condoleezza rice, former secretary of state in the george w. bush administration talks about the national security threat posed by the coronavirus pandemic. michael arsonoh details his economic struggles with student loan debt. journalist katherine stewart argues religious nationalists are waiting political war on american democracy and institutions which we take a look at recent other programs about technology and on our author interview program afterwords, former fbi deputy director andrew mccabe, that's just a few of the programs you will see this weekend. check your program guide for more information or visit booktv.org. >> glenn hutchins here, hope it will be a fascinating and insightful session with ben bernanke. when the financial crisis hit

in 2008 and been burning he was head chair, he had to create one from scratch. a few of us expected successes would need to refer to it so soon but for all of us, left a copy for jake powell to consult. i recommend for people on this call if they are interested in very book called firefighting which is a summary of the crisis is one called first responders which gets deep into the individual programs. i recommend everyone have a look at it over the next couple weeks. been among other things as interesting as the economic historian. what we are experiencing now, put that in context, give us a sense of what will determine how deep this recession will be, perhaps how long it will last, how effective the fiscal and monetary policy responses been and what is likely to come

and whether the covid-19 recession will leave long-lasting scars on the us and global economy. i will turn it over to ben for his remarks after which david wessel will host questions and then it will be instructions on how audience members can ask their own questions so over to you and thank you for joining us. >> thank you for joining us this afternoon. seems like a long time ago but january and february we had a strong economy with 3% unemployment rate. we are hopeful the strength of that economy will provide moment him to get to this tough period. what has happened is the world has been hit by the covid-19 virus which is doing great damage from an economic perspective the fact that nonessential businesses are being shut down totally is having an enormous effect on economic activity. people are not shopping not working, people are not going

to school, we will see the effect of that in a data very soon. you need to keep the data in perspective. if gdp in the second quarter is 10% lower than in the first quarter, an annual basis multiplied by four, very possible we will see gdp numbers in the second quarter an order of magnitude minus 38% or greater, likewise unemployment is hard to measure in the short-term. people furloughed from the company, are they unemployed? we will see dramatic numbers but we won't know for a while how serious or deep this phenomenon is going to be. people made comparisons to the great depression. it's not a good comparison, the depression was 12 years long. it came from financial crisis, came from man-made, human made errors and decisions. this is more like a natural

disaster and the response is more like emergency relief any it is a typical stimulus or anti-recessionary response. having said that, the critical factor in terms of how bad this is going to be, how much imprint it will be on the us economy is its duration, how long will it last, the longer it lasts the more existing businesses will fail financially, close their doors, the longer it lasts for more people will lose their jobs and lose their association with their former employers, the longer it lasts, more disruption it will be in harder agreed to come back. the duration will be cortical, the most important determinant of the duration of the public health response. we are currently in shutdown because we are trying to bend the curve, get the rate of new cases low enough that people

can feel confident the system can handle the cases. add palliatives, medicines and treatments, we want to test and trace, we ultimately want to be able to feel that people can go back to work safely and that is going to depend more than anything else on the public health response and there is great question about how that is going to go. one scenario is we partially open up the economy over the summer and perhaps in the fall there is more infection, shut down part of the economy again so overall it could be a very bad year for the us economy but the public health response and our ability to make sure hospitals have the equipment we needed the scientific establishment is putting all its resources into addressing this disease will be the most important determinant of how

long and deep this downturn is. having said that there are other components to the response, let me talk about the fiscal response and spent most of my time on how the federal reserve is responding to this crisis but fiscally, we are not really talking here about a stimulus package because people can't go out and shop. we are talking emergency relief, making sure people can survive this period, businesses that are losing revenue can pay their bills. and partially clear sounded. we store economic activity. that was a big part without the fiscal program that addresses health needs.

