Aaron Glantz’s award-winning investigative journalism has sparked over a dozen congressional hearings and criminal probes. His latest book, “Homewreckers,” takes a shocking new look at America’s 2008 housing crisis. It’s a tale of greed and corruption, as Glantz pulls back the curtain on a group of Wall Street magnates who he says took advantage of a rigged system. Moreover, as Glantz tells Hari Sreenivasan, these “homewreckers” include key members of President Trump’s inner circle.
The nation’s top two economic policy leaders offered contrasting visions about the economic outlook, with Treasury Secretary Steven Mnuchin favoring a wait-and-see approach to more federal aid and Federal Reserve Chairman Jerome Powell suggesting more would be needed.
Their positions expressed Tuesday reflected differing views on the prospects for a swift economic rebound from the coronavirus pandemic.
Mr. Mnuchin, appearing alongside Mr. Powell at an online congressional hearing, reflected the Trump administration’s belief that the biggest danger to the economy is waiting too long to restart activity after two months in which millions of Americans have sheltered in their homes to slow the spread of infections.
“There is the risk of permanent damage” to keeping commercial activity closed down too long, Mr. Mnuchin told the Senate Banking Committee.
Mr. Mnuchin echoed comments by President Trump and other administration officials who are predicting a V-shaped recovery—a sharp downturn followed by a strong bounceback.
“We’re going to have a really good third quarter. It’s already happening,” Mr. Trump told reporters at the Capitol later Tuesday after meeting with Senate Republicans. “You see what’s going on. We’re opening up.”
Mr. Powell, meanwhile, challenged the premise that there is a trade-off between economic growth and protecting the public’s health. Fear of coronavirus infection is the economy’s biggest hurdle, he said, and the recovery will be held back until Americans believe it’s safe to resume commercial activities involving person-to-person contact.
“The No. 1 thing, of course, is people believing that it’s safe to go back to work so they can go out,” said Mr. Powell. “That’s what it will take for people to regain confidence.”
For the third time in a week, Mr. Powell suggested additional spending by Washington could be needed to prevent long-term damage from high unemployment and waves of bankruptcies. “The scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II,” he said.
The Fed and the Trump administration were frequently at odds last year over interest rate policy, with the president faulting Mr. Powell for not providing more stimulus during a period of steady economic growth.
Now, the tables are turning, with the Fed now calling for more stimulus and the administration more hesitant.
Mr. Powell and other senior central bank officials have indicated they don’t think a V-shaped recovery is likely. This has fueled their concern that the government’s initial relief measures may prove insufficient to nurse the economy through a shock with no modern parallel and with interest rates already near zero.
In a speech Tuesday, Boston Fed President Eric Rosengren said he expected the unemployment rate to peak near 20% this year and to stay above 10% through the end of the year. “This outlook is both sobering and a call to action,” he said. “Now is the time for both monetary and fiscal policy to act boldly to minimize the economic pain from the pandemic.”
Mr. Rosengren warned that simply allowing businesses to reopen without slowing the spread of the virus risked making the economy worse.
“If consumers are afraid to eat out, shop or travel, a relaxation in laws requiring business closures may do little to bring back customers and thus jobs,” said Mr. Rosengren. “It is vital that the design and timing of reductions in business restrictions not result in worse outcomes and higher unemployment over a longer period of time.”
The nonpartisan Congressional Budget Office, which released its updated economic forecast Tuesday, said it anticipates a “gradual and incomplete pattern of recovery” over the next year and a half. CBO expects the economy will grow faster in 2021 than it projected last month, but will still be 1.6% smaller than it was at the end of 2019, while the jobless rate remains above 9% through the end of next year.
“Despite the initial rebound in employment, health risks are expected to linger and some degree of social distancing is projected to remain in place into next year,” CBO said.
The Fed has slashed rates to near zero and bought more than $2 trillion in Treasury and mortgage securities to stabilize financial markets. It has promised to lend trillions of dollars more, backed by more than $200 billion in funds from the Treasury. Congress has appropriated nearly $2.9 trillion so far to support households, businesses, health-care providers and state and local governments, or around 14% of national economic output.
