• Market Crumbs

What's Bernanke Thinking?

Ben Shalom Bernanke. Bernanke served as the the 14th Chair of the Federal Reserve from February 1, 2006 to January 31, 2014. Bernanke is best known for his role during the financial crisis, infamously saying about the $700 billion emergency bailout "If we don't do this, we may not have an economy on Monday."

Since leaving the Fed, Bernanke has moved on to more lucrative jobs. He's currently an economist at the Brookings Institution, as well as an adviser for Citadel and PIMCO. Despite his busy schedule, he took the time to call CNBC yesterday to discuss the state of the economy amidst the coronavirus outbreak.

With so many "firsts" and "worsts" since the Great Depression, Bernanke touched on the comparisons.

"This is a very different animal than the Great Depression," Bernanke said. "The Great Depression, for one thing, lasted for 12 years, and it came from human problems: monetary and financial shocks that hit the system."

In an unusual comparison, Bernanke said the current crisis is "much closer to a major snowstorm or a natural disaster" than a depression.

As for how he thinks the economy will react to the effects of the coronavirus, Bernanke believes there could be a "very sharp, short, I hope short, recession" followed by a "fairly quick rebound."

With the Fed under Bernanke being the first to implement policies such as zero interest rates and quantitative easing, or QE, Bernanke had praise for current Fed Chair Jerome Powell.

"I think the Fed has been extremely proactive and Jay Powell and his team have been working really hard and got ahead of this," Bernanke said. "They have shown that they can set up a whole bunch of diverse programs that can help us keep the economy functioning during the shutdown period so that when the all-clear is sounded ... we’ll see a much better rebound than we otherwise would."

Bernanke alluded to the fact that at the end of the day, the Fed can only do so much in the face of the coronavirus.

"Nothing is going to work, the Fed is not going help, fiscal policy is not going to help if we don’t get the public health right, if we don’t solve the problem of the virus, of the infection, so making sure that the risk has declined sufficiently before put people back in the line of fire," Bernanke said.

While it's unlikely Bernanke or anyone else associated with the Fed would sound the alarm or speak out against Fed policies, it's interesting nonetheless to hear Bernanke's thoughts as the coronavirus takes its toll on the economy.

Leftover Crumbs

  • Hiccup in housing. As the coronavirus wreaks its havoc on the U.S. economy, unsurprisingly people aren't looking to buy homes. Total weekly mortgage application volume fell 29% from the prior week, according to the Mortgage Bankers Association’s seasonally adjusted index. Mortgage refinance applications fell 34% during the same period as the average interest rate for 30-year fixed-rate mortgages increased to 3.82% from 3.74%. Despite the weekly drop, mortgage refinance applications are still 195% higher than the same period a year earlier.

  • Another first for markets. For the first time in history, yields on U.S. government debt dropped below 0% to negative territory. Yields on one-month and three-month Treasury bills fell below zero, joining the likes of sovereign debt in Europe and Japan. The U.S. Federal Reserve has repeatedly said they do not plan to take the fed funds rate below zero.

  • Worries over the coronavirus. 71% of people living in G7 countries say their income has been or will be affected as a result of the coronavirus, according to a survey from Kantar research. Italy, the U.S. and Canada saw the highest percent of people worrying about their incomes. The survey also showed 73% of respondents are very or fairly concerned the coronavirus will affect their health. A higher percentage, 82%, are very or fairly concerned how the coronavirus will affect their families and friends.

  • Coronavirus hackathon. Facebook and Microsoft are among the companies partnering with the World Health Organization to hold a hackathon to develop software that can assist with the coronavirus pandemic. Other companies joining the hackathon include Twitter, WeChat, TikTok, Pinterest, Slack and Giphy. "Given the isolation currently being experienced within communities right now, we want to create an online space where developers could ideate, experiment and build software solutions to help address this crisis," read a release on the hackathon.

  • Even Waffle House is closing. Waffle House, which notoriously remains open during hurricanes and tornadoes, has shut 365 locations across the U.S. The Federal Emergency Management Agency even uses the "Waffle House Index" to determine the severity of various events in the U.S. Twitter users were shocked at the closures, with one saying "I don’t think there’s a higher danger level than Waffle House closure y’all."