Heisenberg Report

Jerome Powell To NBC: ‘We’re Not Going To Run Out Of Ammunition. That Doesn’t Happen.’

Jerome Powell made an exceedingly rare cameo on national television Thursday morning, in an effort to help regular Americans understand what, exactly, the Fed’s role is in helping the country survive a public health crisis and endure what’s widely expected to be the deepest downturn since the Great Depression (even as it will likely prove fleeting).

Powell’s appearance on NBC’s Today went ok, all things considered, but as market participants know all too well, master public relations manager Jay is not.

“Do you think we are already in recession?”, Savannah Guthrie asked.


“We may well be in a recession”, Powell conceded, stating what, to all economists, is obvious. “Again, I would point to the difference between this and a normal recession. There’s nothing fundamentally wrong with our economy”, Powell added.

Importantly, Powell also emphasized that there is no limit on the amount of support the Fed will provide in terms of lending to the sectors that need it.

“You do have the ability to conjure money out of thin air”, Guthrie said, quoting something she read in the media.

A visibly incredulous Powell (incredulous because outside of economic circles, virtually nobody does a good job describing the process by which the Fed “conjures” money) did his best.

“In situations like the present we do have the ability to use our emergency lending authorities and the only limit on that is how much backstop we get from the Treasury department”, he said, alluding to the various guarantees from the ESF on some of the facilities the Fed has already announced, and, more to the point, the massive fund included in the $2 trillion virus stimulus bill.


“We’re required to get full security for our loans so we don’t lose money, so the Treasury puts up money as we estimate what the losses might be”, Powell went on to explain, clearly recognizing he’d likely already lost the audience. “Essentially, the answer to your question is ‘no'”.

Commenting on the Fed’s capacity to step in and provide credit where capital markets have simply stopped working, Powell said “we will keep doing that aggressively and forthrightly, as we have been”.

“When it comes to this lending we’re not going to run out of ammunition. That doesn’t happen”, he added.

No, it doesn’t. Which is something the vast (vast) majority of Americans and even some very intelligent market participants do not understand.

Asked if “the economy [can] handle a monthslong shutdown if that is what the public health emergency requires and demands”, Powell tried to walk the fine line between hewing to the concerns of the medical community and pacifying a president who wants the economy back online “by Easter”, to quote Trump.


“At a certain point we will get the spread of the virus under control and at that time confidence will return”, he mused. “You may well see significant rises in unemployment and significant declines in economic activity, but there can also be a good rebound on the other side of that, and that’s one of the things we’re trying to do by ensuring the flow of credit to the economy”.

As you consider Powell’s remarks (admittedly delivered in a tone and cadence that leaves something to be desired in terms of academic elegance) I would implore you to tune out those who insist the Fed should not provide an essentially unlimited backstop to the economy.

Smart people can (and will) continue to debate the methods and whether they facilitate inequality and encourage risk-taking, but the notion that hyperinflation is coming or that the emergency monetary policy response represents an existential threat beyond that which builds up in society as asset bubbles are inflated and the wealth gap grows via the second-order effects of quantitative easing, is patent nonsense.

As Yuval Harari puts it, “there are no gods in the universe, no nations, no money, no human rights, no laws, and no justice outside the common imagination of human beings”.

“Money” isn’t an actual, real thing that exists outside of our own imagination. It can only destroy us if we allow it to. Congress’s willingness to pass a $2 trillion spending bill without worrying about how we’re going to “pay for it”, is evidence that, when push comes to shove, people do acknowledge that reality – even as they’ll go right back to parroting the dangerous myths of Austrian economics once the current crisis has passed.