“I do think we need to take a step back and ask over time is it enough, and we need to be prepared to act further,” Mr. Powell said Tuesday.
Mr. Trump’s top advisers have laid out a more optimistic scenario they say justifies waiting to see how the economy fares before providing more aid to businesses, households and state and local governments. President Trump has said he wants to suspend the payroll tax and eliminate capital-gains taxes to spur more hiring and investment.
House Democrats narrowly approved a $3 trillion relief package last week with only one Republican voting in favor. The bill is unlikely to become law on its own, but individual pieces of it may survive. The measure included $1 trillion in funding for state and local governments and a second, larger round of payments from the IRS to households.
“We are not going to spend our way out of this,” White House economic adviser Lawrence Kudlow said in an interview last week. Animating the administration’s approach is the expectation of a V-shaped recovery, he indicated. “We believe it’s the best bet,” Mr. Kudlow said.
Another White House economic adviser, Kevin Hassett, told reporters Monday a fourth round of economic stimulus might be unnecessary. “I think it’s possible that we’ll see a strong enough economy that we don’t need a Phase Four,” he said.
Analysts say the approach carries risks. “They’re all assuming after Labor Day everything is fine. Hope is not a strategy,” said Stephen Myrow, a former Treasury official in the George W. Bush administration who is now managing partner of research firm Beacon Policy Advisers LLC.
Mr. Mnuchin signaled a shift Tuesday toward taking on more risk in federal lending programs designed to help businesses and governments bridge a loss in revenues. At issue is how the Treasury Department plans to invest $454 billion Congress provided in March to cover losses on emergency loan programs created by the Fed.
“Our intention is that we expect to take some losses on these facilities,” he said. “That is our base case scenario.”
This marked a shift from last month, when he told reporters the Treasury was looking at “a base case scenario that we recover our money.”
Some lawmakers and economists worried his comments last month reflected a too-timid approach. The Treasury’s appetite for taking on risk in Fed lending programs could shape how many businesses qualify for loans.
The issue has taken on urgency because of uncertainty over how long consumers will shun commercial activities that require human contact and because of partisan differences that could hold up further federal spending.
“Very few of us expect the Treasury not to have to take losses,” Sen. Jerry Moran (R., Kan.) said at the hearing Tuesday. “There needs to be some risk-taking here.”
Mr. Powell said he expected all the Fed’s nine lending programs would be running by early June. The Treasury has committed $195 billion out of the $454 billion so far, and Mr. Mnuchin pledged Tuesday to allocate the rest of that money.
Treasury Secretary Steven Mnuchin said Friday he expects the economy to rebound strongly after widespread shutdowns to contain the novel coronavirus are lifted, adding that the government is working at “lightning speed” to provide support.
Asked if he agreed with some investors’ view that U.S. economic output could expand by 5% in the fourth quarter, Mr. Mnuchin said, “Absolutely.” Federal Reserve Chairman Jerome Powell said this week that the economy may already be in a recession.
The House of Representatives was rushing Friday to form a quorum to pass the $2 trillion economic rescue package, which includes conditional grants for small businesses and aid to heavily affected industries such as airlines.
“The sooner we can execute on this package and the sooner we can win this war against the virus, the economy will bounce back very quickly,” Mr. Mnuchin said in an interview on Fox Business.
If all goes well, Mr. Mnuchin said, businesses by next Friday will be able to access loans designed to cover payroll and overhead for eight weeks. As long as they retain their employees, the firms won’t have to repay the money.
“People will go into banks next Friday and be able to get loans,” Mr. Mnuchin said. “It’s going to be a very simple process where any FDIC-insured institution can underwrite the loan, approve it immediately as a government-guaranteed loan and get money to that small business.”
The Treasury secretary reaffirmed the government’s commitment to rolling out more aid to the U.S. economy if necessary.
