Stating the obvious, twice

Kudos to Chair Powell. The following is obvious, but unfortunately must be repeated ad nauseam in order to push back against the vast sea of ignorance out there:

Federal Reserve Chairman Jerome Powell made a rare appearance on national TV Thursday morning, telling NBC’s “Today” that the central bank still has plenty of tools left to support a U.S. economy that may already be in recession amid the novel coronavirus pandemic.

“When it comes to this lending we’re not going to run out of ammunition, that doesn’t happen,” Powell said.

And this is also pretty obvious, but needs to be said:

“We may well be in a recession,” Powell said. “But I would point to the difference between this and a normal recession. There is not anything fundamentally wrong with our economy. Quite the contrary. We are starting from a very strong position.”

I wonder if the tide is turning in our favor on the phony “out of ammo” myth. Let’s hope so. I feel like I’ve been fighting a lonely battle.

PS. People often wrongly assume they know my views on the epidemic. I’ve never offered an opinion of the effectiveness of chloroquine (just on Trump giving advice), and don’t have one. (Unlike many people, I don’t form my views on REALITY based on what Trump thinks.) I’ve never offered an opinion on whether we should do “lockdowns”. I’m not even sure what a lockdown is. If you want some opinions on how to address the epidemic, you’d be better off reading my good blog today.

PPS. Today’s weekly unemployment claims report is sometimes compared to the previous record, 695,000 in 1982. But if viewed in terms of the increase relative to normal, it’s actually more like 10 times worse than we’ve ever seen. It is more than 3 million above normal, vs. a bit over 300,000 above normal in previous bad recessions.

PPPS. Italy and the US will pass China in total cases by tomorrow. A few days later, China will fall to 4th (behind Spain.)

HT: Frank Fuhrig



36 Responses to “Stating the obvious, twice”

  1. Gravatar of agrippa postumus agrippa postumus
    26. March 2020 at 10:23

    the limit is inflation. logically, too, no limit means 0 marginal impact, which is spurious

  2. Gravatar of Michael Rulle Michael Rulle
    26. March 2020 at 11:21

    Re Powell

    It is remarkable that he has become a better leader.Bernanke has given him Kudos. It is remarkably “coincidental” that as you have stepped up the volume, he has been relatively close in line. I don’t know why—but it is impossible to believe somehow you and a few others have not been highly influential. But even as your way of conceptualizing monetary policy might still be in the minority——it does seem to be accepted gradually by some form of intellectual osmosis—if only because we see less aggressive critiques than one would expect if there really were strong oppossition One day we are going to wake up —maybe that was yesterday—and this will ne mainstream

  3. Gravatar of Don Geddis Don Geddis
    26. March 2020 at 11:25

    Agrippa, you aren’t addressing the (false) concern that most people have. We all know that a malicious central bank can easily cause either a deep depression or hyperinflation, if they were to wish to do so. That’s not the concern.

    The concern instead is if the economy does not yet show sufficient inflation (to target), but (for example) interest rates are near the zero lower bound. Many people then believe the central bank is “out of ammo”, has “shot its wad”, is “pushing on a string”.

    These analogies are false. If the economy calls for more stimulus, the central bank always has the power to provide additional stimulus.

    The fact that a central bank could also provide too much stimulus to some economies, and thus cause excess inflation, is both obvious and irrelevant.

  4. Gravatar of agrippa postumus agrippa postumus
    26. March 2020 at 11:39

    we’ve had 3 monster crashes under fed “stimulus” in 20 years. shay’s rebellion and other turmoil pre and post civil war were fometed by paper money. the constitutional convention provided only for hard money for good reason as inflation robs the creators of value. there is no stimulus and there is no ammunition, only credit flowing to those who get the nod at the expense of those who don’t and produce value. ask yourself, why inflation at all? why 2%. when someone say unlimited, it reveals the limits of their imagination on where are the boundaries. its all sophistry.

  5. Gravatar of Christian List Christian List
    26. March 2020 at 12:27

    There’s nothing wrong with the economy? I understand what he means, but then on the other hand: when is something ever wrong with the US economy? What kind of scenario would that be in the US?

    Bernie taking over and turning the US into Venezuela? Kind of extremely unrealistic. So the US can never fail if nothing really fundamental changes in politics and institutions? I mean not even Trump could do it. So with this Fed the US is basically invincible. Comforting to know.

