Can anyone with a better economic understanding share their thoughts on how viable this is? From a layman's point of view, it seems like the FED are using up a lot of their arsenal very quickly.
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Federal Reserve pledges asset purchases with no limit to support markets
111–120 of 368 posts
Re: Federal Reserve pledges asset purchases with no limit to support markets
#112Earlier quoted context omitted.
Have you looked at the credit market this month? It’s in shambles as yields are soaring. It’s not that higher yields is bad. But moving so quickly is dangerous. Bonds, etc are necessary to maintain supply lines, pay people, etc.
Where are yields soaring? Here it looks like they are going down: https://www.treasury.gov/resource-center/data-chart-center/i... It wouldn't surprise me if the 80 year bond bubble popped this year, but I don't see that happening yet.
Corporate bonds.
Re: Federal Reserve pledges asset purchases with no limit to support markets
#113Earlier quoted context omitted.
It stops the stock market slide. Which is more valuable than political talking points. Eventually these bankers are going to start doing some math and see that with 0% interest rates and unlimited firepower on Treasuries, there’s going to be massive pent up demand after this medical crisis is solved. Money will be lent to everyone, including airlines and leisure companies because there’s simply no where else to put t…
I think it's just as likely that the markets will simply stop performing any sort of useful price discovery function, leading to huge misallocations of productive resources -- resources we desperately need right now.
I mean it’s just digits in a database.
Price discovery sounds useful until you realize that the important thing is to just make enough food and meds for everyone, and the rest are mostly details.
Re: Federal Reserve pledges asset purchases with no limit to support markets
#114I fail to understand why any economist would prefer QE over helicopter money. Give everyone a check. If they need it to purchase everyday goods and services, great. If their everyday needs are fulfilled already, they will invest that money into stocks, bonds, treasuries, etc, adding the needed liquidity to the market. I understand if you're against the idea of giving people money. But this is just giving money to mos…
> I fail to understand why any economist would prefer QE over helicopter money.
It's not either-or, it's both-and.
* https://twitter.com/paulkrugman/status/1241690862448529408
Re: Federal Reserve pledges asset purchases with no limit to support markets
#115How does injecting money solve a problem that’s not caused by lack of money? This market downturn isn’t a lack of liquidity, or a lack of money, or toxic assets like the mortgage backed securities. People aren’t going to stores, restaurants, and airlines because of SARS-CoV-2, not a lack of credit or money. Printing money isn’t going to create customers for businesses effected by this pandemic.
It stops the stock market slide. Which is more valuable than political talking points. Eventually these bankers are going to start doing some math and see that with 0% interest rates and unlimited firepower on Treasuries, there’s going to be massive pent up demand after this medical crisis is solved. Money will be lent to everyone, including airlines and leisure companies because there’s simply no where else to put t…
> It stops the stock market slide.
This doesn't seem like a huge public health issue, but it is.
Stopping the market slide gives the public health officials like Dr. Fauci a bit of breathing room. Continued stock market slides will cause politicians to panic and demand lifting of restrictions, even if they're the only thing helping right now.
Re: Federal Reserve pledges asset purchases with no limit to support markets
#116Earlier quoted context omitted.
> Keep in mind they're only able to buy US treasuries and mortgage backed securities. They announced they will buy municiple bonds also. https://www.cnbc.com/2020/03/20/the-federal-reserve-is-expan... > If Congress changes the rules to allow the Fed to purchase stocks Corporate bonds first. If that fails, then stocks. Baby steps.
Why didn’t congress have to approve the munis?
They’re government securities.
Re: Federal Reserve pledges asset purchases with no limit to support markets
#117The USA just went Zimbabwe
Absolutely terrible comparison. The Zimbabwean dollar is not the world's reserve currency. Zimbabwe cannot park a naval fleet off the coast of any country that tries to move away from the Zimbabwean dollar, or direct the worlds largest banks to freeze assets, or apply crushing economic sanctions. The US is probably the only country in the world that can print money without runaway inflation, and I don't doubt that we…
The US is absolutely not not the only country that can use monetary expansion without causing excess inflation. Basically any country with its own central bank, fully flexible exchange rates, with all Government bonds denominated in its own currency, with a decently large and productive economy, and federal taxing and spending can do it. There are at least several who meet that criteria (even New Zealand, for example).
Once you satisfy all that, high inflation just means you’re either spending too much, or not taxing enough.
A big part of what happened in Zimbabwe, by the way, was that land reforms caused a massive collapse in food production (a major part of their economy) and unemployment skyrocketed. They spent a lot in response (also having foreign denominated debt I believe), but mostly not focused on policy that would increase capacity. At the same time, they were having to spend much of their foreign reserves on food because of the supply collapse. So the spending and hyperinflation were inevitably consequences of previous mismanagement.
Re: Federal Reserve pledges asset purchases with no limit to support markets
#118Earlier quoted context omitted.
I asked a similar question in a similar thread recently. The answer that made the most sense was that the Fed feared future inflation. If you've done QE then you can just sell the stocks again when you want to limit inflation. But if you've done helicopter money then you're stuck.
The Govermment has something called ‘taxation’ in case that happens.
Really, the Fed has something called "raise interest rates" in case that happens. Something they've been wanting to do since the housing crisis and the primary reason they can't is that there hasn't been enough inflation, and raising interest rates against low inflation causes deflation (which is very bad).
Congress could do everybody a huge favor right now by printing quite a lot of money and handing it out. Which would address the deflationary forces created by the demand destruction of the coronavirus in the short term and allow the Fed to actually raise interest rates after the pandemic is over.
Re: Federal Reserve pledges asset purchases with no limit to support markets
#119Earlier quoted context omitted.
The Fed is set to announce small business loans very soon. This is just part of a larger plan.
I'm really curious how startups are positioning themselves for the availability of such loans. Might the terms be so favorable that it drives out the VCs?
Unlikely. Even in these troubling times the fed likes to have assets backing loans. Maybe an SBA program could be competitive but not in the near term.
Re: Federal Reserve pledges asset purchases with no limit to support markets
#120How does injecting money solve a problem that’s not caused by lack of money? This market downturn isn’t a lack of liquidity, or a lack of money, or toxic assets like the mortgage backed securities. People aren’t going to stores, restaurants, and airlines because of SARS-CoV-2, not a lack of credit or money. Printing money isn’t going to create customers for businesses effected by this pandemic.
It stops the stock market slide. Which is more valuable than political talking points. Eventually these bankers are going to start doing some math and see that with 0% interest rates and unlimited firepower on Treasuries, there’s going to be massive pent up demand after this medical crisis is solved. Money will be lent to everyone, including airlines and leisure companies because there’s simply no where else to put t…
This has nothing to do with the stock market, it's to prevent the credit and treasury market from seizing up. The treasury market is not acting well, the spreads between bid/ask is really high...and this is supposed to be the most liquid market in the world.