“This is a war,” Mr. Mnuchin said. “We’re going to spend what it takes to protect the American people.”
Real Vision CEO, Raoul Pal, examines via Skype the recent turmoil with an international cadre of outspoken experts: monetary economist George Selgin, George Goncalves of The Bond Strategist, Scott Skyrm, executive vice president at Curvature Securities, and Dr. Z. Barton Wang of Barton Research. Join Raoul on this voyage of discovery as he discusses repo and more with some of the sharpest minds in finance. Filmed on January 31, 2020, in Grand Cayman.
< 8 min: I tend to agree with the Fed that the current repo operation is not QE, but that having a standing repo facility handles high demand (like at the end of the month)
There are multiple factors that combine to increase liquidity demand.
12 min: The balance sheet is never going to go down.
13:30 min: The Fed and Treasury don’t appear to be talking. One theory is that Mnuchin is trying to force the Fed’s hand
17:26 If we have a recession, we will see genuine QE that no one can deny.
I worry that they will resort to QE even if there isn’t a recession.
- corridor vs floor system
~19:30 There is a lot of leverage that keeps asset prices high and liquidity is necessary to support this.
I’ll all for the Fed providing liquidity, but there should be a penalty rate
20:10: I agree that QE will happen and it will arrive quickly.
The next QE will be done in such a technical way as to “bore” the public.
33 min: The Equity Markets believe they are doing a version of QE.
(QE) is like a calibration thing.
They are going to have to steepen the curve.
44 min: Most of the Hedge Funds that want cash want it first thing in the morning, but other players come in later (New York time)
48 min: Is excess leverage behind this?
55:50: So what you’re saying is that they can’t run such a large deficit. In a recession they could run a larger deficit.
1hr 01 min: To me, it smacks of leverage (from hedge funds)
1 hr 04 min: Why is the (Fed) balance sheet affecting equities?
According to Basel 3, Banks need assets at the Fed to participate in Repo market
- A lot of banks weren’t able to participate in the repo market,
- This affected the hedge fund’s ability to use leverage from borrowed repo money
- The repo market is the liquidity factor for leverage
- Higher repo interests spikes (2% -> 10%) caused the hedge funds to liquidate their positions
- The equity rallies are a direct consequence of the Fed Repo Liquidity
- Hedge funds are using the liquidity
The Fed is now going to be permanently involved. They messed up and now are going to oversupply, which they don’t view as a big problem.
1 hr 10 min: Treasury Securary Mnuch announced ..
They have tons of ammo to dump money into the economy right before the election.
Bond yields are collapsing.
If the US Dollar Collapses, European and Japanese will not be able to play in Equities so much and Equities could fall.
- Euro Dollar funding depends on Basel 3 regulations
1 hr 14 min: A steeper yield curve helps foreign buyers of Treasuries
- This means that they will likely have to cut rates (given corona virus and deficits)
- They will probably be forced to cut rates soon.
Bonds give better signals about the economic cycle than Stocks.
1 hr 18 min: It all depends on Treasuries (for equity) they have so much cash they can flood the market with $40 billion any time they want. Their action is the biggest contributor to volatility.
Is Mnuchin essentially using this as an economic weapon in his ability to micromanage the economy? (before the election)
I don’t know but he has a lot of ammo. It looks suspicious. We should ask him in his press conferences.
If he decides he wants to put money in his checking, there’s nothing the Fed can do about it without blowing up the markets.
This is unprecedented except during the financial crisis.
Treasure has become the marginal provider of liquidly and that who we should watch.
The Treasury General Account is the “nuclear weapon”.
