getting enough sleep. all those things. good morning. glenn hutchins. i hope to get an insightful session. when the financial crisis hit in 2008 and ben bernanke was the federal chair she had to create one from scratch. a few of the successors would need to refer to it so soon but for all of us he left a copy and i would recommend people on the call if they are interested there is a good cold firefighting and one was first responders.

i recommend every one have a look at it over the next couple of weeks. among other things, a distinguished economic historian who put this horrible event that we are experiencing right now to give us a sense today about what will determine how deep this recession will be, perhaps how long it will last and perhaps what is likely to come and whether the covid-19 recession will leave long-lasting scars in the global economy. i will turn this right over for penn's remarks after which david will pose some questions and then there will be instructions on how the audience members can ask their own questions. over to you and thank you for doing this. >> thank you everyone for joining us this afternoon. in january and february we had a

strong economy that has happened is the world has been hit by the covid-19 virus and exalted is doing great damage but from the economic perspective, the fact that on the essential businesses are being shut down its having an enormous effect on economic activity. people are not shopping, working, going to school. we are going to see the effects of that very soon. you need to keep the data in perspective. if the cpp in the second quarter is paying 10% lower than the first quarter remember we report on an annual basis, so multiply by four. very possible to see the numbers in the second quarter in the magnitude of minus 38% or

greater. likewise, unemployment is harder to measure in the short-term. will they be coming back in thee near term to see some dramatic numbers but i don't think that we won't know for a while how serious and how deep the phenomenon is going to be. it isn't a very good comparison. if a response is more like emergency relief than a typical stimulus for anti-recessionary response. now having said that, the factor in terms of how bad this is going to be an muc much inferenl be on the economy, the longer it lasts the more existing

businesses will fail financially and close their doors and the longer it lasts people lose their association with their employees and the longer it lasts the more destruction there will be and the harder it will be to come back so it's going to be critical. the most important duration is the public health response. we wanted to add palliative medicine treatments and test data trace and ultimately be able to few people can go back to work safely. and i think there's still a great deal of questions of how that is going to go.

perhaps as we shut down parts of the economy again, so overall it could be a very bad year for the u.s. economy. the public health response, and our ability to make sure that the hospitals have the apartment thethey needed a scientific establishment is putting all the their resources into addressing this disease will be the important determinant in how the downturn is. having said all that, there are other components to the respon response. let me talk briefly about the fiscal response and then spend most of my time on how the federal reserve is responding to the crisis. fiscally, again what we are not really talking here about is the stimulus package because people can't really go out and shop. what we are talking about this

emergency relief. what we need to do primarily in the fiscal package is sure that people can survive the period. they can open up again and we can restore economic activity. that would be a big part besides the part of the fiscal program that addresses the health needs. the biggest part of the act of the $2.2 trillion fiscal program is to try to just provide life support for an economy that is going to be shut down for a while until we have a better grip on the disease. so, the money is going into direct payments to individuals to help them get through this period. are they getting money to people fast enough, is it enough?

there will probably be more coming later but it's the right idea to try to help people get to this period. the other part is to help businesses survive and that involves france for the airline industry for example but also credit to help the firm's pay their bills and remain solvent so that they can open up again when the health situation is better. so i think overall, the response that you think of as an emergency relief package were disaster relief has been pretty good. there are some logistical issues in terms of getting the money out, but it has the right shape. i do suspect it will be more coming later as we help the economy get back to full employment and i would also add the circumstances that are

appropriate this is why we have the capacity of our own to deal with these kind of crises. now let me talk in the remaining few minutes about the federal reserve which has been extraordinarily active, and i want to commend jake and his colleagues fo were being very proactive in trying to address the concerns in the economy. the fed has done basically three types of things, and each of which has an important role in supporting the financial system and the economy. the first is supporting market functioning and providing liquidity this is what the central banks were created for and what was set up for. as we know, there's listening they know that they are dealing with some issues going back into last year where the markets were somewhat destabilized and the fed was putting into the system as early as fall. but since then, with the