    Nevertheless, stocks are allowed to plunge another 20-30%, I am not fully invested yet. The Fed never waits for me, that’s a scandal in itself.


  6. Gravatar of Christian List Christian List
    26. March 2020 at 12:30

    @agrippa postumus
    Go back to the Roman Empire, they might have had a monetary policy that would suit you. But I doubt that the real Romans were that dimwitted.

  7. Gravatar of Christian List Christian List
    26. March 2020 at 13:28

    We overlooked Sweden, the Benjamin Cole experiment at large (alongside the model democracy Belarus):

    While other countries such as Germany are in a state of emergency and doctors in Italy and Spain speak of war-like conditions, Sweden has something like everyday life. Restaurants and elementary schools are still open, and during rush hours, Stockholm’s public transport system is in the usual rush, although the capital is the most severely affected.

    The ski resorts are also still open, although it is now known that there were superspreaders in ski resorts in South Tyrol and Tyrol that spread the virus to half of Europe.

    The Swedes are cool as ice. I’m curious what kind of heat they can take. Ice tends to melt when it gets hot. 😉

  8. Gravatar of Christian List Christian List
    26. March 2020 at 14:01

    One last question: Now that the highest Chinese authorities say that the real and only China has no new cases, could they ever admit they have new cases without losing face? Oh, oh…

    Something similar might be happening in Japan. Could Japan admit that the situation is not under control?

  9. Gravatar of TravisV TravisV
    26. March 2020 at 14:02

    My favorite comment came at the very end of the video, where Powell said that after the virus recedes, the Fed will act to make the economic recovery “as strong as possible.”

    A rapid 1983-like recovery is possible!

  10. Gravatar of Ray Lopez Ray Lopez
    26. March 2020 at 14:05

    @Don Geddis, @Nazi – the wise nym agrippa postumus understands something both of you do not: money is largely neutral, meaning it has no real effect, but it has a distributional effect.

    Let me explain by analogy, I doubt Nazi gets it but Don might, having a bigger than pea sized brain: does robbing Peter to pay Paul have a REAL effect? No. Certainly it has a distributional effect. But in terms of sums, adding Peter (who loses) and Paul (who wins) to the GDP, there’s no REAL net effect, Peter and Paul offset each other. That’s monetarism assuming money neutrality. Anytime a central bank accepts toxic paper from a company in exchange for US-taxpayer backed fiat money, that’s redistribution at work. It’s robbing Peter to pay Paul. But it has no real effect, regardless of the inflation rate. Only people who accept that there’s strong money illusion and strong sticky prices (that would be our host) would disagree with the above.

    The above is rock solid simple logic, irrefutable. But I bet at least one if not both of you won’t get it. Still. Despite. Using. Simple. Words.

  11. Gravatar of Christian List Christian List
    26. March 2020 at 14:33

    Ray, you lost me several times, for example at “robbing” and at “US-taxpayer backed fiat money”.

    And what happens when the central bank makes a profit with its bonds, is this “robbing Paul to pay Peter”???

    I also find it interesting how you reconcile “money neutrality”, “robbing” and “no real effect”.

    Your “logic” is irrefutable indeed.

    What’s the difference between Greek Ray and Ray Charles? Ray Charles is not as blind.


  12. Gravatar of Christian List Christian List
    26. March 2020 at 14:55

    I bet I can’t explain it as well as Scott, but I would say the Fed has a goal, a mandate, and a promise: monetary stability. Specifically, 2% inflation. As long as they hit this target, nobody gets “robbed”.

    And if they ever missed the target in the last years, it was because they undershot. So if they ever missed it (which they hardly did), then Paul got “robbed” and not Peter. That doesn’t mean I follow your analogy at all, it just means that I’m trying to dumb it down for you, which is hard enough because your level is so low.

  13. Gravatar of Benjamin Cole Benjamin Cole
    26. March 2020 at 15:23

    The Fed is not out of ammo if it sends the helicopters.

    Michael Woodford, Columbia University, contends that a federal government running large deficits at the same time the Federal Reserve is purchasing Treasuries is, in effect, a helicopter drop.

    David Beckworth contends that the additions to the Federal Reserve balance sheet must be permanent to have effect or to be considered a helicopter drop.