There is a potential dollar collapse in the future. Markets can’t get enough dollars.
welcome back to cheddar business
everyone on Monday saw the Dow suffer
its worst one-day drop since January 3rd
while the SP and the Nasdaq hadn’t seen
a day like it since early December
joining us now is David Stockman he’s
the former director of the Office of
Management and Budget under President
Ronald Reagan he’s also the author of
peak Trump the under a noble swamp and
the fantasy of manga David it’s great to
have you on chatter happy to be here
look a huge sell-off yesterday right
what do you make of the escalation of
the trade war between the US and China
well I think yesterday was a wake-up
call I don’t think this trade war is
going to end anytime soon
you got two fundamentally incompatible
economies you have a policy being driven
by you know a guy who’s you know lost
his lunch I think Trump has no clue what
he’s doing he’s sliding by the seat of
his pants he’s a hopeless protectionist
he doesn’t really know what he wants and
he has no clue how this is going to
unfold so I think we have big trouble
so why do Republicans the party of
Reagan right why do they seem to be
going along with Trump I think they’re
going along with Trump because the GDP
was had a three in it last quarter and
because we’re at the end of a business
cycle where the whole economy looks good
my point in peak Trump is the peak is
behind us the market peaked last
September at 29 41 we’re now triple peak
I don’t think we’re going back the
economy’s in month 118 of the longest
weakest expansion in history we got
headwinds everywhere we got a federal
debt that’s out of control we have a Fed
that waited way too long to tighten and
now doesn’t know what to do
we have Europe which i think is rolling
over into another recession we have what
I call the red ponzi and China’s
struggling with 40 trillion of debt none
of these things suggest there’s smooth
sailing ahead I think they all suggest
that there’s a huge risk that some kind
of Black Swan or orange Swan is the case
maybe is likely to upset the whole apple
cart you have to assume that recessions
haven’t been outlawed
and what’s going to happen when we get a
recession and the markets way up in the
stratosphere and the federal budget is
already running 1.2 trillion of red ink
and then revenue falls and expenditures
soar we’re gonna have the biggest mess
you can ever imagine so given all these
headwinds that you listed out you said
recessions haven’t been outlawed do you
think this is do you think Trump is
aware of these factors do you think he
feels the pressure to get a trade deal
done with China do you think he’s
capable of getting a deal done that will
be beneficial for US markets no I think
he’s delusional he thinks he has far
more power that he’s far more skilled at
the art of the deal in negotiation that
than he really is and so I don’t think
any deal is going to get done at all and
I think he believes the economy is far
stronger than it actually is because
we’ve had some aberration in the numbers
which aren’t sustainable in other words
we’ve had some inventory build-up and
we’ve had all this turmoil and trade
that pulled imports forward if you
strain that out the economy is growing
at less than 2% a year it’s not a boom
if you actually look at Trump’s first 28
report cards on jobs 200 2,000 per month
Obama‘s last 28 report cards before the
220,000 per month there’s been no
acceleration there’s no boom what we
have is an aging business cycle this
company to the end of the road and we’ve
done nothing to get prepared for the
trouble that’s ahead what is the Fed
going to do the interest rate is only
two point four percent and Trump is
complaining its balance sheet is still
almost four trillion what is the fiscal
policy going to do when we’re already
locked in to a borrowing rate at the end
the tippy-top of a business cycle of 1.2
trillion a year we’ve never been in
these circumstances before and so
therefore I think we have to get over
this recency bias which says well last
couple quarters look pretty good so
what’s to worry there’s everything to
worry because the last 30 years have
been taking us to a point of
much speculation in so much debt now
remember we had the financial crisis
people don’t even remember that anymore
but we did have it in 208 and they said
it was a wake-up call we got too much
debt we need to deleverage right well
there was 53 trillion of debt on the US
economy then this is mid 208 public
private business households government
today it’s 72 trillion all right we went
from 53 trillion which was too high to
73 trillion we’ve added 20 trillion debt
that did give us the kind of you know
appearance of a recovery in prosperity
but really we only doubled down and now
we’re gonna face the music in a far
weaker position with a madman in the
Oval Office who’s home alone and what I
mean by that is who are his advisers