and the fiscal program trying to provide life support, with a better grip on the disease. the direct payments to individuals, in this period. are we getting money with people fast enough? and more is coming later. it is the right idea to get people to this period. that involve some grants in the airline industry. they remain solvent so they can up again as the health situation is better. the fiscal policy response

which is an emergency relief package. there are logistical issues, it has the right shape. i suspect there will be more coming later as we help the economy get back to full employment and i would also add that this will be debt-financed which in this circumstance is probably appropriate which is why we have the capacity to deal with these kinds of crises. let me talk the remaining few minutes about the federal reserve which has been extraordinarily active and i commend jay powell and his colleagues for being very proactive in trying to address concerns in the economy. the fed has done basically 3 types of things and each of which has an important role in supporting our financial system and our economy, the first is supporting market functioning

and providing liquidity. this is what central banks were created for, what the fed was set up for in 1913 and is listening may know the fed has been dealing with liquidity issues going back into last year when the markets were destabilized, putting liquidity in the system as early as last fall but since then, with the pressures on financial markets coming from the uncertainty associated with this crisis, there's been a lot of destabilization, the fed has responded in a big way, buying large amounts of treasuries and mortgage-backed securities to restore functioning and those quick markets, continues to put cash into the system to try to make the money markets work better, "discount window so banks can borrow at one fourth of one%.

and and one of the problems around the world is to take place, and stabilizing money markets, and swap operations with 14 other central banks. we found ways to provide them with dollars they can use in their economies to stabilize their financial systems. and the fed in this instance still set up swap, once again the fed will be acting as a letter of rest resort, not just us banks and financial institutions.

other countries besides the 14 can pledge the treasuries they hold get dollars, get cash and provide liquidity is needed in their own economies so the fed is acting very aggressively to make sure there's enough cash and liquidity in the system. that is the first line. secondly, the fed has been aggressive on monetary policy, they lowered interest rates over the summer, cut rates three times as insurance and that seemed to be what the doctor ordered so to speak and the recession risk at the time fell and looked like the fed achieved a soft landing and now we have a different situation, the fed cut rates down to the minimal 0-25 basis points we saw in the years after the financial crisis.

it has issued forward guidance saying we are going to keep rates at 0 until the economy is back on track and inflation is moving back to 2%. it will be quite a while and asset produce doing $500 million of treasuries, $200 billion of mbs mortgage-backed securities of been undertaken that will transmogrify into quantitative easing helping keep rates low and monetary positions easing. this is a 2-stage process, making it easier to borrow so they continue to survive. it is not time to to relate spending on bipartisan houses, that will have to wait for the health situation that is better. at that point monetary policy will begin to perform its former function. finally and most innovatively

the fed has been intervening substantially in credit markets. credit markets have been very disruptive by the crisis, by the fact that people are so uncertain, and so the crisis began, many of the credit markets were disruptive, and it added quite a few innovations of its own. following in the 2008 playbook has done three things, it created a commercial paper facility which provides commercial paper, short-term lending to corporations to help them finance their inventories, that is something we did in

2008, it is already running. secondly there's money market liquidity fund that they brought up. and they reduce pressure on money markets. we have seen some run phenomena on money market mutual funds and this has been helping there as well, something we did in 2008 and the third facility we had, planning to reintroduce but not yet, the term asset-backed facilities lending facilities used to buy packages of credit, credit cards, auto loans, student loans and make those markets more effective. these announcements, together with treasury and mortgage-backed securities improved credit market functioning considerably.

going beyond that the fed is going to use it 133 emergency powers which we used in 2008 for the first time since the depression the fed in general has limited ability to buy assets and make loans, but under emergency conditions so-called unusual exigent conditions that with permission of the treasury secretary the fed can essentially lend to anybody with 133 power and based on that adding a whole number of lending facilities that will try again to ensure that businesses can borrow cheaply and effectively in order to maintain their survival through this period so what is coming out, there are but two corporate facilities, one that is going to lend directly to corporations, essentially making loans or

buying bonds to help them survive the period, there is a secondary facility to provide existing bonds trying to improve functioning of the credit markets in the corporate bond markets and thirdly, this is an important and difficult one, departing quite substantially from past experience, the fed is also going to be introducing the main street business lending program. main street is a misnomer because it is for middle size firms, 500-10,000 employees and what the fed will be doing and we don't know the details yet but presumably they will be asking banks to make loans to midsize firms in the fed will be writing cheap liquidity and perhaps providing protection against risk so banks will be incentivized to make loans on good terms to these midsized firms, the smallest institutions, the smallest businesses are eligible for

