Fed officials burst Wall Street's Bubble by telling the truth on the economy

In the 6 ½ weeks since the stock market hit its depths, the DOW Jones had rebounded by more than 30%. And there really wasn’t a lot of reason for it beyond the massive stimulus being pumped out by legislators and by the Fed Reserve, and a hope that somehow the worst of the COVID-19 pandemic and associated economic damage was behind us.

Then today, we got a reminder from Federal Reserve Chair Jay Powell that we are in a massive economic hole due to the COVID-19 recession. And a lot more in needed to get back from it.

In his prepared remarks, Powell did not mince words about the damage the economy is facing from the lockdown put in place in mid-March to slow the spread of the coronavirus.

“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II,” he said.

The Labor Department reported last week that 20.5 million Americans lost their job in April and the unemployment rate rose to 14.7%.

The Fed Chair also noted the inequity of the damage, which is hitting low-wage earners much harder than people with higher incomes.

Powell said a Fed survey has found that 40% of people in households making less than $40,000 a year and were counted on the payrolls in February had lost that job in March.

“This reversal of economic fortune has caused a level of pain that is hard to capture in words,” the Fed chairman said.

The reality of our lousy economy may have finally occurred to some Wall Streeters in recent days, as the DOW dropped more than 400 points yesterday, and was down as much as 700 points this afternoon before ending with a decline of 517.

It's all we got at this point.

Cleveland Fed president Loretta Mester echoed Powell's concerns, saying today that the COVID-19 recession is ending up being worse than the Fed or employers knew 2 months ago.

She said the costs of the pandemic grow as it lingers, damaging more people and companies.

“It is a much bigger need that we probably all thought in the beginning. But that is the nature of this, because it is the virus dictating the timing,” she said.

Mester said companies in her district said at the beginning to the pandemic they had every intention of keeping their workers on their payrolls.

But companies underestimated the duration of the crisis. “And so you see, week-by-week is, sort of the attitudes of the businesses, especially the ones hardest hit, have gone down week-by-week,” Mester said.

Mester added that Congress likely needed to pump out even more money because the economy was so depressed, even though trillions have already gone out.

All of this money-printing would usually lead to inflation, but today’s Producer Price Index report showed that inflation is probably needed for some businesses.

Wholesale prices slid a record 1.3% in April led by a 19% plunge in the cost of energy, further signaling the potential threat of deflation in the United States.

The Labor Department said that its producer price index, which measures inflation before it reaches the consumer, fell by the largest level on records dating to 2009 as the disruptions from the coronavirus pandemic rattled the U.S. and the global economy…..

The decline of prices at both the retail and wholesale levels could be an early warning signal that the seismic evaporation of demand brought on by a pandemic could ignite a destabilizing bout of deflation, something not seen in the United States since the economic collapse of the 1930s.

“The economy is on deflation watch for producers and consumers now that economic demand is falling away more quickly than anytime ... since the Great Depression,” said Chris Rupkey, chief financial economist at MUFG Bank in New York. “Inflation isn’t coming back in this economy for a long, long time.”

But go ahead Trump/GOPs, try to claim that what we now really need to dig out of this once-in-a-lifetime hole is a tax cut on payrolls and wages that will drain the amount of money available for Social Security. Explain to me how tax cuts help people who are out of work and/or getting fewer hours. Go ahead, I'll wait.

No, what people need is MORE INCOME to generate demand. What our Congress and President should be doing is buying farm products at a reasonable price and using the crops to feed the hungry (it took Trump over a month to figure this out, with the USDA finally announcing $3 billion in purchases last Friday). It also would help if policymakers raised the minimum wage and gave bonuses to first responders and frontline medical personnel to give people get a boost from their actual jobs, and add a couple more months of stabilization checks so people have something to spend.


Those stabilization checks could be based on how much income Americans have had over the last 3 months, phasing out at an income level around $15,000 for those months. This would target the aid toward lower-wage and laid-off workers, who are the ones that have been most likely to be taking a hit by the COVID-19 recession, and most likely to need the checks to maintain their standard of living.

But you know what else we need to get the economy moving again? MORE COVID-19 TESTS to give people the security to want to go out and spend more. And until the outbreak is controlled, that isn’t going to happen in any large scale. So why not put in a ton of money to get people tested and in a “moon shot” type of project to develop a vaccine? Because if that doesn’t happen, double-digit unemployment will be around well past the end of 2020, and it will mean our current deep recession transforms into the 21st Century Depression.

I’m not seeing that thought process go through in DC, just more pathetic hopes that allowing money to keep flowing to debt-ridden businesses and high-wage earners to try to maintain an appearance of growth for the country. It’s clearly crumbling below, and I wonder if this week is going to be the start of a growing understanding that our economic problems won't be fixed by opening up a few businesses.

In fact, I’d almost say we should allow a lot more things to open up in this country, just so these right-wing oligarchs will shut up when the economy still is in a huge hole 2 months from now. But that would mean COVID-19 will continue being a factor for a lot longer, and I’d rather see this damn disease get crushed with fewer people dying. Call me a bleeding-heart.