You don’t often mention Former Oregon Governor John Kitzhaber and Federal Reserve Board Chairman Jerome Powell in the same breath. However, in the last week Kitzhaber, a Democrat, and Powell, a Republican, expressed parallel concerns and urged similar policies regarding the COVID-19 pandemic economic recovery.
Appearing on 60 Minutes, Powell warned of “lasting damage” without additional financial assistance to smaller businesses and individuals. In an op-ed published by Portland Business Journal, Kitzhaber foresaw the potential of “cascading business and loan failures.” Both said Congress has acted swiftly and wisely in approving nearly $3 trillion in emergency financial assistance, but that may not be enough.
“Congress has done a great deal and done it very quickly. There is no precedent in post-World War II American history that’s even close to what Congress has done,” Powell said. “And the question is, will it be enough? And I don’t think we know the answer to that. It may well be that the Fed has to do more. It may be that Congress has to do more.”
“Although Congress has appropriated nearly $2.7 trillion to support individuals and businesses,” Kitzhaber wrote, “it may not be enough, arrive soon enough or be distributed widely enough to turn the corner. For example, sending money that won’t arrive for weeks or months is not adequate in a country where a majority of citizens are living paycheck-to-paycheck.”
Powell expressed optimism the US economy can begin to recover the last half of this year and continue in 2021, assuming there are “policies that help businesses avoid avoidable insolvencies and do the same for individuals. Keep workers in their homes, keep them paying their bills. Keep families solvent.”
Kitzhaber said economic recovery would depend on whether “we [are] prepared to cut through partisan differences and act immediately with an intervention of the magnitude needed to stabilize our financial system.”
Both men mentioned the financial stress being experienced by small businesses. “The small and medium-size businesses that are so important to this country, if they have to go through a wave of avoidable insolvencies, you have – you’ve lost something that’s more than just a few businesses,” Powell said. “You know, [they are] really the job creation machine. Keeping people and businesses out of insolvency just for maybe three or six more months while the health authorities do what they can do. We can buy time with that.”
“In the absence of massive and immediate across-the-board direct financial support for businesses and individuals,” Kitzhaber wrote, “there is a distinct possibility that this could trigger an irreversible scenario of cascading business and loan failures, the accumulation of bad debt threatening the banking sector and leading to systemic bankruptcy.”
The stock market plunged the day after Powell’s interview aired because he raised the possibility of a “prolonged recession and weak recovery if the federal government doesn’t use all its power to support business and workers.”
Kitzhaber cited James Hammond, CEO of New Generation Research that tracks bankruptcies, who says, “I think we will see bankruptcy activity on a scale that has not been seen in anybody’s business lifetime.” Bankruptcies, Kitzhaber says, will occur when businesses and individuals have exhausted their savings and have no other choice.