pressures on the financial markets coming from the uncertainty, there's been a lot of destabilization. it's been for example by and large amounts o of tragedies and mortgage-backed securities to help restore quick functioning markets and it continues to put cash into the system to try to make the markets work better. it's opened up its discount window so that the banks can borrow one fort fourth of 1% int as they need liquidity to make loans. very importantly, the fed is also providing liquidity in the international system so back in 2008 and a financial crisis, one of the problems around the world was that so many financial transactions take place in dollars and of course the only source of dollars in the federal reserve, so in order to stabilize money markets around

the world that conducted swap operations with 14 of the central banks meaning we found ways to provide the dollars they could use in their economies to help stabilize their financial systems that affected in the financial markets. in this instance it's also set of agreements with the same 14 central banks. so once again the fed will be asking as a letter of last resort in dollars and not just u.s. banks and financial institutions but essentially to the rest of the world. it's also set up in facilities whereby other countries decide they can pledge the treasuries they hold to get the dollars and get cash and again provide liquidity as needed so the fed is acting very aggressively to make sure there's enough cash and liquidity the fed has been

aggressive on the monitor policy. they lowered interest rates as you know over the summer last year they cut the rates three times and that seemed to be with the doctor ordered so to speak. the risk of recession at the time didn't look like they had achieved a soft landing and now we have a different situation down to the basis points that we saw in the years after the financial crisis. it's issued against saying basically we are going to keep them at zero until it's moving back to 2% and i suspect it will be quite a while. it's been at least 500 million or 200 billion in the mortgage-backed securities have already been undertaken. that may be quantitative easing

again to keep rates low and the monetary conditions easy after the crisis, the health crisis has begun to annoy. so again this is a two-stage process at the moment. the financial conditions are helping the system making it easier for disabled for the corporations to borrow but it's not really time yet to stimulate spending and get people to go out and buy cars and houses. that will have to wait until the situation is better and at that point it will begin to perform its normal function. finally and most innovatively it's been intervening in the credit markets. the credit markets have been very disruptive by the crisis, by the fact people are so uncertain cash flow implications will be. and so, as the crisis began, many credit markets were disrupted and the fed has

borrowed from the playbook from 2008 and added quite a few innovations of its own borrowing from the 2008 playbook, it's done three things. first it created a commercial paper facility for the short-term lending to corporations to help them finance their inventories and materials or working capital. that is something we did in 2008. on the shelf that is up and that is already running. second, there is a money market liquidity fund that they brought up to allow money markets to sell their securities and reduce pressure on the markets but thet they seem to run the phenomena on a money market mutua money ms and this has been helping them as well. then the third facility that we have, they are also planning to

reintroduce but not yet the so-called term asset-backed security to buy packages of consumer credit, auto loans, student loans and a variety of other credit to help make those markets more effect if. so, these announcements together with the treasury, mortgage-backed securities have already improved credit market functioning considerably. going beyond that, the fed is going to use what we used for the first time since the depression of the fed in general has limited ability to buy assets and make loans, but under emergency conditions, so-called unusual conditions and with the permission of the treasury secretary, the fed can eventually landed to anybody in the facility powers and based on

that, they are adding a whole number of lending facilities that will try again to ensure that businesses can borrow cheaply and effectively in order to maintain survival in this period. so, what is coming out is the corporate facilities and one that is going to lend directly to corporations essentially making loans for buying bonds and corporations to help them survive the period. there is a secondary facility on assisting the week of existing bonds to improve the markets and then the third, and this is a difficult one, from the past experience the fed is also going to be introducing a so-called business lending program.

main street is a little bit of a misnomer because it's really for the middle sized firms funded to 10,000 employees and with the fed would be doing, and we don't know the details yet, they will be asking banks to make the loans to the firms and the fed will be providing cheap vapidity and perhaps providing protection against risks to the banks would be incentivized to make loans on good terms. now, the smallest institutions, the smallest businesses are eligible for loans from the sba, the small business administration. that began this week. again, the logistics are so important there are some snafus in getting the money helped that i hope will get straightened out. but that is supposed to provide cash to the small businesses on favorable terms and in fact those loans are partially forgivable if the small companies maintain the payroll.

the fed is hoping there as welll and announced i think yesterday that it will buy the loans fairbanks or provide a secondary market for those loans making them more liquid into the banks willing to make those loans. so i guess the thing to emphasize here is that the fed can reinforce the private credit markets. they are dysfunctional because the uncertainty. they can come in and replace those markets to some extent or strengthened markets and bring them back into the markets. the fed doesn't give away money. the 13 trillion requirements that they pay collateral and intended to be repaid. but in order to get into this protection, a big chunk of the money and the fiscal program,

