One from scratch. A few of us expected that his successors would need to refer to it so soon but generally for all of us he left a copy for jay powell that i would recommend for people on this call if theyre interested. Theres a good book called firefighting which is a summary of the crisis and one called First Responders which gives deep into the individual programs and i recommend everyone have a look at it over the next couple of weeks. And among other things its a distinguished economic historian suited to put this horrible event that we are experiencing in context so it will give us a sense today of what will determine how deep this recession will be, perhaps how long it will last , how effective the fiscal and Monetary Policy response has been and perhaps whether the covid19 recession will leave longlasting scars on the us and Global Economy so ill turn this over to ben or his remarks after which david wessel will pose some questions and after that i think there will be some instruction on how audience members can ask their own questions though ben, over to you and thank you for doing this. Thank you for joiningus this afternoon. It seemed like a long time ago now back in january and february we had a Strong Economy with a 3 and a half percent Unemployment Rate and we are hopeful that the strength of the economy will provide a little momentum or financial reserve must get through this training but what happened is the world have been hit by the covid19 virus and the virus itself is from an Economic Perspective the fact that unessential businesses are being shut down globally is having an enormous effect on Economic Activity. People are not shopping, people are not working, people are not going to school and we going to see the effects of that in the datavery soon. The data in perspective. Gdp is set 10 percent lower than the first quarter, we record on an annual basis and multiply by four, its possible we will see gdp in the Second Quarter and the magnitude of 30 percent or greater. Unemployment in the shortterm, people furloughed from acompany, the unemployed, will they be coming back . We will see dramatic numbers but we wont know for a while how serious and how the this phenomenon is going to be. Clearly people have made comparisons to the Great Depression. Its not a good comparison. The depression was 12 years long and it came from financial crisis. It came from manmade, human made errors and decisions. This is more like a Natural Disaster and the response is more like emergency relief and it is a typical stimulus orantirecessionary response. Having said that, the critical factor in terms of how bad this is going to be, how much imprint it will leave on the us economy is its duration. How long will it last . The longer it lasts the more existing businesses will fail financially, willclose their doors. The longer it lasts the more people will lose their jobs and lose their association with their former employers. The longer it lasts the more destruction there will be and the harder it will be to come back so the duration will be critical. The most important determinant of the duration is the Public Health response. We are currently in shut down because we are trying to bend the curve. That means we want to get the rate of new cases low enough thatpeople can feel confident , that the system can handle the cases. We want to add palliatives and 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 a Public Health response and i think thats still a great deal ofquestions about how thats going to go. One scenario is that we partially open up the economy over the summer. And that perhaps in the fall theres more infection and we shut down part of the economy again so overall it could be a very bad year for the us economy but again, the Public Health response and our ability to make sure that the hospitals have the equipment they need and the scientific establishment is putting all its resources into addressing this disease will be the most important determinant of how long and how deep this downturn is. Having said all that, there are other components to the response and which i am more expert, let me talk about briefly the physical response and then most of my time on how the Federal Reserve is responding to this crisis. Fiscally again where not really talking here about a stimulus package because people really go out and shop. What were talking about his emergency relief. What we need to do in the fiscal package is to make sure that people can survive this period without low income, that businesses losing revenue can pay their bills, pay the utilities but that when all clear to sounded or at least the partially clear is sounded they can open up again and we can restore Economic Activity. That is a big part. Besides the part of the Fiscal Program that addresses health needs, the biggest part of the cares act, the 2. 