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The novel coronavirus pandemic continues to cause economic shockwaves. On Wall Street, stocks plummeted again, with their accumulated decline now erasing nearly all the market gains since President Trump took office. Can the government take any action to reassure investors and consumers? The Brookings Institution’s David Wessel joins Judy Woodruff to discuss the challenges of uncertainty.
Economic damage from this virus keeps piling up, amid talk of sweeping financial aid.
The Dow Jones industrial average, as we reported, crashed again today, losing more than 1,300 points, to close below 19,900. The Nasdaq fell 345 points, and the S&P 500 gave up 131.
For insight into all of this, I'm joined once again by David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.
David, welcome back to the program.
So it seems that, no matter what Congress does — and we have heard from Lisa reporting on that — the markets, the investors just don't seem to be reassured. Is that what's going on?
I think that what we're seeing is the markets and investors are — A, they're talking — they're realizing there's a lot of uncertainty. Secondly, they're extremely risk-averse. No one wants to hold any risky assets.
And they're thinking that this might go on for a while, and it might do some long-lasting harm to the economy. It seems like an overreaction, but without any clear idea if this is going to be two quarters, three quarters or four quarters, I think people are really just panicking.
And you were sharing with us that you have seen some forecasts that came out today, which contribute to the panic.
J.P. Morgan, a big bank on Wall Street, their economists predicted that the second quarter of the year will see a decline in the U.S. GDP at a 14 percent annual rate. We have never had a quarter that bad since we started keeping track of quarterly GDP in 1947.
Now, I should note that they expect a bounce-back in the third quarter. I hope they're right. But we really don't know how long this is going to go on.
Do they, do we have a sense at this point of which sectors are going to be the hardest-hit?
I'm asking because we're hearing small businesses, big businesses laying off, shutting down, at least for the time being?
Well, when you basically tell everybody to stay home, it's not hard to imagine which businesses suffer first, hotels, terrorism, airlines, and stuff like that.
But I think that it's going to be widespread. And one of the problems that the government's going to have is, every business is going to be able to say, we're hurting, and it's not our fault.
So they're going to have to make some tough decisions about who to help, who not to help, how to get paid back, who gets a grant, and who gets a loan.
So, what does it take at a time like this? And I realize what you're saying is, we have never seen anything like this.
What does it take, though, at a time like this to give people some sense of reassurance, I mean, to know, there is a bottom here?
Well, I think one of the challenges of this event is that, by flattening the curve, by spreading out the virus, we're doing, on purpose, damage to the economy. And that's going to be very upsetting to people.
I think people want leadership. They want confidence, if they get sick, they can get — be treated. And they want to be able to pay the rent, or pay the light bill and stuff like that.
And that's why there's a lot of talk about providing cash to households, giving money to people who may be furloughed, strengthening the safety net, in order to make sure that the most vulnerable among us don't really get hit hard.
How much does it help?
I mean, this is, I think, part of your answer, that there is clarity in what the government — in the measures the government is taking?
I think it'll help a lot to get clarity.
It's been very confusing. Some of the advice from the White House podium has been confusing, all this back and forth between the House and the Senate. So I think, as soon as we get some clear idea of what's going to be in this big bill, this trillion-dollar stimulus, people will begin to see, what's it going to mean to me? What are they going to do?
But I think a second important thing is, I hope that they build into this bill a kind — a trigger, so that, if this is prolonged, the aid will automatically be extended.
One of the things we learned during the Great Recession is, if you're not pessimistic enough, and the stimulus stops, then the economy takes a hit. So, we want this one to be automatic. If unemployment rises and stays high, we might have more checks to people or more loans to business.
But it is it possible, finally, David, to be able to say how much it's going to take to reassure folks?
I don't think it is possible.
I can't tell you how long this is going to go on, how long I'm going to be — have to be working at home. And that's true for everybody. So I think that the government needs to do things now both to alleviate the pain and to put some money in the system, so that, when the pandemic does recede, as it is apparently doing in China, the economy can get restarted again.
But uncertainty is really hard for people to adjust to. And when people tell you, oh, this is going to be over by the summer, I think we have all learned that those people don't know what they're talking about. So it's not very comforting.
One-point-three-trillion, and I hear you saying it could be bigger, bigger and bigger.
David Wessel, thank you very much.
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