    Chairman Powell has not made explicit that the additions to the Federal Reserve balance sheet will be permanent. Perhaps this is a failing. On the other hand, I don’t think anyone believes the Federal Reserve will reduce its balance sheet in the foreseeable future.

    And did I read that the Federal Reserve is still paying interest on excess reserves?

    Though I disagree with Ray Lopez on his insistence money is neutral in every circumstance— you know, you can lose a few decades due to bad monetary policy— his fundamental point is true. Printing more money will not improve an economy on lockdown, and wealth is not created by anything except work and capital.

    Shutting down in an economy cannot be a solution to any problem.

  14. Gravatar of ssumner ssumner
    26. March 2020 at 15:51

    Christian, Regarding Japan and China, there will be new outbreaks and I predict they will be reported by their governments. But I wouldn’t use the term “out of control”, I’d say “not fully under control”. Japan in particular is likely to get considerably worse before it gets better.

    Even so, East Asia has clearly outperformed Europe so far, except for the initial Chinese cover-up, which was disgraceful. They’ll probably continue to outperform, even as it gets worse in East Asia

    TravisV, I hope so.

  15. Gravatar of Christian List Christian List
    26. March 2020 at 15:54

    Ben listen to Powell for once, I’m suprised how good he is in this crisis:

    It is quite possible that the USA is already in recession, said Federal Reserve Chairman Jerome Powell on Thursday morning on NBC’s breakfast television. Never before in the station’s history had a Fed Chairman appeared on the Today show. The presenter wondered, “Why now? – “The situation is unique,” Powell replied. Americans have been asked to give up economic activity as an “investment” in the country’s public health.

    Powell’s message was clearly not just directed at the millions of viewers who fear for their livelihoods while condemned to do nothing. But also to Donald Trump, who wants to force a return to economic normality by Easter. The most powerful monetary politician in the world, however, warned that “getting the virus under control is at the top of the agenda”. Only then could economic activity begin again: “The virus dictates the timetable.”

    Of course you can fast-forward the schedule a little bit by infecting yourself. Have you finally done that, Ben? There are still a few corona parties in Sweden and Belarus. Just think of it as an “investment” in your health.

  16. Gravatar of Christian List Christian List
    26. March 2020 at 15:59

    Scott, I agree that East Asia has clearly outperformed us by far and that they will continue to do so.

    I also hope you’re right, and that the Chinese report new outbreaks. Xi has almost declared the war to be over, so it’s going to be hard to admit new outbreaks, he might think that this will make him lose face. But there is a way out, I assume the Chinese will say: New outbreaks yes, but all imported from abroad. — I don’t really care, as long as they report it.

  17. Gravatar of DF DF
    26. March 2020 at 16:07

    Professor Sumner,

    Never reason from a policy change! There are many reasons why reported cases in China might have fallen.

    One obvious one is they have stopped reporting domestic transmission. After all, this is a country that claims annual flu deaths in the 100s.

    Another reason: Chinese Trumpers have won the internal argument to begin relaxing the lockdowns. Their risk tolerance for fatalities has increased.

    Yet another reason: as other countries deal with pandemics, they can shift blame on Chinese infections off the CCP and onto the dirty foreigners.

  18. Gravatar of Benjamin Cole Benjamin Cole
    26. March 2020 at 16:08

    Christian List: I have three children and neighborhood children have been running in and out of the house for weeks as they are on school break. I live in a small town in Thailand. Thailand is now on lockdown. To my knowledge nobody within a hundred miles has ever been tested so I assume I have been infected already.

    I am 65, in a mild risk group but I have never smoked and I daily exercise so my lungs are pretty good. I did grow up in Los Angeles when the smog was thick enough to cut with a knife so perhaps I suffered some damage then. Evidently air quality can play a large role in death rates.

    I also hope you have been infected and have had no symptoms—as was the case with 99% of the crew members of The Diamond Princess.

  19. Gravatar of Christian List Christian List
    26. March 2020 at 16:34

    Benjamin Cole,

    All this may well be true, but it’s speculation. We don’t know the extent of the infestation, so we need good testing, including antibody testing.

    Until then, I wouldn’t want to be deliberately infected. So far, your cost-benefit analysis only takes into account the dead. There are many more risks and costs. Stay healthy.