2 trillion Fiscal Program is trying just to provide 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. I think the main issues there are logistical, are getting the money to people fast enough is enough, so it would be more coming later but its the right idea, try to help people get through this area and the other parties tohelp businesses survive. And that involves both some grants for large amounts of money for the Airline Industry for example but also credit to help firms pay their bills and remain solvent so they can open up again when the Health Situation is better. So i think overall, the fiscal policy response which you think of as an emergency relief package or Disaster Relief has been pretty good. There are some logistical issues in terms ofgetting the money out. But it has the right, i suspect it will be more coming later as we help the economy get back to full employment. And i would also add that this will probably be almost entirely debtfinanced which in the circumstances i think is probably appropriate. Which is why we have the capacity to borrow to deal with these times of crisis. Let me talk with the remaining few minutes about the Federal Reserve which has been active and i want to commend jay powell and his colleagues for being very proactive in trying to address concerns in the economy. The fed has done basically three types of things. And each of which have important roles 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. This is what the fed look for in 1913 and as you may know those listening may know the fed has been dealing with some issues going back into last year when the repo markets were somewhat destabilized. The fed was putting liquidity in the system asfar as last fall but since then , with pressures on Financial Markets coming from the uncertainty, associated with this crisis, theres been a lot of destabilization. The fed has responded in a big way. It has been for example by and buying large amounts of treasuries in mortgagebacked risk for securities to restore function. It continues to put cash into the system to try to make the repo markets and money markets work better. It opened up its discount windows that banks can borrow one 12 45 percent. Interest as theyneed liquidity , to makeloans , very importantly, the fed has also been providing liquidity in the International System so back in 2008, in the financial crisis, one of the problems around the world was that so many Financial Transactions take place in dollars and course the only source of dollars is the Federal Reserve so in order to stabilize money markets around the world the fed conducted whats called slop operations with 14 other Central Banks meaning that we found ways to provide them with dollars that they can then use in their economies to help stabilize their Financial Systems and that in turn affected us Financial Markets. The fed in this instance has also set up swap agreements with 14, 14 Central Banks so once again the fed will be acting as a lender of last resort in dollars not just the us banks and Financial Institutions but essentially to the rest of the world. Its also set up a facility whereby other countries decides 14 and pledge treasuries that they will get dollars, get cash and once again provide liquidity as needed within their own economies so the fed is acting very aggressively to make sure that theres enough cash, enough liquidity in the system. At the first line. Secondly, the fed has been aggressive on Monetary Policy. The lowered Interest Rates. As you know over the summer last year they lowered rates three times as insurance that seemed to be what the doctor ordered so to speak. And then this Recession Risk at the time fell and it looked like the fed had achieved a soft landing and now we have a much different situation. The fed has cut rates down to the minimal euro over 25 basis points we saw in the years after thefinancial crisis. It has issued full guidance saying basically that are going to keep rates at zero until the economy is clearly back on track and in places moving back to two percent i suspect that will be quite a while and the asset purchases its been doing at least 500 million of treasuries and 200 billion and the s securities have been undertaken. That will transmogrify into wanted to easing. Again helping to keep rates low and monetary conditions easing after the crisis. The Health Crisis had begun to evaluate so this is really kind of a twostage process. At the moment easier financial conditions are helping the system easier for example for corporations to borrow so that they can continue to survive but not really time yet to stimulate spending and get people to go out and buy cars and houses to read will have to wait until the situation is better and at that point Monetary Policy will begin to perform its normal function. Finally and most innovatively , the fed has been intervening in substantially in credit markets. So credit markets have been very destructive by the crisis, by the fact that people are so uncertain about how long it will last, whats the cash flow implications so as the crisis began, many many credit markets were disrupted and the fed as glenn said as borrowed from the feds playbook from 2008 and then added quite a few innovations of its own. Borrowing from the 2008 playbook, its done really three things. First its created a commercial paper facility which provides commercial paper, shortterm lending to corporations to help them finance their interview carries andmaterials, their working capital. That was something we did in 2008. Thats onthe shelf , that is already running. Secondly there is a money Market Liquidity Fund that we also had in 2008 that brought up to allow money markets to sell their securities and reduce pressure on the money markets read we seem the same phenomenon money market mutual funds which has been helping there as well so its something we did in 2008 and that third facility that we had also lining to reintroduce but not yet, socalled assetbacked securities led the facility and is used by packages of credit, consumer credit, credit cards, Student Loans and a variety of other types of credit to help make those markets more effective. So these announcements together with mortgagebacked securities have improved credit functioning considerably. Going beyond that the fed is going to use its 13 three 