I'm not an economist, but it seems like the problem is a destruction of demand, so how does increasing supply help things?
The Board reduced reserve requirement ratios to zero percent effective March 26
31–40 of 99 posts
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#32Yikes, this is kind of scary. This could magnify the losses dramatically as lenders start to implode due to the cascade of defaults. If anything, they should increase the reserve requirements to prevent instability and encourage a flight from risky assets. Yes, this will make the stocks go down now, but it would probably result in fewer people getting laid off and going broke in the future. I'd rather see highly leve…
In other words we, as a country, would be rise to rip the bandaid off. Instead, we're slowly tugging at the edges. This is going to be a long, and drawn out recovery. I hope everyone followed the general consensus and has their retirement properly adjusted to their risk tolerance. This recovery is probably going to take years, from the time we get the economy restarted.
We are following Japan’s path to stagnation.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#33[deleted]
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#34Doesn't this eliminate the protections from 2008? Will this cause a run on the banks?
Don't worry, the banks will just get bailed out if that happens, as seen in 2008.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#35Should we be moving money from the banks into another value store? Gold? Investments?
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#36The Fed has been obsessed with liquidity since this crisis has hit. From a high level, I understand why but this coupled with the repo market issues we've been having on and off for the past six months or so, the mortgage markets gumming up (avg 30Y mortgage rate went _up_ after the Fed cut rates), potential strain on dollars in the currency markets (lots of demand from foreign countries, no supply? Unsure about this one) make me think that something else is afoot that we're missing here.
Of course it could be as they say, and there are a bunch of overlevered businesses that need cheap capital or they'll go bust and cutting interest rates and injecting liquidity is the only way to save them.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#37It would seem that the logical response to this announcement is go run the banks right now, before March 26, and before anyone on Fox and Friends thinks to mention to their viewers what this really means.
This would be my take on it as well. However, a pile of government printed paper may not be worth much anyway in a worst case scenario.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#38Doesn't this eliminate the protections from 2008? Will this cause a run on the banks?
I would think it depends on how much you trust your bank to maintain solvency through the downturn. For what its worth I'm staying with who I was banking with in the last downturn, because they were one of several banks that remained solvent and healthy through the downturn. They did this by making conservative financial decisions, which they continue to do, so I'm not worried about them.
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#39Earlier quoted context omitted.
In other words we, as a country, would be rise to rip the bandaid off. Instead, we're slowly tugging at the edges. This is going to be a long, and drawn out recovery. I hope everyone followed the general consensus and has their retirement properly adjusted to their risk tolerance. This recovery is probably going to take years, from the time we get the economy restarted.
We are following Japan’s path to stagnation.
What other way is there? Japan and Europe is a preview, but there are few paths available as your structural demographics change and your economy tilts towards services instead of manufacturing.
Civilization matures, the foundational economics change, this is the result. Past performance does not guarantee future returns [1]. We can't rip the bandaid off because there are still too many people desperately clinging to a model of growth and wealth that is running out of runway. The bandaid will be ripped off for us. How many of those over 55 are likely to keep their jobs through this economic contraction [2] [3]? 48% of those folks (55 years old and older) in the US have zero retirement savings [4], and will rely entirely on Social Security (which will exhaust its trust fund in 2035 [5], reducing benefits to 75%; Social Security keeps 15 million seniors out of poverty at current entitlement levels [6], not to mention over 1 million children). 10k people a day turn 65 in the US. This, fortunately, entitles them to Medicare, but their consumption pattern will be reduced for the remainder of their lives and our Medicare costs are going to skyrocket.
You need leadership, political and monetary, that will attempt bold changes to accommodate these realities. The longer we wait, the more radical the measures will need to be when the time for implementation is at hand. Change happens slowly, and then all of a sudden.
[1] https://www.visualcapitalist.com/700-year-decline-of-interes...
[2] http://www.washingtonpost.com/sf/local/2017/03/30/disabled-o...
[3] https://apps.npr.org/unfit-for-work/
[4] https://www.cnbc.com/2019/04/05/these-people-are-on-the-verg...
[5] https://www.cbpp.org/research/social-security/policy-basics-...
[6] https://www.cbpp.org/research/social-security/social-securit...
Re: The Board reduced reserve requirement ratios to zero percent effective March 26
#40There's a point where: 1)traditional policy tools are ineffective because as rates get to zero, cutting them doesn't really provide any kind of incentive any more 2)interventions get more and more extreme and reach the point where they actually can increase panic rather than reduce it It's pretty clear we're well past #1 and could be at #2. The problem that policy-makers are facing here is the real economic impact of…
> we're well past #1 and could be at #2
No we aren't. The discount window, central banks' original and most-powerful tool, was only just accessed by big banks [1].
[1] https://www.bloomberg.com/news/articles/2020-03-17/u-s-banki...