$465 billion essentially provides equity for the lending programs so that if they do lose money it will be covered by these treasury funds. so, again, there has been progress already and we have seen the credit markets improve. i think the critical issue will be how quickly the health situation improves and that will depend on the logistics of distributing equipment and ventilators as well as the scientific effort that we need to get control of this. finally, let me point out this is a particularly difficult situation because it is a global situation. almost every country in the world is suffering from this pandemic and almost all have chosen to sit at a reduced economic activity, so this will be a global recession.

the situation has been worsened by the strong dollar, i do commodity prices, capital flow, outflow from the countries. so, we may see the market crisis and global recession as well as in the united states. so, we have a hard road ahead. but i am pleased overall with the fiscal and monetary responses we have seen. we are going to need more, but at least those authorities have done what they can to help the economies stay functional until the public health situation gets better. so, david, i will stop there and be happy to answer any questions. >> host: great. thank you very much for that. people listening in, we have a number of questions already but feel free to add to the list by e-mailing events@brookings.edu.

the fed has aggressively increased its balance sheet to approaching $6 trillion, so it will be twice what it was when you left in 2014. is there a limit to how much money the fed can create or reserves they can create to purchase in all of these emergency facilities? is there some limit to how much the treasury can borrow to finance? >> there is no limit. at 6 trillion there would be about 30% less than the gdp in japan i don't know the exact number but it's the size of the balance sheet so it could be bigger. much of the increase is temporary for example a lot of the commercial paper facility for example, those are short-term loans and presumably

as things normalize they will be paid back and will accordingly shrank that they do have capacity to increase the balance sheet if it is willing to do so significantly. i don't think there's any danger in that that inflation will be at risk. if anything, low inflation will be more of a concern. as far as borrowing is concerned, yes the federal government is borrowing a lot again as i mentioned this is when that capacity is so valuable. paying with taxes would be counterproductive because buying power at the time when the economy needs this buying power

the question of sustainability i think is a tough one. i think that the long-run issue clearly as the population ages have received projections of the federal debt that are very disturbing over the next decade or two and we need to think hard about how we are going to get control of that, but in the near term dealing with a crisis of this magnitude i think that this is an appropriate approach and i would note finally interest rates being almost zero the burden associated is actually going to be quite low even though the number of dollars but notice i. >> host: i want to back up to that inflation point because some people look at what is going on with the huge increase in the federal deficit, low-interest rate, thlowinteresg a lot of reserves. and they think surely this will create the inflation may be more

than we want. you don't seem to think that that is the case. how come? >> if you look at the supply and demand elements of the crisis, on the supply-side, you see for example some types of goods are in short supply in some supply chains are being disrupted. so, there are some supply-side effects that will raise the prices. overall though, think about what's happening to demand for the major industries and what is happening to the demand for airline seats or restaurant meals. because people are staying home and it will be a while before they are back to more normal activity and when they do come back to more normal activity they will have exhausted some of the financial reserves i think spending is going to take a hit

so the net effect will be slightly disinflationary. one way to see that is to look at the commodity prices for example, which have collapsed. i think overall, the monetary fiscal stimulus will not sufficiently compensate to get us back quickly into a below are slightly above so i think at this point it isn't a high-risk. it depends on the appearance trajectory of the virus and the

like. i am not a doctor by any means but they tell us the vaccine is 18 months away and there are things we can do to open up the economy significantly perhaps, but i don't see the economy returning to a more normal state until there is greater confidence both among the average people and at the level of the governors and mayors that opening up the economy will not restart the crisis. so it seems likely that if we could shut off the epidemic of course the economy would bounce back quickly, but it will probably have to restart gradually and it may be subsequent periods of slower activity again. i don't think it is going to be

a rapid response. i do want to draw the distinction between this and say a 12 year great depression if all goes well in a year or two we should be in a substantially better position and hope that it will be significantly less even than the great recession proved to be. >> host: that raises an interesting question. the recovery from the recession was sluggish and painfully slow. are there lessons there that we should grow about fiscal or monetary policy response is? >> i think on the margin they could have been more aggressive at certain stages in the recovery. but it was a very different kind of recession. it was started and created primarily by the combination of the housing boom and bust and financial panic. those things in the first