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, under emergency conditions the unusual and exigent conditions and with the permission of the treasury secretary and essentially lend anybody. Whats coming out is two corporate facilities and one that will lend equity to corporations, essentially making loans or buying bonds of corporations again to have them to survive. Theres a second or facility that will buy existing bonds trying to improve the functioning of the credit markets and the Corporate Bond markets. And then thirdly, this is important, from past experience the fed will be introducing a socalled main street business lending program. Main street is a bit of a misnomer because its really for middle sized firms, 500, 10,000 employees and the fed will be doing and we dont know the details yet but they will be asking banks to make loans to the midsize firms and the fed will be writing cheap liquidity and provided protection against risks some banks were incentivized to make loans on good terms to these midsized firms. The smallest institutions, smallest businesses are eligible for loans from the sba. That began this week. Again logistics are so important. There have been in terms in the money out. I hope what i get straightened out. But that is supposed to provide the sba is program is supposedo provide cash to the smallest businesses on favorable terms and, in fact, those loans only partially forgivable if the companies, Small Companies maintain their payroll. The fed is helping there as well. It announced just today or yesterday that it will buy sba loans from banks or provide a secondary market for those loans making the more liquid and making banks might want to make those loans. I think the thing to emphasize is that the fed, what is the fed can do is reinforce the private credit markets. They are dysfunctional because the leveraging come because of uncertainty, but that can come in and replace those markets to some extent or strengthen those markets and try to get private lenders back into those markets. The fed does not give away money. The 133 requirements to require the fed pay collateral and intend to be repaid, but in order to give the fed protection a big chunk of the money in the Fiscal Program, 465 billion essentially provides equity for the feds lending programs so that if they do lose money it will be covered by the treasury funds. So again, there has been progress. We have seen credit markets in peru. I think the critical issue of the how quickly the Public Health situation prince and that will in turn depend on logistics of disturbing equipment and gear, ventilators, as well as the scientific effort we really need to get control of this. Finally let me just point out that would be taught and trained, 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, by falling Commodity Prices, so we may well see an nation market crises and global recession as well as in the United States. We have a hard road ahead but i am pretty pleased over all 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. So ill stop there, david, and be happy to answer any question questions. Thank you very much for that. People listening, we have a number of questions already but feel free to add to the list by emailing events at brookings. Edu on twitter or hashtag covid19 economy. As you mention, ben, the fed has aggressively increased its Balance Sheet. Its now approaching 6 trillion, twice the size when you left the fed in 2014. Is a limit to how much money the fed can create or reserves if you agree to purchase u. S. Treasurys and blend for all of these emergency facilities . Is there some limit to how much the treasury can bar to finance this rescue . There is not technically speaking to start a limit to a big the ballot she can get. At 6 trillion this would be about 30 or less of u. S. Gdp. In japan, i dont know the exact number but in the order of 80 or 90 of gdp the size of the bank at japans Balance Sheet. That could be better. Much of the increase is temporary. For example, a lot of the state commercial paper facility for example, a shortterm loans and presumably as things normalize those loans will be paid back in the fed Balance Sheet will accordingly shrink. I think that that does have capacity to increase its Balance Sheet, and it appears to be willing to do so significantly. I think thats appropriate. I dont think theres any real danger from that. I dont think that inflation is going to be a risk. If anything, lower inflation would be more of a concern the next year that too high of inflation. As far as borrowing is concerned, yes, the federal government is borrowing a lot. Again as i mentioned this is when the Borrowing Capacity is so valuable when you have a national emergency, which of course this is. Paying for this with the taxes be counterproductive because it would depress buying power at a time when the economy needs buying power. The question of sustainability of u. S. Federal debt is a tough one. All longrun issue could is a population ages, as costs of medical care go up, we see projections of the federal debt that are very disturbing over the next decade or two. We need to think hard about how were going to get control of the trajectory. But i think in the near term dealing with a crisis of this magnitude that i think this is an appropriate approach, and i would just note finally that Interest Rates being almost zero means that the interest burden associate with this borrowing is going to be quite low, even though a number of dollars borrowed is high. I want to back up to the inflation point because some people look at whats going on, huge