far, and where we are likely headed.
How we are being impacted by it
Like millions of others, I have lived through the market crashes of 2000 and 2008. The crash of 2000, which took place just as I was beginning to think of a comfortable retirement, was a major turning point in my life. It was the beginning of the realization that the old stable world, in which I was well educated and trained, was no longer likely to remain relevant. I began preparing myself for the worst-case scenario, as in “what if all of my retirement-income sources – pension and Social Security – were to dry up?”
Because of the path slowly taken starting in 2000, I eventually left Chrysler in 2004 to become my own boss full time. The impact due to the crash of September 29, 2008, therefore, was somewhat muted. In other words, I was better prepared for the 2008 market crash than in 2000. Psychologically, at least, Covid-19 is also proving that I’ve been on the correct trajectory.
Going back in time, the tax-payer-funded $700 billion bailout money, which was signed off by President George W. Bush on October 3, 2008, was intended by the government to help boost the economy. As many of us recall, however, the funds were never loaned out by the banks, the original recipients of the funds.
To make matters much worse for us, on June 9, 2008, over three months prior to the crash, our house had burned down due to a lightning strike. By the time the house was rebuilt a year later, no bank was lending any funds to anyone. This forced us to pull cash out of our retirement reserves to cover the portions that were not covered by insurance. In 2008, if there was an Economic Injury Disaster Loan (comparable to the one being made available as a result of Covid-19), I was not aware of it. This reality forced us to begin using, and maxing out on, credit cards – just to keep our businesses afloat. We knew full well that this was not a good solution but there was no other alternative. Consequently, our credit scores tanked from above 800s down into the 600s.
All in all, we’re still paying for the debts created by the 2008 crash. Since then, we had no choice but to cut business expenses to a bare minimum. Rather than risk additional financial losses, I chose the safer path of “no more spending,” just to stay afloat. This, by the way, is not a complaint but simply a statement of facts.
Fast forward to today. Clearly, for better or for worse, the U.S. government learned the lessons from 2008. One could argue that, given the uncertainties associated with the effects of the virus, cash infusion to the economy is perhaps a necessary evil. Conversely, I cringe to think of the effects of the Fed printing $2 trillion, which is backed by no hard assets. I have seen this scenario being played out before in history books, and I know it will eventually get very ugly for ordinary citizens.
“Free money” issued to the masses sets a dangerous precedent, making many people happy to be dependent on the government. I’d be lying if I said I weren’t happy to receive it. The problem I see, however, is that it is as if the policies that created America’s inner-city problems were expanded to the rest of the country, overnight, due to Covid-19. In other words, an increasing number of people could become so dependent on welfare checks that they lose their will to work for a living. This is not a viable solution for any economy for the long haul. No country can afford it. Given the already vast amount of national debt that stands at over $24 trillion as of this posting – which was less than $6 trillion just two decades ago – such mentality would surely set the U.S.A. toward a dangerous path to socialism, if not already, followed by a dictatorship, immediately followed by no more freedom to its citizens. By the time those being brainwashed in most schools and college campuses begin to finally realize what is actually happening, it will be too late.
In addition to the cash infusion to households, Congress created a $350 billion fund to help small- to medium-sized businesses keep workers on payrolls. President Donald J. Trump signed the law on March 27, 2020. There are two main programs for these funds:
- The Paycheck Protection Program (PPP): It enables businesses to apply for a loan of up to 2.5 times their monthly payroll costs, up to $10 million. These loans are fully forgivable if businesses use 75 percent of the funds for payroll and can prove that they met certain conditions, such as rehiring laid-off workers. PPP is handled through lending institutions.
- The Economic Injury Disaster Loan (EIDL) program: In addition to the grants, it enables businesses to take out low-interest loans of up to $2 million. EIDL is handled through the Small Business Administration.
- The March 20, 2020 order from the Michigan Governor as a result of Covid-19 translated to mean that tenants cannot be evicted for non-payment of rent through July 25, 2020.
- Needless to say, I vigorously object to the Governor’s abuse of power by taking sides, interfering in existing contractual agreements between rental-property owners and tenants. Such an arbitrary order is likely to unnecessarily encourage tenants to choose not to pay the rent.
- This edict made me think that I had no choice but to apply for EIDL, just in case I need it; and I did apply on April 9, 2020. The website indicates that a response can be expected in about a week, but no word from SBA yet.
Note: As of this posting, less than three weeks since it was signed into law, the funds are already dried up.
How we are managing
Are we surviving? Yes, we are, thanks to our safety net in the form of pension and Social Security – i.e., retirement protections from the pre-dot-com era before its bubble burst in 2000. David and I had paid out of our monthly paychecks into these entitlement programs while still being employed at General Motors and Chrysler respectively. In other words, we are truly “entitled” to the funds which came out of our own pockets during employment.
The sad reality for me, however, is that becoming independent of these two entitlement programs was precisely my original goal when I started out in 2004 on this journey to absolute financial freedom. Because we had to shed 22 out of the 26 properties by 2014, our current rental revenues are not yet enough to replace the income from these entitlement programs.
Where we are likely headed
For the last month or so, I’ve been taking full advantage of the mandatory Covid-19 lockdown – which helped clear my calendar completely – to start working toward creating a virtual training program. It is based on the thought that people should be able to learn how to invest in rental properties correctly from the start so that they can ensure generating positive cash flow monthly. I want to (1) help them avoid making the mistakes I have made over the years and (2) enable them to get right down to making money starting with their very first investment property. I’m becoming the mentor I wish I had when I started out.