The coronavirus outbreak has shuttered businesses and fears are mounting of a spike in unemployment (NICHOLAS KAMM)

Washington (AFP) – With the global economy coming to a full stop, the US government wants to send out $1,000 checks to all Americans as part of a massive rescue plan, but that may not stop unemployment from skyrocketing.

Treasury Secretary Steven Mnuchin reportedly warned Congress the jobless rate could soar as high as 20 percent from its current 50-year low of 3.5 percent, an estimate President Donald Trump has disputed, saying it represents a worst-case scenario and that the country is “nowhere near it.”

But economists warn unemployment could indeed reach that level without huge government spending, and it wouldn’t even have to go that high to cause Americans massive pain.

Gregory Daco, chief economist at Oxford Economics, told AFP the US economy has come to a “sudden stop” making this “potentially the worst contraction in economic activity of all time.”

A jobless rate of just five percent would imply a loss of five million jobs, he said.

For comparison, about eight million jobs were lost in the Great Recession following the global financial crisis, when unemployment peaked at 10 percent in October 2009.

Daco’s team on Tuesday revised their economic forecast and are now calling for a stunning 12 percent contraction in the April-June quarter.

More troubling is the fact that unlike in 2008, when China and other emerging market economies were growing at a rapid pace, the pandemic is shuttering activity worldwide.

– Cash payments, loans –

Mnuchin said the Trump administration is working to finalize a $1.3 trillion emergency spending plan for Congress to approve that would deploy cash payments to Americans immediately.

That could include two payments in April and May of up to $1,000 to individuals — with amounts varying depending on income level and family size — costing a total of $500 billion, according to a Treasury document obtained by The Washington Post.

In addition, the plan would provide $300 billion in loans to small businesses that could be used to guarantee their entire payrolls for six weeks, the document shows.

It remains unclear when Congress will consider this package.

The Republican-controlled Senate is due to vote later on Wednesday on the $100 billion Democratic package directed at paid sick leave and expanded unemployment benefits, which the House passed overnight Friday.

Amid the uncertainty over when help will arrive, companies from coffee shops to lunch chains to airlines and the world’s largest hotel chain, Marriott, are being forced to shut down and layoff workers.

Daco pointed to reports that some companies, rather than laying workers off, seem to be putting them on “zero hour” schedules, meaning they cannot collect federal unemployment benefits that would keep them above water financially and temper the injury to the economy at large.

Democratic Senator Chuck Schumer urged rapid action as the economy grinds to a standstill. 

“I have never sensed a greater sense of uncertainty, a greater fear of the future, of the unknown,” he told the Senate.

Diane Swonk of Grant Thornton agreed, warning, “Nothing can stop the economy from tanking.”

She told AFP her initial estimate was of unemployment jumping to 6.4 percent, with a loss of five million jobs. But she warned it “could be much larger.”

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.