increase in the federal deficit, though interest rate, the fed created a lot of reserves and if they surely this will create inflation. Maybe more than we want. You dont seem to think thats the case. How come . If you look at the National Supply and demand elements of this crisis, on the supply side here seen, for example, some types of goods are in short supply. You are seeing some supply chains being disrupted. So there are some supplyside effects that will raise prices for certain goods and services. Overall though, think about whats happening to the demand for major industries, think about whats happening to demand for Airline Seats or restaurant meals. Because people are staying home, and because it will be a while before they are back to more normal activity, because when did you come back to normal activity they will have exhausted some other financial reserves, presumably, i think spending is going to take a hit. So the net effect will probably be slight daish inflationary. Thats what jay powell said at his press conference and a think thats right. One way to see that is to look at whats happening at Commodity Prices or oil prices for example. Those have collapsed. Overall, monetary and fiscal stimulus were not sufficiently compensate to get us back quickly to full employment. The risk will be in the short term, inflation will a bit below the target. The fed would like to get back to 2 2 or even slightly abovo i think at this point inflation is not a high risk. Doesnt sound like you anticipating a sharp vshaped recovery. Again, it depends on im not. The reason im not is because of the apparent trajectory of the virus. They kallas, of course im not a doctor by any means, but they tell us a back scene is 18 months away. There are things we can do to open up the economy, maybe significantly. I dont see the economy returning to a more normal state until theres much greater confidence vote among the average person, average people and at the level of governors and mayors that opening up the economy wont restart the crisis. It seems likely that if we could shut off the epidemic, course it would bounce back quickly. They restart the activity gradually, there may be subsequent periods of slower activity again. I dont think its going to be a rapid response. I do want to draw the distinction between the 12 year Great Depression, if all goes well within a year to we should be in a substantially better position. I hope that time back to full employment would be significantly less even than the Great Recession proved to be. That raises an interesting question, the recovery from the Great Recession was sluggish and thankfully slow. Are there lessons that we should draw either fiscal or Monetary Policy responses . I think on the margin, i think the fiscal and Monetary Policy could even more aggressive at certain stages in the recovery. But it was a very different kind of recession. It was started, it was created primarily by the combination of a housing boom and bust and a financial panic. Those things, in the first instance, as asset prices will, housing prices though, people felt a lot more poor and the credit crisis that theres tremendous disruption in credit markets as well. When you think about it, is that recessions that just everyone stopping for a moment what theyre doing and then going back to it. Rather, recession involves a whole lot of destruction, people losing jobs, being separated from their employers, companies closing, and depending on how long and deep and severe that disruption is, the longer it takes to get back to a more normal situation. I recall you saying when youre at the fed you thought fiscal policy at titan too soon, the sequester the recovery and i guess is won when you think thats a risk again . As i said a moment ago i think fiscal policy was not sufficiently aggressive and i think at times Monetary Policy could have been more aggressive. The initial 2009 Fiscal Program in retrospect and said people sit at the time was perhaps not adequately size given the size of the problem. Then there was a fairly Quick Response not just in the United States a globally towards a more deficit reduction and tighter fiscal policy starting as early as 2010. In the United States a very significant tightening in 2013, so yes, the fiscal policy was too tight at various stages to fully aid the recovery back to full employment. In this case, i think the politics is a little different. The 2009 fiscal package was passed basically on partyline vote. This one we just had was a more bipartisan supported by the president and both parties. Im hopeful that with a more bipartisan approach to what is again some level, really a Natural Disaster, its very big but in some ways its similar to hurricanes for the flights with other things we have dealt with in recent years. And a bipartisan response to support those people affected might lead us to a more robust fiscal response as the economy recovers. A number of people asked about share buybacks that it become controversial and suggest one of the consequences of a long period of low Interest Rates was share buybacks that somehow are unproductive. I wonder if you have a view on that, and also on the calls of the big banks to stop paying dividends when did already suspended their share buybacks . Share buybacks and Dividend Payments are not inherently bad things. What they are basically is a bank or the company taking its excess cash and say look, we have got use of this cash, wee going to give it to our shareholders. A can either use for the own consumption or they can invest it somewhere else. You want to have b multiple to