On Thursday’s broadcast of “CNN This Morning,” Professor of the Practice of Economic Policy at Harvard University and the Harvard Kennedy School Jason Furman, who served as Chairman of the Council of Economic Advisers under President Barack Obama and on the Council of Economic Advisers and the National Economic Council under President Bill Clinton, stated that there will be a “credit crunch” that is going to hurt small businesses and people at the bottom getting loans from small, regional banks while big businesses borrowing on the bond market are seeing declining interest rates.
Co-host Poppy Harlow asked, “[Y]ou just said they don’t know how bad the problem with the banks is. But we heard Powell say yesterday, ‘Our banking system is sound and resilient with strong capital and liquidity.’ Is it?”
Furman answered, “Well, I would separate two questions: One is, is your money safe in the bank? Absolutely, first of all, up to $250,000, it’s insured above that. I believe they’re going to make sure that everyone can get all their deposits out. There’s then a separate question, though, of, are banks going to continue lending and how much are they going to continue lending? Certainly less than they were before. How big that credit crunch is for the economy, that’s what they don’t know. That’s what no one knows.”
Harlow then said, “That credit crunch is something that Larry Summers warned about when he was on with us last week. That always hurts — this lending issue is going to hurt the smaller companies, the more vulnerable folks, it’s not the big guys that get hurt in that.”
Furman responded, “Yeah, absolutely. If you’re a big company, you might be borrowing in the bond market. Those interest rates have actually fallen, not risen. If you’re getting your loans from a really big bank, you’re probably okay. But if you’re getting your loans from a regional bank, from a small bank, like so many small businesses are, the interest rate they post may look fine to you, they just may not be willing to make a loan at that interest rate.”
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