Are We Being Primed for Universal Basic Income?

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In a curious comments with Bloomberg, Simon Potter, who led the Federal Reserve Bank of New York’s markets group and Julia Coronado, who spent eight years as an economist for the Fed’s Board of Governors, forecasted an official, separate instrument for the Federal Reserve to get money into the hands of Americans directly during an emergency.

The tool would be “recession insurance bonds,” which, during an emergency like the one we’re living through now with Covid19, would be activated and get money directly into the hands of Americans.

“It took Congress too long to get money to people, and it’s too clunky,” said Potter. “We need a separate infrastructure. The Fed could buy the bonds quickly without going to the private market. On March 15 they could have said interest rates are now at zero, we’re activating X amount of the bonds, and we’ll be tracking the unemployment rate—if it increases above this level, we’ll buy more.”

“The bonds will be on the asset side of the Fed’s balance sheet; the digital dollars in people’s accounts will be on the liability side,” Potter added.

Congress would grant the Fed an additional monetary tool for providing support, like a percent of GDP in a lump sum to be divided equally and distributed to American households during a recession, Coronado says. The trigger for the bonds could be a 0.5 percentage point increase in the unemployment rate, for example.

The Fed would then activate the securities and deposit the funds digitally in households’ apps.

The Fed’s recent fascination with apps and cryptocurrency may explain the encouragement of all forms of digital payments in recent months. There has been a nationwide “coin shortage” in the nation for several weeks, for example.

The talking points for the direct payments to Americans are taking shape:

“It’s the most efficient from a macroeconomic standpoint in supporting spending and confidence,” Coronado explains. “The fear of unemployment acts as an accelerant on a recession. There’s a shock—people are losing their jobs or worry about losing their jobs. They get very risk-averse. [By] getting money to consumers you can limit the depth and duration of a recession.”

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Photo by Institute of Network Cultures

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