go from companies which have extra cash that no good use of it to other uses in the economy where the cash can be better used. I dont want to argue against buybacks and Dividend Payments in general. Now, the good news in the Current Situation is that the Banking System, unlike 2008 Companies Come in pretty strong. Thats going to be helpful for recovery. On the other hand, you want the Banking System to stay strong and so i think i very tough questions whether the regulators ought to cut back on Dividend Payments, or tell them to stop making Dividend Payments. We didnt do that in 2008. I think in retrospect that might have been a mistake because obviously in the in many banks were short of capital and putting out dividends reduces the amount of capital. So i think that is the case for asking banks generally to be very cautious about dividends and payoffs and share buybacks. The argument in the other direction is you might give the impression that as policymakers when you tell the world, you are telling the banks the kappa dividends, you might effectively tell the world do you think bas are in trouble which you may not believe and i dont think its the case now. Theres a bit of a signaling problem. So think its a couple good question. I think banks are pretty strong. They have much more capital today than in 2008. But i do think some caution on Dividend Payments, if he can be done in a way that doesnt hurt confidence in the Banking System would be worth discussing. Wonder one of the things thas quite different between the 2009 and today is the congress back then appropriate a lot of money. I went to tarp, troubled Asset Relief Program that was run by the treasury. The fed of course was involved but it was a primarily at that program. This time caucusing, a lot of takes in the fed which jay powell says he can leverage ten to one to land. Im curious what you think about this. And including this time i talk about buying securities and Municipal Bonds as well as corporate, linda a gets corporate debt. Im wondering whether youre comfortable with this used of the fed to lend almost everybody to basically be deciding who gets credit and 2000, and what you think this is the appropriate role for the central bank . I think its an appropriate role for the fed given the circumstances. Glenn hutchins this morning had an oped talk about their boards of governance and making sure that there were clear rules include oversight of the lending process. But the fed under jay powell and previous chairs i hope has established a good record of nonpartisan and objective analysis. So the fed might, the fed is i think a vehicle for providing government supported credit that will be based on objective criteria and is less subject to partisan debate then maybe another type of approach might have. I dont think there should be a regular feature. Obviously we want the private sector to be the source of credit almost under all circumstances. But in this case where credit markets were clearly disrupted, the fed i think as an appropriate role to try to restore stability. The fed has a broad responsibility to maintain Financial Stability and i think its doing a good job of that. One sign of this is that we dont expect the feds lending to crowd out all of the lending in markets like the commercial paper market and the Corporate Bond market we are already seeing normal private lending returning. So the fed is acting more like a backstop that it is the only winner or the primary lender i think that lender of last resort backstop rule is an important one under these types of circumstances. Have we done anything about places in the Financial System that were more fragile or more vulnerable to shocks than we realized . Or maybe we havent done enough to shore up after the Great Recession . One area that people will read about in advance and my colleague at brookings, janet yellen, has talked about this a lot, leverage lending, some of the areas and Corporate Credit markets that are stressed in the fed anticipated that if a shock came from some other direction that drove the economy to slow down, that some of these weaker credits might exacerbate the problem. I think we are seeing some evidence of that. And then some surprising problems even in the treasury market which the fed addressed by buying treasurys. But broadly speaking, again, the situation is very different from 2008. It feels like 2008 because were seeing the big news in the stock market and saint lots of financial stress, but in this case the shot is coming from outside the Financial System. Its coming from the pandemic and the effects on Economic Activity, the Financial System is strong and would be a bulwark against this becoming a much worse crisis if the fed and the regulators do their jobs appropriate. Do you think its appropriate for the government to take warrants or other equity interest in companies that lends to at a time like this . I would be, so theres lending and then theres also some grants going on where the government, where the fiscal policy has included payments to industries where lending is not going to be sufficient. In that latter case with these grants, there would be various ways which grants to be paid back through various wards, for example. I think it is a balancing act and are im not really closely enough involved with these particular programs to give you a good judgment. You want obviously the taxpayer to be protected. You want to have a reasonable return. Remember again the feds lending is lending, not grants, its not gifts here you want a return that will, you what the taxpayer to get the money back. On the