Closing the Chasm Between Wall Street and Main Street

By Mark Tulay, Skytop Contributor, May 14, 2020

As of the end of April, the COVID-19 stimulus and quantitative easing surpassed $3trn, nearly four times the amount of the 2008 financial crisis bailout and more than six times the amount of President Obama’s 2009 stimulus.  The likely result of the most extensive bailout in US history is for inflation rates to soar, likely eclipsing 10% for a sustained period, similar to what the US experienced in the early 1970’s.   This raises the important question of who the beneficiaries are of this most expensive bailout in US history.  Will this benefit Wall Street, or Main Street, or both?

According to a study by Oxfam, the 26 wealthiest billionaires own as many assets as the 3.8 billion people who comprise the poorest half of the planet’s population. Will the recent bailout and other COVID-19 measures worldwide close or increase the income and wealth gap?  Early signs point to a sobering answer to this question as less than 10% of the COVID-19 stimulus in the US went to helping individuals directly ($350 trillion total) while more than $500 trillion went to replenish corporate coffers depleted from excessive stock buybacks and overly generous dividend payments to shareholders.

Andrew Levin, a professor of economics at Dartmouth College who worked at the Federal Reserve for 20 years, said “The Fed is trying to communicate that it is really trying to assist Main Street this time, and not just Wall Street,” he said.  “I think the same question still remains: when the dust settles, will people view the Fed as having been successful in helping Main Street?”  I believe the answer to this question will be a resounding no, as the Fed is not equipped with the right tools to truly help those most in need.  Here’s why.

Over the last seven weeks, a record 35 million Americans have lost their jobs, eclipsing the total number of jobs created over the last ten years.  Yet against this dim backdrop, the stock market in April experienced its best month in more than 33 years.  The bust for Main Street somehow created a boom for Wall Street.  Why is this happening?  Do we have the right tools or infrastructure in place now to help those who need help most?

The Role and Limitations of the Federal Reserve

The mandate of the Fed is to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”  It’s also known as the “lender of last resort.” With all of the stimulus funding sloshing around and more than 50% of all US stores still closed, it could be argued that the Fed is not the right agent for the job of helping Main Street.  In fact, the steps the Fed is taking now may very well over-heat the economy and result in stagflation in 2021 and beyond.  It doesn’t have to be this way.  There’s a solution to this that is modeled after the steps to create the Consumer Financial Protection Bureau (CFPB).

A Credible Solution

What’s needed is a new tool inside of the CFPB that can do for consumers what the Fed is doing to protect banks and banking.  The establishment of a new agency that can serve as consumers’ “lender of last resort,” called the Consumer Relief from Economic Disruption (CRED) bureau, can:

  • Lend directly to individuals and small businesses with limited credit access
  • Provide stimulus to bolster community bank lending
  • Offer job assistance support for distressed communities
  • Advocate for a livable wage at the national level

The time has passed for small actions, half-measures, and more of the same solutions that further distort the income and wealth gap.  Now is the time for bold actions and for providing more financial support directly to those most in need through means outside of the Fed. Time is the essence.

Author:

Mark Tulay
Founder & CEO
Sustainability Risk Advisors
www.sustainabilityrisk.org
Inquiries: info@skytopstrategies.com