loans from the sba, the small business administration that began this week, logistics are so important, there have been some snafus in terms of getting the money out. i hope that will get straightened out] is supposed to provide the spa program with cash to smallest businesses on favorable terms and those loans are at least partially forgivable if the companies maintain their payroll. the fed is hoping, they announced today and yesterday that will buy sba loans from banks or provide secondary marketplace loans making the more liquid and banks more willing to make those loans lose the thing to emphasize is what the fed can do is reinforce the private credit markets. they are dysfunctional because

of leveraging because of uncertainty. the fed can come in and replace those markets to some extent or strengthen those markets and try to bring private vendors back into those markets. the fed does not give away money, the 133 requirements do require the fed to pay collateral and intends to be repaid but in order to give the fed some protection a big chunk of the money in the fiscal program, $465 billion provides equity for the fed's lending programs so that if they do lose money it will be covered by this -- these treasury funds. there has been progress already and we've seen credit markets improve. it will depend on how quickly the public health situation improves and that will depend on the logistics of distributing equipment and

gear, beds, ventilators and the scientific effort that we really need to get control of this. let me point out talking about the united states, this is a 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 significantly reduce economic activity so this will be a global recession. the situation is being worsened by a strong dollar, falling commodity prices, capital outflows from those countries. we may well see emerging market crises and global recession as well as in the united states. we have a hard roll ahead but i am pretty 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 our

economy stay functional until the public health situation gets better. i will stop there and be happy to answer any questions. >> thank you very much. we have a number of questions already but feel free to add to the list on twitter, s j covid-19 economy. the fed is increased its balance sheet $6 trillion so it will be twice the size it was in 2014. is there a limit how much the fed can create a reserves to purchase us treasuries and all these emergency facilities? is there a limit to how much the treasury can borrow to

finance this? >> guest: technically there is not a limit to how big the balance sheet can get. at $6 trillion this would be 30% or less of us gdp. in japan i don't know the exact number but 90% of gdp, the size of the bank of japan's balance sheet so it could be bigger. much of the increase is temporary. a lot of the commercial paper facility are short-term loans, and as things normalize those loans will be paid back in the fed balance sheet will shrink. but i think the fed has capacity to increase its balance sheet and appears willing to do so significantly and that is appropriate. i don't think there's a real danger from that. i don't think for example that inflation is going to be a risk. if anything low inflation will be more of a concern then too high inflation.

as far as borrowing is concerned the federal government is borrowing a lot, this is when that borrowing capacity is so valuable when you have a national emergency which this is. paying for this with taxes would be counterproductive because it would d press buying power when the economy needs buying power. i think the question of sustainability is a tough one. there are issues as the population ages and cost of medical care go up and we see projections of the federal debt that are very disturbing over the next decade or 2 and we need to think hard how to get control of that trajectory but in the near term dealing with a crisis of this magnitude this

is an appropriate approach and i will note finally that interest rates being almost 0 means the interest burden associating with this borrowing is quite low even though the number of dollars borrowed is high. >> back to the inflation point, some people look at what is going on, huge increase in the federal deficit, low interest rates, the fed creating a lot of reserve and think surely this will increase inflation may be more than we want. you don't seem to think that is the case. how come? >> there are supply and demand elements of this crisis was on the supply side you are seeing for example some types of goods in short supply, some supply chains being disrupted so there are some supply side effects that raise prices for certain goods and services. over although think about what is happening to the demand for

major industries, what is happening to the demand for airline seats or restaurant meals. because people are staying home and because it will be a while before they are back to normal activity and when they do come back to normal activity they will have exhausted their financial reserves spending is going to take a hit so the net effect will be disinflation area. that is what jay powell said in his press conference and one way to do that is what is happening to commodity prices which have collapsed so i think overall monetary and fiscal stimulus will not sufficiently compensate to get us back quickly to full employment and the risk will be that in the

short term inflation will be below the fed's target is the fed will like to get back to 2% or slightly above. i think at this point inflation is not a high risk. >> host: you are anticipating a sharp the shaved recovery? >> guest: i am not. the reason i'm not is because of the apparent trajectory of the virus and the rates of infection and the like. they tell us, i am not a doctor by any means but they tell us that vaccine is 18 months away. 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's much greater confidence both among the average person and among average people and the level of governors and mayors that opening of the

