Q: How well prepared is the typical American household for the coming shock of lost jobs and income, in light of a decade of debt-deleveraging, continuous job growth, and low unemployment, coupled with weak wage growth and rising income inequality?
A: “It’s true that we’ve had a decade of debt deleveraging and strong job growth. On average, debt burdens and financial obligations have fallen to relatively low levels. That positions the median household well to deal with the coronavirus shock. But households differ, and averages don’t reveal the poor financial position of many households going into this crisis. Federal Reserve statistics show that a large share of Americans couldn’t come up with $400 to deal with an emergency. Many households have little savings and a lot of debt and are very poorly positioned to deal with the impact of job loss and increases in health care expenditures.”
Q: What do you think about proposals to expand International Monetary Fund lending by issuing more Special Drawing Rights?
A: “It’s true that less developed countries are especially challenged by the pandemic, and a large number are turning to the IMF for help. A Special Drawing Rights (SDR) allocation is one way the IMF could respond. The last SDR allocation was in 2009, in response to the global financial crisis. However, in such an allocation, all members receive SDRs based on their IMF quotas, so a large share of the money goes to developed countries like the United States. It’s unclear that this strategy would provide sufficient funds to stressed emerging markets. An alternative is to enhance the IMF’s emergency lending capacity and allow the Fund to allocate it to those most in need. My preference would be for this latter strategy. “
Chosen excerpts by Job Market Monitor. Read the whole story @ COVID-19 and the economy: Your questions, our answers