Economic recovery won’t come until we get Americans to feel safe: Ric Edelman

Edelman Financial Engines Founder Ric Edelman joins Yahoo Finance's Zack Guzman to break down the latest on stimulus negotiations, and the Fed’s move to hold interest rates at near-zero.

Video Transcript

ZACK GUZMAN: Let's dig a little bit more into that idea though here that we might get a deal and compromise between Republicans and Democrats. Because we did hear pressure here from the White House as President Trump called on fellow Republicans to give another look at that $1.5 trillion compromise bill that was pitched by moderates here in Congress to try and get both sides back to the negotiating table.

Interesting to see if some of those even more, I guess, budgetary hockey on the Republican side would buy into a deal that big. Keep in mind, it's much larger than the one that Senate Democrats blocked just a few days ago.

So here to discuss all that with us now is Ric Edelman, Edelman Financial Engines founder. And, Ric, good to be chatting with you again here, man. When we talk about it, this has been a stalemate for the ages, because you think about everything that's going on on Main Street and Americans, millions of Americans, suffering job losses through all this. The wait's painful, and we haven't seen either side really budge here.

RIC EDELMAN: It's been very frustrating to say the least, Zack. We've known for months that the stimulus package created in the spring was going to expire during the summer. Congress dilly-dallied, and here we are. It's astonishing that they have been unable to reach a resolution. They're treating the American public households and small businesses alike as pawns in their political game, and it's astonishing and infuriating for us all to watch and observe.

ZACK GUZMAN: Yeah, and when we talk about where we go from here-- and I don't know if your camera's on or off-- but we can try and get that back on here. When we look at where these concessions have been made, it does seem like that Trump, or at least the Republicans here, have been critical of the idea that Democrats would be trying to find state funding through all of this to help prop up those states. He says they're failing Democratic states, and he doesn't want to support them through the bill.

But overall, we're talking about serious aid tied back to getting this pandemic under control. And we've heard that from Fed Chair Jay Powell in terms of this recovery is not going to stand up unless you stop and control the underlying health crisis at hand.

RIC EDELMAN: It's really true, and as you've already been discussing on the program today, we all know the problem. And we all know the solution. It's the virus and a vaccine.

The problem is we can't wish the vaccine to come into place. The science is going to be what the science is, and the timeline is immutable. We're going to get a vaccine when the vaccine is good and ready for us to have it. Then we might be able to accelerate its distribution, or we may be able to manipulate social behavior and its adoption.

But the bottom line is as the CDC said just yesterday, it's going to be Q3 of 2021 before the vast majority of Americans are inoculated. And we're already seeing polls of 2/3 of Americans saying that they have no desire to get the vaccine for the first six months of its release, and 25% say they're never going to get the shot.

So we've got some big social issues, part of it because consumers watching all the fighting going on in Congress, the politicalization, of this situation. There's a lack of trust. Even Bill Gates said recently that we can't trust the FDA and CDC the way that we used to. So Americans are nervous about this, and until we do get the vaccine in place and until Americans are feeling comfortable, 65% say they don't feel safe going into retail stores, going to restaurants, going to theaters, getting on an airplane, or visiting a hotel, taking a taxi, or an Uber, or getting on mass transit.

Until we get Americans to feel safe, we're not going to have the economic recovery that we so desperately want, and that safety is going to be delayed until a vaccine is available, distributed, and, in fact, used by most Americans.

And I don't think the market is properly acknowledging this and it's pricing. I think that there is a Pollyanna attitude that, "Oh, it'll be fine. Yes, it'll work out, but it's going to come quick. And therefore, let's expect the market to skyrocket even further than it already has."

ZACK GUZMAN: Yeah.

RIC EDELMAN: Personally, I have trouble with that thesis.

ZACK GUZMAN: That's what we're hearing, especially when you focus in on some of the cyclical names or some of those hard-hit stocks here when we think about how long this recovery might take. You can look at the cruise stocks. They can continue with cheap money out there right now. They can continue operating by taking on some massive debt loads here, but obviously, that's going to weigh you down on the other side when things start recovering.

But I guess one of the big questions that we've been discussing with our market guests here as well is a focus on inflation. And we heard that from Fed Chair Jerome Powell yesterday talking about trying to get back above that 2% inflation target. It's run under it for some time.

So now the Fed shifting and saying it's going to be fine to run above it, but a lot of questions about whether or not inflation is even going to come back here. Because we think about the demand shocks, the supply shocks, everything in flux here, obviously a lot more money being pumped into the system-- potentially another round of $1,200 stimulus checks for some qualifying Americans.

Even within firms, we're seeing inflation targets split. So what's your take really on how the inflation scenario might play out this time and how it could be different than some of those fears people had back during the Great Recession?

RIC EDELMAN: Yeah, I think you're right, and I think this is where Powell is very frustrated, along with the rest of the Fed is that there's more and more reliance on the Fed to fix this problem. So let's make interest rates as low as we can. Let's provide as much fed buying as possible. We saw what they've done with mortgage securities this week, for example.

And the Fed cannot be the sole solution to this situation, and there are natural implications to all this fed activity that will pay the price in the future with the incredible an increased debt load and so on. It's crazy for a Fed to say we're hoping and wanting higher inflation.

Go back to the '70s when the Fed was doing everything it could to eliminate high inflation. And that will be a problem that will lament in the future. And it's-- I'm wondering if we're seeing the end of moral hazard.

If you're a company, and you can't earn profits, no problem. Float securities. The Fed will buy them. You can't afford to borrow? No problem. The Fed will make debt really cheap. At what point do investors have to own the risks that they've taken in the marketplace?

Well, some would argue this is even looking like the end of capitalism as we know it, so how long can the Fed keep this up? And what are the long term implications of doing so?

We tend to forget what the Great Depression really means. Depression means deflation. It means prices goes down, not up, and the Fed is desperate to prevent that from happening right now. So god bless them. I'm thrilled at what the Fed is doing, but my goodness gracious, is this really our way out?

ZACK GUZMAN: That's a very good point. When we think about the lender of last resort becoming increasingly not that as this recovery plays out here. But a lot to discuss, a lot to weigh in on here. So I appreciate you walking through all of those things with us. We'll see what happens here, especially when it comes to the latest round of negotiations on that stimulus. Ric Edelman, Edelman Financial Engines founder, always appreciate the chat.