economy won't restart the crisis. it seems likely if we could shut off the epidemic the economy would bounce back quickly but since we will probably have to restart activity gradually there might be subsequently agos of slower activity again i don't think it is going to be a rapid response. on the other hand i do want to draw the distinction between this and say a 12 year great depression of all goes well, in a year or 2 we should be in substantially better position. i hope the time back to full employment will be significantly less even than the great recession. >> host: the recovery from the great recession was sluggish and painfully slow. are there lessons there that we should draw about fiscal and

monetary policy? >> guest: on the margin fiscal and monetary policy could be more aggressive in certain stages and that recovery, but it was a different kind of recession. it was created primarily by combination of housing boom and bust and financial panic and those things come in the first instance, prices fell, made people feel poor and the credit crisis meant there was tremendous disruption in credit markets as well and so when you think about it, a recession is not just everyone stopping what they are doing and going back to it but rather involves a whole lot of disruption, people are losing jobs, being separated from their employers, companies closing and depending

how long and deep and severe the recession is the longer it takes to get back to a more normal situation. >> host: you said at the fed that fiscal policy had tightened, the period of the sequester hurt the recovery and i was wondering if you think that is a risk again. >> as i said a moment ago i think fiscal policy was not sufficiently aggressive and at times monetary policy was more aggressive. the initial 2009 fiscal program in one respect, people said at the time was perhaps not adequately sized given the size of the problem and then there was a fairly quick response not just in the united states and globally towards a more definite reduction in tighter fiscal policy as early as 2010 and in the united states a significant tightening in 2013

es the fiscal policy was too tight at various stages to take the recovery back to full employment. in this case i think the politics are a little different, 2009 fiscal package was basically on partyline vote. this one we just had was more bipartisan supported by the president and both parties. i'm hopeful that with a more bipartisan approach to what is again at some level really a natural disaster, it is very big but in some ways similar to the hurricanes or floods we have dealt with in recent years and a bipartisan response to support those people affected might lead to a more robust fiscal response as the economy recovers.

>> host: people have asked about share buybacks and suggest one of the consequences of along period of low interest rate with share buybacks that are unproductive. do you have of you on that and also on the calls for big banks to start paying dividends and share their buybacks? >> share buybacks and dividend payments are not inherently bad but what they are is the company taking excess cash saying we don't have a good use for this cash and we will give it to our shareholders, they can use it for their own reasons are invested somewhere else. you want to have b mobile to go from companies which have extra cash but no good use for it to other uses in the economy where the cash can be better used. i don't want to argue against

buybacks and dividend payment in general. in the current situation the good news is banking system it in -- unlike 2008, is coming in strong. that is helpful for recovery but you want the banking system to stay strong. a tough question whether regulators ought to cut back on dividend payments or tell them to start making dividend payments. we didn't do that in 2008. in retrospect that might have been a mistake because in the end many banks were short of capital and putting out dividends reduces the capital but there is a case for asking banks to be cautious about dividend payouts and buybacks.

the argument in the other direction is you might give the impression that when you tell the world we are telling the banks to pay dividends you might tell the world you think the banks are in trouble which you may not believe and i don't think is the case. there is a signaling problem. the banks are pretty strong and have more capital today than in 2008. some caution on dividend payment if it can be done in a way that doesn't hurt confidence in the banking system would be what we are discussing >> one of the things that is quite different between 2009 and today is the congress back then appropriate a lot of money, went to the trouble asset relief program run by the treasury. the fed was involved but it wasn't primarily a fed program. this time congress has a lot of

faith in the fed, jay powell said he can leverage 10:1 to lend. this time they are talking about buying securities in municipal bonds and corporate lending. i'm wondering if you're comfortable with this use of the fed to decide who gets credit and who doesn't and whether you think this is an appropriate role for the fed? >> it is an appropriate role for the fed given the circumstances. glenn hutchins pattern not been talking about the importance of governance and making sure there are clear rules and oversight over the spending process but the fed under jay powell in previous chairs has established a good record of

nonpartisan objective analysis. the fed is, i think providing government supported credit based on objective criteria and less subject to partisan debate then another type of approach might have. i don't think it should be a regular feature. the private sector should not be a source of credit under all circumstances but in this case were credit markets were clearly disrupted the fed has an appropriate role to restore stability, the fed has a broad responsibility to maintain financial stability and doing a good job of that in one sign is we don't expect the fed's lending to crowd out all other

