Here’s the squeeze. Jobs slow down, people are told to quarantine, people who are paycheck to paycheck fail to make rent. People renting to them have mortgages, they don’t get rent, they miss their mortgage payment.
That happens enough, bank is now a landlord, bank does not want to be a landlord, house rots, tenant is booted.
Same for a business, business operates on margin, customers stop paying, margin debts not paid, bank now owns failing business. Bank does firesale, functioning business is now a pile of auctioned off crap.
Monetary policy tools (zero interest rate overnight loans, no reserve requirement) don’t trickle down to the masses. I can’t get a zero interest loan, neither can anyone who is paycheck to paycheck, but I sure can get extortionate rates from a payday lender or a credit card! I also can’t negotiate my existing rates to zero interest.
If someone wants a new loan for a new venture, now is a great time, maybe.
If you are the Fed and want to intervene to protect banks margins, do what you’re doing. The banks now own a bunch of small businesses and houses. If you want to help small business owners and homeowners, maybe buy soon to be delinquent debt from the banks at a deep discount, forgive portions of it, sell it back to the banks at a profit later. Is this quantitative easing?
If you want to protect everyone...I have this idea and need to be told why it is dumb (seriously, not an economist, pretty sure this sucks just don’t see why)
Use IRS estimates of income from the previous year, create ‘universal economic manipulation fund’. Every month, everyone, based on tax bracket gets either a check or a bill, the amount is unknown prior to the end of the month. In fat years, everyone pays, in bad times when the Fed needs to “drop $100s from helicopters” the check is big, biggest at the bottom. Nobody can rely on it as a source of living expenses and become ‘welfare or UBI dependent’, but a sudden windfall gets spent instantly by people at the bottom and lets people do things like make rent, pay utility bills, and go grocery shopping.
Again, I’m sure this is stupid, I just don’t see why. If it isn’t stupid, please call someone wth access to Mnuchin and tell him.