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

Economic theories regarding inflation aren't so simple. It is not simply true that increasing the money supply causes a proportional increase in inflation. There are other factors. Where does the money go? How is it being spent? Is product output increasing with increased demand? If the money ends up in wealthy bank accounts, not being spent, then it won't really affect our consumer prices, will it? If consumers have more money to spend, but factories can meet the increased demand, that won't increase prices either, but it will drive growth.

There is plenty of evidence for this. Consider that the US money supply more than doubled since 2008, yet our purchasing power for general goods didn't halve.

Asset prices have doubled, though. Fueled by QE or real growth? I'm inclined to think the former. Food for thought.

US Treasury successfully completed today's 30Y auction. NY Fed was just worried that without $1.5T injection, the auction would have failed.

They're not as stupid as you might think.

Maybe keeping the market from doing something much worse than "meh" was the point, and this was a success?

> 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.

From my understanding the US treasury market is the most liquid and largest market for any asset in the world. Up until recently these treasuries had a positive real interest rate, so if you are a corporation with large amounts of cash (typically a bank) you don't want to hold this as cash in a banking account but rather you want to hold treasuries and get a small return. If there aren't enough people trading treasuries anymore and liquidity dries up this can have devastating effects on companies because they might hold lots of assets in the form of treasuries but they need to convert them to dollars to pay their employees or suppliers and need to sell treasuries for that. The repo facility of the FED is a buyer (or seller) of last resort that can hand out dollars for treasuries thus ensuring that there's no shortage of dollars.

> 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.

I don't think this will push inflation higher. This is not QE (though there is a meme that it is) where the FED buys treasuries (and MBS) outright and holds them until expiry. If a bank sells treasuries to the repo facility then it will have to buy them back until a pre-determined date. So if the repo facility works it will compress the spread in the treasury market and thus reduce funding costs for banks and ensure that enough dollars are around. Right now it seems like lots of companies are hoarding cash and drawing close to the full amount of their credit lines which means banks are short dollars. Because most of these credit lines will probably be used to fund ongoing operations (pay employees, etc.) or bridge a shortfall in revenues they are unlikely to cause companies to invest more or hire more and drive up prices.

Christine Lagarde today announced TLTRO III (https://www.ecb.europa.eu/mopo/implement/omo/tltro/html/inde...) which serves the same purpose. Helping companies and households to survive a shortfall in income. In short, you don't want to have a bunch of companies going bankrupt just because the economy stopped for a couple of months - the bureaucratic costs and resulting uncertainty for consumers would be much too costly.

Lamar Alexander was not against providing this support. He blocked it based on how it was going to be paid for.

It's very much a partisan issue because the Democrats want companies to foot the bill. The GOP thinks that if Washington DC thinks companies should do something then Washington DC should foot the bill. Neither side disagrees that people should have this support. All the Democrats had to do is introduce the same bill and divert funding from other congressional discretionary spending and the bill would have passed. It could pass today if they made this change.

Honestly, Lamar Alexander is right here. Companies are already going to be hurting financially enough as it is. Making them provide something new and foot the bill is just kicking companies while they are down and just going to worsen the fallout in this recession. Forcing them to fund this will contribute to phenomena like Chapter 11 bankruptcy for some companies and for others it will force them to lay off more staff.

There's no justification for Congress to increase the costs to companies while the Fed simultaneously injects $1.5T. That's just counterproductive when you're trying to help stabilize the economy.

I honestly don't understand why the Democrats are so consistently anti-business in so many things they do. "After all, the chief business of the American people is business. They are profoundly concerned with producing, buying, selling, investing and prospering in the world." (Calvin Coolidge)