How To Stop The Recession From Happening Right Now

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So Tracy, today we are going to have the fastest follow-up to a past guest that we've ever had, I think. Because, of course, we've had some guests a few times, or at least twice, but this time we are talking to someone that we talked to literally just a few weeks ago.

Tracy Alloway (0:33)

Yeah, I think that's kind of a marker of how much has changed in markets and the economy in that short time, because when we spoke to this particular person, I think it was either late January or early February.

Obviously, the coronavirus was a concern, especially in China, but it had yet to really take off in places like Europe and the US. Now all of that is changing. People are worried about the economy. And, of course, we've seen a massive sell-off in markets.

Joe Weisenthal (1:04)

Right. Since that discussion, we've had a de facto stock market crash, one of the fastest declines ever, breathtaking moves day after day, and now extremely serious and legitimate worries that a recession could be imminent. So we were talking about a recession as a sort of theoretical thing that at some point was likely to come. But now we're talking about a possible recession right here and right now, really globally, but also, you know, specifically in the West and in the US.

Tracy Alloway (1:34)

Right. And of course, because we are talking about a potential recession, that means people inevitably are talking about what we can do to stop it. We've already seen the Federal Reserve do an emergency rate cut, but a lot of the focus is on fiscal stimulus.

Joe Weisenthal (1:49)

Right. That's the big question is whether DC can get it together in a way that it rarely can to spend money to blunt the impact of this virus, which is expected to be traumatic. So without further introduction, a few weeks ago, we spoke to Claudia Sahm. She's the Director of Macroeconomic Policy at the Washington Center for Equitable Growth. And our discussion was, again, it was theoretical. It's like, what do you do to halt a recession? If you see one coming, how should spending get out the door in a timely manner?

We were not thinking of the discussion at that time as something like, oh, here's an imminent playbook that we need.

But really, we are in that position now. So without further ado, let's get right to it. Claudia, thank you very much for coming back on the podcast.

Claudia Sahm (2:40)

Yeah, thank you for having me back. I appreciate it.

Joe Weisenthal (2:42)

So just in your view, how serious are the recession risks right now for the US economy?

Claudia Sahm (2:49)

I think the risks are incredibly serious.

The events are fast moving, right? So if we were talking this time last week, I would not, I've been saying we should be really concerned. This is not looking good.

As last week went on, I think especially for me, I felt like we know how to do this. We know the fiscal tools that need to be deployed when we face a risk to the economy. Coronavirus is unique in many ways, but in a lot of ways, it isn't. It's just something that's threatening on the economic side, something that's threatening the ability of people to go to work, people who want to go buy stuff. This is what a threat to the US economy looks like.

We know how to fight that. We've got the tools. We have experience from the last decade, but we need fiscal policy. And I'm sure we'll talk a lot about why monetary isn't enough. But to see Larry Kudlow do the interview on Friday where he essentially said, yeah, we don't really need the fiscal. Or it just there wasn't a really forceful, we're going to do all it takes on the fiscal side. And between that and then the markets and the Sunday night was really bad and the Treasury. So all of this has just made me really concerned and concerned to the point, not that, oh, recession looks like it could happen. That if we do not act fast, it is going to be a recession.

I think this was so hard for me is it does not have to happen at all. Like if we were to act now, then this is going to be painful. It's going to be painful for people to get sick. Some people will lose their job. We're not going to be able to act fast enough and be able to help everybody. But it does not have to take the US economy down. And we're in such a good place right now. It's tragic to cut off this expansion.