By David Barwick – FRANKFURT (EconoStream) – The consequences of shutting down the U.S. economy for too long would be worse outcomes not only in economic terms, but also with respect to public health, St. Louis Fed President James Bullard said Wednesday.

In a speech during a C.D. Howe Institute webinar, Bullard said that “we’re taking tremendous risks with the U.S. economy and really the global economy in this era - for good reason, but if it doesn’t go well, you could end up in a very bad situation.”

So far, though, he said, “so good”. The policy response has been “very good” and in particular quite quick in historical comparison, he asserted.

Bullard characterized the shutdown as an investment in national health and said it was “appropriate as the initial shock hit”, but can’t be “maintained indefinitely”.

“There is really no ‘pause’ button for the U.S. economy,” he added.

Businesses he had spoken to reported being able to withstand three to four months of shutdown, he said, “but after that I think you’d start to get many business failures … business failures on a grand scale, and then you might also get a financial crisis associated with that as firms are unable to meet their obligations, and you start to get disaster kind of spreading through the entire economy.”

There are thus limits to the shutdown policy, he said, “and attempts to go on too long would risk a financial crisis, would risk depression, and I would stress that if you get into that kind of situation, a depression scenario, then you’d have worse economic outcomes, but also worse health outcomes, and so everything’d be worse if we got into that situation.”

Bullard proposed as potential solutions mass testing for infection and an approach in which those most at risk would stay home, while everyone else could work normally.

In other comments, he said he saw greater chances of a rapid recovery from the current crisis than in the case of previous shocks. During the current quarter, which he said was the worst of the crisis, the principle goals of public policy must be providing support – on the one hand to the financial sector so as to avoid a financial crisis, and on the other to the real economy so as to avoid depression.