As financial markets rallied on Thursday behind the news that the Federal Reserve will spend $2.3 trillion in relief funds for small businesses, states, and municipalities, analysts remained skeptical of the price action.
Social Capital CEO Chamath Palihapitiya decried moves by Federal Reserve Chairman Jerome Powell to prop up markets while retail investors remain anxious about job security and life after widespread shutdowns because of the coronavirus pandemic.
“The reality of an economic restart, to me, is much murkier than people think,” the venture capitalist said during an appearance Thursday on CNBC’s Fast Money. “It’s going to be very difficult for large swaths of people to congregate and be beside each other, doing tasks, enjoying life, for the foreseeable future, until we know that either there’s a cure, meaning you go to your doctor and you get an injection that will protect you, or, if you get sick, that there’s a way with 90%, that he said, efficacy that you get cured.”
On Thursday, the Labor Department reported the number of workers claiming new unemployment benefits jumped to 6.6 million last week. More than 17 million new jobless claims have been made in the past four weeks.
The numbers prompted swift action from the Federal Reserve, which announced $2.3 trillion in loans, including $500 billion that will go directly to states and municipalities.
Palihapitiya, who is a minority shareholder of the Golden State Warriors, claimed the move is not nearly enough to ward off troubling signs that the economy could be on furlough for months to come and stressed that the average U.S. worker is not being prioritized by the central bank’s actions.
“Let’s be clear, we’re not making people whole,” Palihapitiya said. “We’re not stupid, OK? If you wanted to make us whole, you would basically take last year’s W2 for every single United States citizen and say, ‘Guys, I’m going to give you the monthly wages that you got last year until this thing is over.’ That’s how you could make us whole. But, by plugging the holes of balance sheets, you don’t make us whole.”
“By stepping into markets that none of us have exposure to, buying illiquid assets off the balance sheets of banks, you don’t make us whole.” Palihapitiya continued. “That is not doing anything for the average person every day. The average person got two weeks of salary relief. That’s all they got. It’s not enough. That’s less than 10 cents on the dollar of what’s been spent right now.
“We are misallocating vast swaths of money, and, in it, what we’re doing is we’re creating a bigger problem that has nothing to do with how people will recover,” Palihapitiya said.
Palihapitiya condemned new policies introduced by the central bank, citing the economic downturn that forced several European countries to adopt austerity measures to battle against a run on banks in the months after the 2008 financial crisis.
“We are headed toward all the worst parts of Europe without the best parts,” Palihapitiya said. “It’s all bad teeth. It’s no good food and architecture and long vacations. I mean, Europe, for years, has just decided that they’re going to prop every random company up. They’re never going to allow anything to fail. The ECB will come in and buy debt and credit. I mean, it’s ridiculous. You’ve seen what’s happened to the Eurozone, which is basically a slow, slow, slow decay to irrelevance and essentially a quasi-socialist continent.”
He added: “We have just started to figure out the damage to states and municipalities. This is why the Fed today spent half a trillion dollars to support states and munis, but we know that’s not going to be enough.”
