‘Real Households Are Going To Be In Dire Straits’: JPMorgan Liaises With Biden On Stimulus

Don’t worry: JPMorgan knows what to do.

With lawmakers in Washington still wrangling over how much to spend on the next round of virus relief and, just as important, where to direct the funds, the Chase PolicyCenter has some ideas.

Back in October, the bank’s policy group warned that a decline in spending by the jobless which began in August had shown “no signs of having plateaued” which, in turn, suggested that “in future months, spending among the unemployed could likely decline below August levels.”

Read more: ‘It’s Running Out’ — Yellen, Chase Researchers Say Americans May Be Tapped Out

That’s intuitive on a number of fronts. It’s hard to spend when you’re jobless, and even harder when the benefits you were receiving as part of an expanded, federal emergency program expire.

Of course, transfer payments and government assistance played a crucial role in helping retail sales (and personal consumption more generally), bounce back.

Personal income and spending both fell in October, data released late last month showed. Incomes dropped precipitously versus economists’ expectations for a more pedestrian monthly decline. The decrease was attributable to a drop in government social benefits and specifically, a decline in wage assistance for workers impacted by the pandemic.

In a set of new recommendations reportedly shared with the Biden transition team, Heather Higginbottom, President of the Chase PolicyCenter, wrote that although “the unemployed roughly doubled their liquid savings over the four-month period between March and July 2020, they spent two-thirds of the accumulated savings in August alone.”

That might seem like common sense, but it contrasts a bit with suggestions in some corners that the cash buffers built during the crisis months are not only sufficient to sustain spending until vaccine distribution is complete, but in fact large enough to allow for lower- and middle-income families to invest in financial assets.

“Absent additional government stimulus, lower-income households and those who faced job loss may exhaust their accumulated savings buffer and be forced to further cut spending or fall behind on debt or rent payments,” Higginbottom went on to warn.

She also recommended that policymakers move to address what she calls “large racial gaps in take-home income and liquid assets that persist across age, income, gender, and geography.”

I dedicated a separate piece to that issue, which I’ll publish shortly, but suffice to say JPMorgan recommends directly addressing “racial disparities in income and wealth” as a matter of economic policy.

Higginbottom says the country should consider implementing “policies and programs that boost income and address the underlying challenges Black and Latinx families face within the labor market,” as that “could help to close racial gaps in income in the short run.”

You’ll note that tweaks to the Fed’s policy framework rolled out late in the summer specifically aim to foster a more inclusive economy. And Janet Yellen has made it abundantly clear since being tipped as Biden’s Treasury Secretary that part of her job will be to help level the playing field and ensure that American capitalism ceases to be an engine of inequality creation.

As ever, I’m compelled to include the usual caveats about the extent to which Fed policy has obviously served to perpetuate inequality in a variety of ways, not least of which is inflating the value of the assets overwhelmingly concentrated in the hands of the rich and white Americans (figure below).

But this isn’t solely the fault of central bankers. America’s inequality problem is also attributable to ineffectual fiscal policy, and to an underlying system that perpetuates inequality of opportunity. These dynamics are impossible to disentangle after decades of letting them feed on one another.

Placing all (or even most) of the blame for inequality in America with the Fed is patently absurd. It ignores, for example, tax policy, discrimination in hiring, and, by the way, the fact that not so long ago in the grand scheme of things, the country’s economy was based in part on slavery. It’s ridiculous to simply point to rate cuts and QE as the proximate cause of an issue that dates to the country’s very inception.

Anyway, Higginbottom continues. “JPMorgan Chase supports strengthening the Earned Income Tax Credit, investing in job training programs, and reducing barriers to employment for individuals with criminal backgrounds – one in three working-age adults – to expand economic opportunity to millions of Americans,” she said.

On small businesses, Higginbottom noted the following:

While COVID-19 relief efforts helped bolster small businesses’ cash balances, expenses remained materially lower in September 2020 than they were a year prior, suggesting that small businesses may be deferring payments to maintain cash liquidity. A sector with depleted assets or growing accounts payable may be less well positioned for a recovery than basic financial health measures may indicate.

Additional recommendations from Chase PolicyCenter include supporting “comprehensive housing reforms to increase access to homeownership,” increasing federal funding for affordable housing programs, extending student loan forbearance, and “realigning SBA products to better meet the needs of Black and Latinx businesses and communities.”

Again, all of this comes as Congress continues to drag their feet on additional virus relief spending. Although a $908 billion bipartisan stimulus bill gathered momentum early this month, the fact is, lawmakers have been derelict in their obligations to voters since August.

And if the GOP holds the Senate after the Georgia runoffs, Mitch McConnell will surely block major initiatives deemed too “expensive” or not “worthwhile,” with the effect being that lower- and middle-income Americans will, at best, be no better off than they were before COVID, and at worst, stuck in a kind of post-pandemic economic purgatory.

“We see how real households are weathering this, and can project that if they don’t have additional savings and income, they’re going to be in dire straits,” Higginbottom told CNBC in a phone interview, discussing her recommendations to lawmakers.

“We have a cliff of a bunch of programs that will expire at the end of the year,” she added. “There are families relying on those payments, and many of them will be food insecure. We’ll see a lot of families feeling a lot of economic pain.”

Once again: America is the richest country in the history of the world. And yet, somehow, millions of its citizens are starving.