Powell Begs More Stimulus, Warns of "Tragic Risks" of Too Little

Mish

Speaking on Zoom, Powell warns Congress not to do too little.

Tragic Risks of Doing Too Little

Please consider Fed’s Powell Says U.S. Faces ‘Tragic’ Risks From Doing Too Little to Support Economy.

“The expansion is still far from complete,” Mr. Powell said in remarks to be delivered at a virtual economics conference Tuesday. “At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship.”

By contrast, the risks of providing too generous relief are smaller, he said. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” he said.

Two Risks of Doing Too Little

  1. The rapid initial gains from reopening the economy this summer could turn to a “longer than expected slog back to full recovery” as hard-hit service-sector firms struggle with soft demand.
  2. A prolonged slowdown in the pace of improvement could trigger “typical recessionary dynamics, as weakness feeds on weakness.” Such a slowdown could exacerbate existing racial and wealth disparities in the economy, which “would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.” 

Wealth Disparities

The #1 cause of wealth disparities is the Fed itself.

The Fed has blown three magnificent bubbles in 20 years, each bigger than the last.

Along the way the Fed bailed out the banks by paying interest on excess reserves of Fed's own making.  

The stock market and those with first access to money loved it but those late to the party and foreclosed upon  didn't.

We are in the midsts of another housing boom now, with millennials chasing home prices that have soared out of sight.

Mish

Comments (19)
No. 1-5
PecuniaNonOlet
PecuniaNonOlet

The housing market begs the question of what happens if covid is with us through all of 2021 and the economy sputters or crashes. Are we going to have another bank bailout for bad mortgages?

How many trillions will it take for things to change? Heck, what would it take for things to change?

Mish, it would be great to see some bank/mortgage health stats if you can find them.

There seems to be an uptick in 90 day non-performing loans.

Eddie_T
Eddie_T

The Fed has bought nearly a trillion dollars worth of MBS's this year....and last I read they remain committed to buying 40 billion more per month. That amounts to about half of what they spent and are still spending for Treasuries.

They don't really care so much about house prices (or equity prices) as they do the total lock-up of the credit markets for the planet. It amounts to a lesser evil...at least it is for the bankers.

Since various kinds of stimulus is all markets have run on since 2008, and since it still seems to work....I expect them to keep right on doing it until some fine day it doesn't work....and I expect that it will do that....at some point. That's what we all have to fear...

RunnrDan
RunnrDan

"The #1 cause of wealth disparities is the Fed itself."

You think if your average BLM/ANTIFA rioter was going home to their own home or at least to a home they knew they would be comfortably paying off in their lifetime, they would be rioting? I highly doubt it.

Please add widespread public discontent to the Fed's list.

randocalrissian
randocalrissian

Anecdotal sample size of one data point FWIW ... neighbors two doors down just listed home for sale. Saw agent sign in yard Saturday. They listed it for about 12% over what Zillow says it is worth, which has tracked well to real value for this home. Sale pending is up three days later, you know they got their price or very close with such a quick sale.

I feel bad for those who are the last in to home ownership on this fancy leg up. They might not see home value rise for 10 years.