  20. Gravatar of Christian List Christian List
    26. March 2020 at 16:40

    The one and only “Switzerland” is interesting:

    A strange pattern has emerged in COVID-19 CFRs in Switzerland.
    COVID-19 has been twice as likely to kill patients in French-speaking cantons of Switzerland than in German-speaking, and more than twice as likely to kill patients in Italian speaking cantons than in French ones.

    Could be lag or could be culture. What else?

  21. Gravatar of Matthias Görgens Matthias Görgens
    26. March 2020 at 17:38

    Christian, different European countries are reporting cause of deaths in different ways. In Italy, no matter what other underlying problems you had, if you are in a hospital, test positive for the virus and die, they chalk your death up to the virus.

    Switzerland is very decentralised. I wonder if the Italian speaking cantons are more similar in their reporting to the Italian practice than to eg the German speaking cantons?

  22. Gravatar of Todd Ramsey Todd Ramsey
    26. March 2020 at 17:39

    Professor Sumner-

    You have moved the mountain. From where you started in 2008 to Powell’s comments today, you have achieved most of what you set out to do.

    Next stop: Nominal GDP securities with the Fed buying and selling within guardrails.

    Keep up the good work! Be proud of your accomplishments.

  23. Gravatar of Student Student
    26. March 2020 at 18:40

    The thing that can’t be hidden is famous people dying. The virus isn’t something that just affects the peasants.

  24. Gravatar of msgkings msgkings
    26. March 2020 at 18:56


    That’s a good point, but I can’t think of a celebrity that has died from this. I know ones that have gotten it of course.

  25. Gravatar of Student Student
    26. March 2020 at 19:23


    You are right. Give it time. I just don’t see how it won’t happen. I would love to be wrong.

    Scott, excellent post at econlog… maybe it is your good blog. But can you explain the reasons you thinks deaths will be in the thousands. I just don’t see it.

    The spread was slowing (at least given the growth factors) for a couple of days but I am starting to think it was an artifact of testing lags (or even worse, less testing, not more. I am almost beginning to wonder if that is deliberate at this point)…

    It’s kicked back up yesterday and today. The GFs were >1.2. Today it was 1.28. It’s been, what 8 days since the shutdowns started, and we are still way exponential. We are on pace in the USA to hit over 1 million cases by April 4. Given the median time to showing symptoms is 5 days, I would have expected to see a slow down. It appears as tho there is still to much local transmission and to much travel between the clusters. It’s behaving exactly like a fractal.

    Unless testing increases like 1000% in the next 8-16 days, we will be in the millions of cases by Easter.

    It’s looking like we are gonna go herd immunity by default. It’s looking like we just can’t get it done. We just can’t do it. I fear the cat is already out of the bag.

    You see the presser today…

    “When people start talking about 20 percent of a population getting infected, it is very scary but we don’t have data that matches that based on the experience,”


    What the hell data is the good doctor looking at? Can anyone explain that? I would love to know. I pray to see it.

    As of today, we are undeniably on pace to hit millions of cases in the USA by Easter. we will be at 150,000 in 2 days. Just look at the damn trends people. I would like to know what makes anyone think the models are wrong? I don’t see a shred of evidence of a slowdown (at least one rapid enough one to make any significant difference in the near term).

    Can someone please calm my nerves here. I am praying that we bend the curve, I just don’t see a lick of evidence that that is happening.

  26. Gravatar of Todd Kreider Todd Kreider
    26. March 2020 at 19:28

    Student needs to take a Quaalude. The curve is bending in Italy after 7,500 Italian 80 year olds have died. Western Europe will be there in a week and the US should be there in two weeks.

  27. Gravatar of Student Student
    26. March 2020 at 19:33

    I wish I had one. It does appear to be bending in Italy… but it isn’t here in these United States. And we are already starting to talk about opening things back up. The Italy point was a good one though. Thank you for that.

  28. Gravatar of Student Student
    26. March 2020 at 19:38


    If it takes 2 weeks to bend, we will almost have multiplied by 10 twice. We will be over 5 million cases in 14 days.

  29. Gravatar of Student Student
    26. March 2020 at 19:40

    We were at like 9,000 cases 8 days ago. Exponentials are a bitch.