other hand, you dont want to impose such, so many conditions and complex requirements first that it will make people unwilling to participate, and second the will make the paperwork so i begin that it will make the logistical problems even worse. Theres a balancing act very. I think its appropriate to impose some requirements obviously including certification of eligibility and need, but i think the main thing you want to do is keep those Companies Alive so that they can function again when the Health Crisis is over, and to try to ensure as much as possible the taxpayers gets her money back. You made this point several times and for good reasons that wholly keeping this index of the can easily restart when the virus received is going to be critical to have come out of this. I wonder if you could step back for a moment and, this is speculation understand, to think about ways in which the economy may be different come out of this, either the consumer busis behavior approach to government, just think about from the Vantage Point of history, what do you think will be watching to see if the changes . Economist have a term called which basically means temporary thats a physics term, isnt . They stole it from physics. The idea basically is what you proceed to be temporary changes have permanent effects. There may be some history in this crisis. In other words, some of the things that happen in the course even if its only a year or two, in the course of this recession may have permanent effects in the economy. One example would be small business. One concern of economist have about u. S. Economy is its become more concentrated, that larger businesses have more market share. If Small Businesses are knocked out by this crisis, we dont adequately keep them alive, and that could affect concentration in Many Industries going forward. The form of work, here we are having this conference remotely. People, brookings and all around the country are teleworking and learning how to work remotely. What this change are shopping . Will this change our work habits . Will this affect the way we interact with people . Online rather than in person. Industry composition will be affected, no doubt. I cant see as many people. On cruises, for example. There may be changes in the way that other travel industries operate to ensure people about safety and health. Theres a lot of different dimensions, but i guess the historical examples i can 1817, the asian flu in the 50s, and i think permanent impact [inaudible] i complete reshaping of u. S. [inaudible] will probably work on some dimensions, so there would be some changes made going forward. Before this crisis there was more savings than not enough invested to soak it up which of course is what global Interest Rates have been so low. As we look ahead which wiki think that alice will go . I can think of more than one bite. With a very riskaverse consumers. People may be willing to save more. I can imagine a lot of people not being willing to invest. On the other and government borrowing will be a lot quicker than it was before. How do you see that savings investment balance . If you look at these, the Great Depression, people who survived the Great Depression for many years save more and were more cautious. So i think some of the same factors will be there. If people think that in particular if the think and then ask what happen every ten years, you have more precautionary savings because you want to be prepared for those types of disruptions. I expect to see more savings and more caution, which will probably unmet lower Interest Rates. You are right about higher fiscal deficits. Larry summers and others argue in a recent newspaper, without the fiscal deficits Interest Rates would be lower still but they have not been sufficient to raise Interest Rates to more historical lowerlevel. Let me close with this. A lot of people are just scared. The very frightening moment. You youre not allowed to go outside. If you have retirement savings, they diminished. The uncertainty about the future, the next two months and even the year of economy is very unsettling. What can you tell people to reassure them if you can about how we get through a time like this . Well, its going to be very difficult. Theres a lot of uncertainty inherent in dealing with this illness. People dont understand fully. A lot of peoples Financial Resources are going to be tested because of movements in the markets and because they are trying to survive this period with low income. I dont anyway diminish whats happening. Very, very tough and scary period. All of that said, i think history also suggests that you will find solutions for this illness, whether theyre logistical, whether their scientific advances, whether they come from how we work pics i think the u. S. Economy will recover and, within a few years we will show modest marks of experience. I think if were patient, we know we should be doing, that we will come out okay on the other end. We will have learned some lessons about being better prepared for future crises and future shock of this type. So i think optimism that will come out of this okay. I sorely understand and appreciate on a personal level the uncertainty that we are all facing the last few months. I hope youre right about that. Thank you very much for your time. To people who are online, if you have questions that we didnt get to i apologize if you send into events at brookings. Edu and the questions we can answer and there are many we can, we will try to find what antony. So again thank you very much, ben. 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