The head of the Federal Reserve Bank of Minneapolis told 60 Minutes the U.S. government must take steps to mitigate the wave of unemployment about to sweep the nation as it shuts down to prevent the spread of the coronavirus pandemic.
Neel Kashkari said one possible option is giving forgivable loans to small businesses that retain their workers. Avoiding mass layoffs, he said, is better than trying to pull people back into the workforce, which can take years.
“Unemployment insurance is important,” Kashkari told correspondent Scott Pelley. “But it would be much better and much better for the taxpayers and for the country to keep small businesses operating and to keep them with their employees intact.”
Kashkari knows what it takes to pull the country out of financial hardship. As Assistant Treasury Secretary in 2008, he ran the $700 billion Troubled Asset Relief Program, known as TARP, which helped end the Great Recession.
He told Pelley he learned two lessons from the 2008 financial crisis that are relevant today: The government was too slow and too timid in responding, and the government’s targeted help to homeowners who needed it most did not help enough people.
The country would have been better off, he said, if the government had been “much more generous” to all homeowners, no matter how deserving they were.
“My advice to Congress as they’re designing their programs to help workers and to help small businesses, err on being generous,” Kashkari said. “Don’t worry about being targeted. If we are generous, the American people as a whole will benefit from that.”
As the head of the Fed in Minneapolis, Kashkari and his team pay close attention to the business conditions in their region. As a result, they know small businesses aren’t the only industries that will likely need help. Oil companies, particularly those with fracking developments in Texas, Oklahoma, and North Dakota, have issued high-yield debt. Now that the price of oil has fallen dramatically, that business model no longer works.
“Whether it’s pensions or mutual fund investors that hold that paper, there could be big losses,” Kashkari said. “That’s part of the market economy. And so that process needs to run its course.”
Other companies in his region, such as General Mills and Land O’Lakes, may need a boost so they can continue to produce food, he predicted, and the airline and auto industries may need a bailout as travel decreases.
The House and Senate this week proposed trillion-dollar bailouts, but economists some wonder where the money will come from to finance it. The U.S. government now owes over $23.5 trillion in debt, up $3 trillion since President Trump took office in 2017 and almost double what it was just 10 years ago.
Kashkari said he is confident the U.S. government has the resources for the stimulus and pointed to the continued low rates at which the government borrows. But the uncertainty of how long the coronavirus will continue concerns him.
“We can shut down the U.S. economy for a few weeks or a couple months, and I think the U.S. government has the resources to get us all through that,” he said. “Congress is working hard right now. But if this goes on for a year or more, the economic hardship and the millions of people who are going to be laid off, they’re going to suffer for a long time.”
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