Rebuilding the U.S. economy after the corona virus pandemic: a new Home Equity Release Method (HERM)

At the time of writing, in many countries the corona virus has not reached its peak yet. The virus has led to unimaginable consequences for all types of businesses and for individuals. Governments have shut down many economic activities, due to the possibility of ever increasing levels of infection. In some countries a total lockdown has been promulgated. The measures taken, so far, in the U.S. and in many European countries all point to an unprecedented level of financial assistance for companies, for workers who have lost most or all of their income and of course for the health services. During the 2007-2009 financial crisis about 8 million Americans lost their jobs. It has been reported that the White House estimates that the unemployment rate will go up to 20%, which would imply that by June/July 2020 over 30 million Americans would be unemployed. This statement was later denied. Job losses mean income losses and defaults on home mortgages and other loans. The U.S.$ 2.2 trillion economic rescue package will cushion some of the losses, but companies need time to recreate employment. One cannot put a precise date on it, but experiences from previous crises has shown that it will be a matter of years rather than months, before the level of unemployment will have returned to the 5.8 million reported by the Fed as for February 2020. In the past, the writer has analyzed the four sources of wealth in the U.S.: Stock market values, U.S. government treasuries, pension savings (overlapping with stocks and bonds) and the net worth built up in homes. The Dow Jones Industrial Average reached its peak on 12th February 2020 with a value of 29551; by 23 March 2020 it had dropped to 18592 or a drop of 37%! U.S. government bonds and quantitative easing activities will increase by at least U.S.$2.2 trillion. Pension funds invested in U.S. stocks and in government bonds, will have shared in the fall of the Dow Jones and in the lowering of interest rates. The only source of U.S. wealth, mostly untapped, is the housing stock net worth of just over U.S.$ 23 trillion. A new Home Equity Release Method (HERM) will be set out in this paper.