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Warnings Grow: “We Are in a Massive Economic Downturn”

Courtesy of Pam Martens

Lael Brainard, Member of the Federal Reserve Board of Governors

Lael Brainard, Member of the Federal Reserve Board of Governors

Yesterday, Federal Reserve Governor Lael Brainard gave a speech via webcast to the National Association for Business Economics. She warned, effectively, that the rosy spin coming out of the Trump administration needed to be weighed against the reality on the ground. Brainard raised the caution that credit downgrades on bonds and corporate defaults are occurring at “a faster pace than in the initial months of the Global Financial Crisis.” Brainard explained as follows:

“In downside scenarios, there could be some persistent damage to the productive capacity of the economy from the loss of valuable employment relationships, depressed investment, and the destruction of intangible business capital. A wave of insolvencies is possible. As the Federal Reserve Board’s May Financial Stability Report highlighted, the nonfinancial business sector started the year with historically elevated levels of debt. Already this year, we have seen about $800 billion in downgrades of investment-grade debt and $55 billion in corporate defaults—a faster pace than in the initial months of the Global Financial Crisis. Several measures of default probabilities are somewhat elevated. It remains vitally important to make our emergency credit facilities as broadly accessible as we can in order to avoid the costly insolvencies of otherwise viable employers and the associated hardship from permanent layoffs.”

The warnings coming out of yesterday’s House hearing on “Promoting Economic Recovery: Examining Capital Markets and Worker Protections in the COVID-19 Era,” raised similar concerns.

Congressman Sean Casten of Illinois

Congressman Sean Casten of Illinois

Congressman Sean Casten of Illinois warned that “we are in a massive economic downturn,” adding this:

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