lending markets like the commercial bond market where we are seeing normal private lending returning so the fed is acting like a backstop then it is the primary lender and the lender of last resort backstop role is appropriate under the circumstances. >> have we learned about places in the financial system that were more fragile or vulnerable to shocks than we realize or hadn't done enough to shore up after the great recession? >> one area people were rate about in advance and janet yellen has talked about this a lot is leveraged lending, and the markets that are stressed, the fed anticipated that if a shock came from another direction that through the economy into a slowdown, some of these weaker credits might

exacerbate and we are seeing evidence of that. there have been some surprising problems even in the treasury market in which the fed is addressed by buying treasuries but broadly speaking the situation is different from 2008. it feels like 2008 because we are seeing big moves in the stock market and financial stress but in this case the shock is coming from outside the financial system, the pandemic and the effects on economic activity, the financial system is strong and will be a bulwark against this becoming a worse crisis if the fed and the regulators do their jobs. >> host: is it appropriate for the fed to take warrants at a

time like this? >> guest: there is lending and there is also grands going on, where fiscal policy has included payments to industries where lending is not going to be sufficient in the latter case where there are grants, there are various ways the grant can be partially paid back through warrants. it is a balancing act. i'm not closely enough involved in these programs to give your good judgment. you want the taxpayer to be protected, you want to have a reasonable return in the fed lending is lending, not grants, not gifts so you want to

return, you want the taxpayer to get their money back but on the other hand you don't want to impose so many conditions and complex requirements that it will make people and willing to participate, and secondly that it will make the paperwork burden so high that it will make the burden even worse. there is a balancing act. it is appropriate to impose some requirements like eligibility. i think the main thing is to keep those companies alive so it can function again once the crisis is over. taxpayers get their money back. >> you made the point a few times and for good reason for keeping businesses intact so they can restart when the virus recedes is going to be critical to how we come out of this

thing but i wonder if you could step back, this is speculation but think about ways in which the economy may be different coming out of this, consumer business behavior or think from the vantage point of history. >> guest: economist have term called historysis. >> host: physics terms. >> guest: they stole it from physics. the idea is what we perceive to be temporary changes have temporary effects. they may have that in this crisis. some of the things that happen in the course even if it is only a year or two in the course of this recession may have premier effects in the economy. one would be small business. a concern economist have about us economy, larger businesses

had more market share and small businesses are knocked out. to adequately keep them alive and that could affect concentration in many industries going forward. here we are having this conference remotely. and we are telling them how to work remotely, will this change our work habits. how we interact with people. in the competition, i can't see as many people going on cruises for example. there may be changes in the way

other travel industries operate. a lot of different dimensions but i guess the historical examples, in 1817, the flu pandemic, 1917, the asian flu, the 50s and permanent impact, at this point, complete reshaping of the us economy there will be >> is. there are some changes going forward. before this crisis -- >> a savings glut where there are more savings and not enough investment to soak it up which is why global interest rates have been solo. as we look ahead the balance

will go, i can take it more than one way. we have a very risk-averse consumers, people may be willing to save more, i can imagine people not being willing to invest but government borrowing will be different than it was before. how do you see the savings investment balance. >>. people who survive depression. and some of those, and and if people think there are pandemics every few years, they will be prepared for those disruptions.

and you are right about higher fiscal deficits but as larry summers argued in a recent brookings paper without the fiscal deficits interest rates would be lower still but not sufficient to raise interest rates to more normal levels. >> a lot of people are just scared about a frightening moment, you're not allowed to go outside in many places, we've watched retirement savings diminish, the uncertainty about the future in the next few months and even a year of the economy is very unsettling. what can you tell people to reassure them if you can how we get through this period? >> it will be a difficult period. there is a lot of uncertainty inherent in dealing with this illness.

financial resources are tested because of markets and they are trying to survive with low or reduced income. i don't want to diminish what is happening. it is a very tough and scary period which has very few precedents in history. all that said history suggests, solutions for this illness. and and so i hope the economy will recover, and in a few years showing modest marks of this experience. we know what we should be doing that will come out on the other

end, we learned some lessons about being better prepared for future crises, and optimism we come out of this okay. i surely understand and appreciate on a personal level the uncertainty. >> thank you for your time. if you have questions, i apologize. if you send them to brookings.edu, we will try to find a way to answer them. thank you very much. ..