Fed to inject $1.5T to prevent ‘unusual disruptions’ in markets

The answer would be something like "Increasing the money supply has been very successful at mitigating previous recessions without causing inflation."

Unfortunately, previous recessions were caused by demand-side shocks. So increasing the money supply increases demand and mitigates the deflation that usually accompanies a demand driven recession.

It's not clear whether the upcoming recession is supply or demand driven. Shutting down factories in China causes supply shocks; laying people off because of social isolating will cause demand shocks.

If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse.

As the joke goes, a trillion here a trillion there and pretty soon you're talking about some real money!

But in seriousness, the next week is a critical time in the world. I remember sitting in an airport when news of Lehman Brothers collapse was flashing on the TV screens. I'm reminded of that time.

We learned later about how Hank Paulson got down on one knee and begged Nancy Pelosi to go along with is plan to save the economy. In retelling of that period, it's clear that the world's top economists felt we were perilously close to a full-blown disaster – trucks not bringing goods into cities, things grinding to a halt, etc.

Remember that when you see bold proposals in the coming days.

As I've commented over the past few weeks, I think we've missed critical steps in fighting coronavirus. The lack of testing will maybe turn out to be one of the biggest scandals of my lifetime.

My personal belief is that – at least in the United States – we did everything we could to prevent a short-term economic slowdown and instead we're on the verge of something much longer, much deeper.

But if there were ever a time for us not to be partisan and tribal, it's now. We blew the past few weeks. We can't afford to blow any more. We really do need to come together, globally, but particularly here in the US to try and agree on the right next steps. We need to act boldly, now.

They pushed the button that makes the ecomony go. Why doesn't it go?

Speculation on my part as I still don’t fully grok repo markets and only have a vague sense of how the treasuries market impacts equities but I’ll continue.

I see some people saying this should alleviate some of the losses incurred by the recent market crash. I however, don’t see how that is the case. To me this seems like a move from the fed to make sure we don’t enter into a liquidity crisis which doesn’t necessarily do anything to signify substantial move upwards in equities. Sure, the fact that investors and traders can now be fairly confident we won’t hit a liquidity crunch and therefore kill some fear in the market, but was that the biggest factor causing the fear and selling in the first place?

My understanding was the selling, and rightfully so, comes from the affects of CoVid. Travel bans, event bans, trade bans, lower consumer activity, etc. I don’t see how injecting capital into the treasuries market alleviates any of these factors.

If anything I think this would cause equity markets to sell off more in the mid to long term knowing that the fed had to do this to keep shops open and liquidity available to those that need it (I'm talking to you banks). On top of this factor, this move by the fed surely will push inflation higher and I would assume production would slow given all the virus affects mentioned above. This puts our economy in stagflation which has a lot of the hallmarks of a recession...

I think you may have some basic misunderstandings of how money works in today's world. All money is debt, which is to say, it's a ledger entry that gives the holder a claim on future productivity. Whether that ledger entry is purely electronic or rendered onto a physical artifact (a coin or a bank note) is irrelevant. At the end of the day it's all just bookkeeping. The national debt is the money supply. The key to nirvana is keeping the money supply in balance with the actual value of goods and services in the economy in order to keep prices stable. But that also has to be balanced against the need for short-term liquidity. That's the tricky part because what is happening right now is that the actual value of goods and services in the economy is shrinking, but the need for liquidity is growing. Those present two conflicting demands on the Fed, which controls interest rates which (indirectly) control the money (debt) supply. There are no "reserves", there is only the policy and decision-making that ultimately controls how much money is out there, and thus the value of that money in terms of purchasing power. Too much and you have inflation, too little and you have deflation and liquidity crises.