nowadays okay I mean Steve minuchin is
an 80-pound political weakling who gives
yes-men a bad name okay Larry Kudlow has
been snorting bullish ethers down on
Wall Street for so long that he’s not
even in the economist Peter Navarro
would rather have a real war with China
rather than a trade war and you know
Wilbur Ross may have a heartbeat or not
I don’t know but he’s he’s as bad in
terms of trade policy as Trump so it’s
all being run by Bob light Howser who I
know from way back when I was on Capitol
Hill and in the Reagan White House in
the early 80s he’s a lifelong swamp
creature who wants to make government
bigger and better and more intrusive and
that’s the kind of trade deal he wants
it’s really for a big business it’s not
for jobs in the economy what do you
think Reagan would think of President
Trump he would be horrified he would be
horrified because Ronald Reagan was a
small government guy he was a free trade
guy he was a free-market guy he believed
you know rectitude and he was not for
hectoring the Fed for easy money when
Volker put on the brakes and interest
rates went into you know double digits
Ronald Reagan said we have to do it we
got to bite the bullet we got to get rid
of this inflation and let the Fed
restore sound money
so everything that Reagan stood for
Trump is really against okay
he is a hopeless mercantilist
protectionist he is the worst big
spender we’ve ever had in the Oval
Office on the Republican side and you
know he’s he’s a bombastic yes I guess I
go back to my earlier question I just
have a trouble understanding why
Republicans are buying into this and why
Republicans Senators and Representatives
don’t stand up for the party and stand
up for the legacy of the Republican
Party against Trump I could give you an
anecdote from my own history in January
1973 I was a young guy on Capitol Hill
Nixon was riding high he had won the
election 44 million – twenty-eight
million wasn’t a squeaker squeaker like
Trump but swept the whole electoral
college he told his whole cabinet you
got to resign I’m so strong I don’t need
you and within 18 months they had him on
the helicopter and sending him out of
town because the economy went down in
the interim in other words as long as
the economy was showing decent numbers
the Republicans kept quiet and when the
economy and the stock market went down
38 percent they were gone we only have
10 seconds for this answer but is there
a challenger to trump you’re behind
right now probably not okay well come
back when there is okay a former
director of the Office of Management and
Budget under President Ronald Reagan
he’s also the author of peak Trump he
under a noble swamp and the fantasy of
Nagas thank you so much for joining us
Treasury Secretary Mnuchin denied that he violated the law by refusing to give Trump’s tax returns to Congress though a newly revealed IRS draft memo says he must. Attorney and IRS veteran William Lowrance joins Lawrence.
Treasury Secretary Steven Mnuchin said the government could run out of cash in early September, before Congress returns from its August recess, and urged lawmakers to raise the federal borrowing limit before they leave town at the end of the month.
In a letter to House Speaker Nancy Pelosi (D., Calif.) Friday, Mr. Mnuchin said it is impossible to identify precisely when the Treasury will exhaust its “extraordinary measures,” which it has been using to keep paying the government’s bills on time since March 2, when the debt ceiling was reinstated after a prior suspension.
“Based upon projections, there is a scenario in which we run out of cash in early September, before Congress reconvenes,” Mr. Mnuchin said. “As such, I request that Congress increase the debt ceiling before Congress leaves for summer recess.”
Mrs. Pelosi told reporters after speaking with Mr. Mnuchin on Thursday evening that she hoped to reach an agreement to raise the debt ceiling and set new spending levels before the House leaves Washington for the August break on July 26.
“I am personally convinced that we should act on the caps and the debt ceiling,” she said. “Prior to recess.”
The two were expected to speak again on Friday, according to an aide for Mrs. Pelosi.
The Treasury has been warning lawmakers since May that it may exhaust its ability to pay its bills in late summer. A new estimate released Monday by the Bipartisan Policy Center suggested the government could hit the X-datein the first half of September, raising pressure on lawmakers to suspend or raise the federal debt ceiling sooner than they had expected.
If the government can’t borrow more money, the U.S. could be unable to meet all of its obligations, including salaries, benefits and potentially, interest payments on federal debt. Such a default would have unknown financial and economic consequences, and lawmakers have walked right up to the deadline in the past but avoided breaching it.