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