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For Low-Income Households Facing a Liquidity Crisis, $2 Trillion Won’t Cut It

Mae Watson Grote | Founder and Chief Executive Officer | The Financial Clinic

 

(And Other Things I Told the New York Fed at Last Month’s Community Advisory Group Meeting)

The week before last, I told the Federal Reserve Bank of New York that, much like Jerome Powell and the Federal Reserve have done with our financial systems:  Low-income American families need someone who’s got their back.

My point was that the same urgent policies enacted to stem the economic fallout from the COVID-19 pandemic — emergency measures meant to ensure businesses and markets that the American government has their backs — are just as necessary for the vast majority of American households that, even in a strong economy, live precariously, paycheck to paycheck.

As part of the Community Advisory Group, I and other nonprofit and community leaders advise the New York Fed on issues faced by communities across the second district (and so of course, the views expressed in this article are my own, and don’t reflect that of the New York Fed). It’s no surprise that our most recent discussion was devoted to the ongoing COVID-19 pandemic that continues to escalate across the United States and especially here in New York. The economic toll faced by low-income Americans will be — and has already been — unprecedented.

More than 22 million Americans are now out of work with unemployment filings at record highs. An economist with the St. Louis Fed has projected a potential 47 million could go unemployed this year. If the Fed can resort to unlimited bond-buying programs and trillion dollar market injections, why can’t we go to parallel lengths for low-income families?

Here at The Financial Clinic, the biggest lesson of the pandemic’s ongoing economic crisis is that margins have cliffs. If even in a tight labor market millions of Americans were financially insecure — especially disproportionately vulnerable groups like Black and Brown women — imagine how they fare now.

The deep asset poverty experienced by low-income Americans, coupled with an eviscerated social safety net, means we’re now confronting a future in which many Americans simply won’t recover. This is especially concerning for Black and Latino households, who are less likely to have saved for an emergency and who have a liquid asset poverty rate twice that of white households. These people — like so many of those we serve at the Clinic — have fallen over a cliff and are now in free fall.

Even recent catastrophes offer little guidance. During Hurricane Sandy — which hit poor households especially hard — there was an initial storm. However, once passed, we could begin to assess the destruction and human loss. Or with the Great Recession, as the labor market tightened, we could appreciate how deliberate policy decisions left communities of color out of a full economic recovery. In our current crisis, that assessment has yet to take place, and this free fall makes it hard to grapple with the long-term impact.

Meanwhile, the Clinic is directly responding to our customers who are now in dire financial straits. We’re launching free virtual, financial coaching and expanding Change Machine to further address the needs of those hit hardest by this catastrophe. What is already clear from this work is that families are scrambling. With household budgets in total shock, how will families make rent in the coming months?

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act — which includes direct payments to American workers — is the largest in U.S. history, but it doesn’t go far enough. Low-and-middle-income households are facing a liquidity crisis. Countless are confronting a sudden loss of income while their essential expenses have stayed the same.

Across the last twenty years and over two recessions, rising rents continue to outpace incomes. What we’re now witnessing is the bottom fall out for already-cash-strapped workers. That means cash inflows — like the CARE Act’s $1,200 payments to low-income Americans — are essential, but even most people who live in the Fed’s second district have rent payments higher than $1,200. (In New York, for example, the median rent for a one-bedroom apartment is $2,850.)

The reality is that individuals on fixed or limited incomes lack the resources to take the necessary precautions required by this pandemic. Often they don’t have the ability to buy in bulk. Many live in food desserts — which studies show are disproportionately concentrated among poor, Black neighborhoods — and aren’t able to drive to multiple stores, only to be turned away because the shelves have been cleaned out. 

 So what else can be done to mitigate the pandemic’s economic impact on the most vulnerable among us?

In the weeks to come, the emphasis shouldn’t be on stimulus, but rather putting a total moratorium on all debt and essential payments and penalties: everything from student loans, mortgages and rents, and credit card debt to evictions and utility disconnections. Our focus must be on safety nets and social insurance.  Just as importantly, any cash payments must not count towards actual income that might otherwise disqualify them from essential benefits like SNAP or SSI.

While the future of this crisis remains unclear, we already know what so many low-income Americans need. They need, in other words, what our financial systems have already been assured: a strong safety net and a guarantee that we have their back.