instance as the prices though it made people feel poorer and the credit crisis and there was disruption in the credit markets as well. so, the way to think about it is the recession is not just everyone stopping for a moment what they are doing and then going back to it. rather, it involves a whole lot of disruption. people are losing jobs, being separated from employers, companies closing. and depending on how the fanfare that is, the longer it takes to get back to a more normal situation. >> host: i recall you saying you thought fiscal policies had tightened to the period of sequester and i guess i was wondering if you think that is a risk again this time. >> and i said a moment ago i think that the policy would work

aggressively and the initial 2009 fiscal program it wasn't adequately sized given the problem and then there was a quick response not just in the united states, but globally, in the deficit reduction and tighter fiscal policy starting as early as 2010. so yes, the fiscal policy was too tight to aid the recovery back to full employment. in this case i think the politics is a little different. you know, the 2009 fiscal package was passed basically on a partyline vote. this one we just had a more

bipartisan supported by the president in both parties. so, i am hopeful that with a more bipartisan approach to what is again at some level in natural disaster, i mean it's very big but in some ways it is similar to the hurricanes were the floods were the other things that we have dealt with in the recent years and a bipartisan response to support those people affected might be a more robust fiscal response as the economy recovers. >> people have asked about the share buybacks which would become commercial and the consequences of th in the long d with interest rates are somehow unproductive. i wonder if you have a view on that and also on the coals for the big banks to stop paying dividends since they've already suspended their share of

buybacks. >> the buybacks and dividend payments are not inherently bad things. whabut they are basically is the bank where the company taking its excess cash is saying we don't have good use of the cash we are going to give it to the shareholders. you want to have capital mobile to go to the companies that have extra cash to go to other uses in the economy where the cash could be better used. i don't want to argue against the buybacks in general. that is going to be helpful for the recovery. on the other hand they want a system to stay strong so i think that there is a very tough question as to whether the

regulators are to cut back on the dividend payments. or tell them to stop making dividend payments. we didn't do that in 2008 and in retrospect there might have been a mistake because in the end many were short on capital and putting uinputting up the divids the amount of capital. so i think there is a case for asking the banks generally to be cautious about the buybacks. there is a bit of a signaling problem. it's a complicated question. the banks are strong and have much more capital today than in

2008 but i do think some caution if it can be done in a way that doesn't hurt confidence in the banking system would be worth discussing. >> host: one of the things that is different between 2009 and today is they've appropriated the money. the fed of course was involved but it wasn't primarily the fed program. they seem to have given money which they say they can leverage 10-1. i'm curious what you think about this. and including this time they are talking about buying security from the municipal bond as well as corporate. i wonder if you are comfortable with this use of the fed to

decide who gets credit and who doesn't doesn't >> guest: i think that it's appropriate. there was an op-ed to look at the rules and funding of the process. but they've established a good record of nonpartisan objective analysis. the fed is a vehicle for providing credit that would be based on objective criteria to the partisan debate we want the

private sector to be the source of the credit under almost all circumstances. but where the credit markets were disrupted i think they have an appropriate role to restore stability and one sign of this is we don't expect the lending to crowd out all other funding we are already seeing are all private funding returning to its like a backstop vanity only wonder type of circumstances. >> host: are learning anything that is more fragile or vulnerable than we had realized

what we had done enough? >> guest: the leverage lending in the markets that are stressed and anticipated if it came from some other direction that drove the economy into the slowdown some of these credits might exacerbate the problem and we are seeing some evidence of that. there've been some surprising problems even in the treasury market as addressed by the treasuries but the situation is different. it seems like 20 of eight because we are seeing the moves in the stock market and lots of

financial stress tha but in this case it is coming from outside the financial system and of course the pandemic and the effects on economic activity. the financial system is strong and will be a bulwark against the much worse crisis if the fed and regulators to their jobs appropriately. >> do you think it's appropriate for the government to take warrants or others tha that accompanies england's two in a time like this? >> guest: there's lending and then there's also some grants are going on where the fiscal policy has included payments to industries where the lending isn't going to be sufficient in the case where the grants them in various ways it could be paid

back with warrants for example. you want the taxpayer to be protected and if you want a reasonable return and render again it is a lending, not a gift so if you want a return of the taxpayer to get their money back. on the other hand they do not want to impose on so many conditions and complex requirements first but it will make people unwilling to participate. i think that it's appropriate to

including the eligibility in need but the main thing you want to do is keep the companies wanted so they can function again when the health crisis is over and to try to ensure as much as possible that they get their money back. >> host: you've made this point several times it's going to be critical to how we come out of this thing but i wonder if you could step back for a moment and this is a speculation i understand to think about the ways in which the economy may be coming out of this from the vantage point of history what will we be watching to see if it changes?