  30. Gravatar of Ray Lopez Ray Lopez
    27. March 2020 at 05:17

    @Christian List- you spam the comment section so much, one would think this is your blog? Please, try and limit the verbal and prolix diarrhea, fake “doctor” List. I’m sure I don’t speak for just myself here. You’re out of control. Don’t you have a practice to run? (that means, “work in the office”, since you’re EFL)

    As for your point that nobody is robbed if the Fed gets back a profit from the commercial paper on their books, as apparently was the case in the 2008 bailouts, I agree (dumb Nazi is pleased with itself since it thinks it won the debate, but in the West debates are for finding the truth, not for Goebbels-type propaganda, pace Trump). But the latest Fed “QE-infinity” announcement on Monday is that the Fed will do this kind of exchange more often, not just with the handful of companies it did in 2008. If the Fed commercial paper has to be marked-to-market and is worthless, the taxpayer will eat the cost. In that sense, agrippa is right and monetarism of this sort is ‘fiscal’, is distributive. That was my point.

    @Student, who is vindicated along with me, and @B. Cole, who goes down in ignominious defeat, note this Fed paper released today (note the Spanish flu had a partial lockdown not a complete lockdown, but, against that, back then they did not have internet which allows telecommuting):

    New Fed study finds efforts to slow pandemic don’t depress the economy – Published: March 27, 2020 at 8:52 a.m. ET By Steve Goldstein

    The economy isn’t helped by rushing back to work in the face of a pandemic, according to a new study by Federal Reserve researchers.

    At a time when the lieutenant governor of Texas has said senior citizens would be willing to sacrifice their lives for a better economy and when President Trump has fretted that the cure may be worse than the disease, a new research paper looked at the impact of the 1918 Spanish flu on the U.S. economy.

  31. Gravatar of Student Student
    27. March 2020 at 06:10


    Will need to read that paper because 3.3 million unemployment claims seem to me to suggest otherwise.

  32. Gravatar of Ewan Ewan
    27. March 2020 at 09:43

    What would be the response to a traditional monetarist argument: that this is a supply shock which will last until, perhaps, sometime next year; that governments and central banks are responding as if to a demand shock; that the large increase in public spending will be largely financed by borrowing (and the large loan guarantees encourage the corporate sector to draw down their credit lines); that the result, as in past episodes, will be an acceleration in money growth (private sector holdings will not have fallen, and public sector borrowing will inject more, which will fuel the rebound once the pandemic is under control, producing above-trend growth, and ultimately inflation.

  33. Gravatar of ssumner ssumner
    27. March 2020 at 09:44

    DF, No, the Chinese Trumpers have not won.

    China’s a big country, and more open than most Americans assume. It’s hard to hide an epidemic for more than a short period. My wife can pick up the phone and ask Chinese people she knows if the local hospitals are being overrun. So can millions of other Chinese Americans. The news would get out—trust me.

    Student, Oh, it could be 10,000 or 20,000. I just don’t expect 100,000, or anything close.

  34. Gravatar of Christian List Christian List
    27. March 2020 at 16:54


    your theory is only correct if a lot of prerequisites and ifs are met: If the Fed buys many commercial paper, if these papers bail, and in fact so many that the losses exceed the gains, and then only if the total losses of all bonds exceed the total gains. This is all very unrealistic. But even if that were to happen: then it still doesn’t make sense why your taxpayers have to step in any way. It’s just the balance sheet of the Fed that doesn’t look so good, so what? That’s none of the taxpayer’s business as of now.

    I read “worries” like yours so often, funnily enough people like you usually never write anything about the $2 trillion “stimulus” that Congress just passed. That’s taxpayers’ money 1:1. How much have you written on the subject, you never-ending clown?

    one would think this is your blog?

    I’m sorry for that actually. It’s like in that Tom Hanks movie: “Look at me, I’m the captain now!”

  35. Gravatar of DF DF
    27. March 2020 at 18:09

    Professor Sumner,

    I would love to trust you, but the Hubei government literally did try to hide an epidemic for more than a short period. Until then, I’d rather not try to infer COVID19 case load from economic data, for any country.

  36. Gravatar of ssumner ssumner
    28. March 2020 at 21:28

    Ewan, I don’t see expectations of inflation in the markets.

    DF, I don’t doubt that the Chinese data is somewhat inaccurate (as is the data in other countries), but the trends are clear. Even if there are missing cases, the death totals in China are now quite low. It’s not easy to cover up lots of deaths, even in China.

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