>> guest: the idea basically there may be some history in this crisis in other words in the course of this recession they may have permanent effects in the economy so by example would be solicitou small busine. larger businesses have more market share is for small businesses were knocked out by this crisis because we do not adequately keep them alive then that could affect concentration in the industry is going forwa forward. here we are having this conference.

people at brookings and elsewhere we must change our shopping and work habits and the way we interact with people online rather than in person. industry composition would be affected, no doubt. i can't see as many people going on cruises for example. there may be changes in the way that other travel industries operate so a lot of other dimensions. the examples [inaudible]

have had permanent impact. there will be some changes. before this crisis was more savings and not enough investment which is why the global interest rates have been so low. as we look ahead, which way do you think that balance will go? i can think of it more than one way. people may be willing to save more. i can imagine people not being willing to invest in o all the other hand, borrowing would be more than before. how do you see that and what will you be watching?

>> people that survived for many years were more cautious. some of the same factors would be there. in particular they think the pandemics will happen and they want to be prepared for this kind of disruptions so i would expect to see more savings and cautions. you are right about the fiscal deficit. without the fiscal deficits the rates would be lower, still to raise the interest rates to the lower levels.

>> host: i think a lot of people are just scared. you are not allowed to go outside in many places. the uncertainty about the future is very unsettling. what can you tell people to reassure them if you can. the financial resources are going to be tested because they are trying to survive so i don't in any way diminish what is happening. it is a scary period and all that said, history also suggests

that we will find solutions for this illness whether they are logistical, scientific advances, whether they come from changes in how they work so i think the u.s. economy will recover and within a few years. we will learn some lessons about being better prepared for the future crisis and. we will come out of this okay i understand and appreciate the personal level of that uncertainty over the last few

months. >> host: thank you for your time and for people online if you have questions that we didn't get to, i apologize if you send them to events@brookings.edu and they are questions we can answer, people try to to find a way to answer them. it is june of 2000. during the course of all of this, bush becomes convinced that cheney ought to be the guy so he calls me up and says i'm coming home tonight and i want

you to be at the governor's mansion at 10:00 and make the case why i shouldn't go with dick cheney. the governors mansion when there were comanche indians 20 miles to the west. we were in the austin library which is maybe twice the size of the stage and i'm sitting on one side of the room and he is on the other side of the room at about 4 feet away and he says okay tell me why we shouldn't go with cheney. number one, wyoming. three electoral votes. we need to go with somebody from the battleground state. number two, he had his first heart attack at the age of 34. i used to know the details of it. he is working on perfecting the heart attack. he's not going to last.

number three, the conservative congressman from the conservative state and every one of the votes is going to be brought up to vote against a resolution calling on the apartheid regime of south africa to move nelson mandela where there is no doctor to the mainland prison where there was. number four, we worked hard to identify you as your own and so let's pick the guy that was the secretary of defense at the time of war for your father. people in the midwest. 12 amendment problemwhile the a, bush isn't a monologue so this is the world wrestling federation.

he says got anything else and i said no that is it. he turns to the guy next to him and says do you have any questions for carl. as we are walking out of the room he says you had something to say. that night he calls me and he says really good today, back on the road for six or seven hours he calls a 10:00 and says really good today. you outlined ten serious political problems. so figure out what they were doing with him because i'm going with cheney.

he said that isn't my job, my job is to find the best partner to me. i want you to be prepared to tell me how to prepare for each of these eventualities. it was a testament to her husband. >> i just have to add that he was the other opponent and argued strenuously against reasons and they finally land on him down in texas on the heart divvied cohosh porch until he was sweating and the president was sweating and finally he said okay i will do it. >> and he could not have been a

better colleague or a better mentor. ..