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Federal Reserve pledges asset purchases with no limit to support markets

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Re: Federal Reserve pledges asset purchases with no limit to support markets

#121

Post by stephen_g »

whatshisface wrote: post #88
owenmarshall wrote: post #47

Earlier quoted context omitted.

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…

Yeah, the US is the only country in the world whose debt is dominated in its own currency. Want to sell me some goods and services in exchange for an IOU of one whathisface buck? Countries around the world have been answering "yes" for a century and now the inflation tax will be levied against everybody, not just Americans.

No it’s not... All Government bonds in my country are denominated in $AUD (by AOFM policy). Japan’s are in Yen. The UK’s is in pounds, etc.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#122

Post by marcrosoft »

OscarCunningham wrote: post #104
psim1 wrote: post #41

So: my investments remain in very bad shape, inflation skyrockets, meaning my current net worth as well as future earnings are far lower. What does this help someone in personal terms?

Market inflation expectations are currently below the Fed's 2% target.

Not for long.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#123

Post by naringas »

tonyhb wrote: post #54
alexmingoia wrote: post #7

How 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.

Current problem is that money right now will be evaporating when loans default. The financial system is built on itself so that loans create money. It does not expect to come to a grinding halt. If it does, loans aren't repaid, and money literally disappears. Deleveraging occurs. Wealth disappears. I think the aim is that we don't lose money from defaults over the short term.

but isn't loans defaulting (risk) the original reason for having interest?

Re: Federal Reserve pledges asset purchases with no limit to support markets

#124

Post by grey-area »

CyanLite4 wrote: post #23
alexmingoia wrote: post #7

How 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.

Apparently it doesn't, markets are down, in spite of the promise of infinite money.

I think whether we bounce back quickly will depend on how the next few months go and whether countries manage to contain the virus in time or it starts to overwhelm healthcare systems.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#125

Post by Anon1096 »

rkx1 wrote: post #109

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.

The only action from the Fed "arsenal" that is used up is lowering the Fed funds rate. And even then, going negative is an option. The Fed still has numerous things it can do, including helicopter money, massive expansion of QE, buying new types of assets like stock, and making loans to non-bank businesses.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#126

Post by Danieru »

Lots of voices missing the mark: the fed is acting to keep the corporate bond market from seizing up.

Corporations finance part of their borrowings through bonds. These bonds need to be paid in full + the interest when the bond matures. Corporations and banks typically repay some of these from cash, and some by issuing new bonds.

Right now no one is getting to issue new bonds at all. Banks cannot lend because the risk rating on these bonds has gone up, meaning they in-fact need to sell said bonds to reduce their risk exposure.

Thus the FED is acting as a lender of last resort directly to major corporations. Without this last resort said corporations would need to either fire-sale off assets to pay the principle on these bonds or face a technical default.

Covenants on their other bonds mean that if the corporation defaults on any of their bonds, all of the bonds become callable. It is 110% not good to have any major corporation go into a technical default. We are talking about companies which have plenty of assets and strong businesses.

Thus the Fed and US Government are/should be acting to avoid any such rapid deleverage. It took Japan 2 decades to reduce leverage in the corporations. Without intervention the US could undergo this same deleveraging in a matter of months. It would throw the American people into such a deep poverty the likes of which we've not seen since the great depression.

Which is to say: these bailouts are going to happen. No one who understands what is at stack would choose to "let the house fall".

Re: Federal Reserve pledges asset purchases with no limit to support markets

#128

Post by nemo44x »

xiphias2 wrote: post #97
nemo44x wrote: post #73

Earlier 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.

The same reason mortgage rates are up even as treasuries are at an all time low. Who wants to loan money in this environment?

Have you looked at BBB bonds? A lot of companies have been downgraded because the conditions have changed so dramatically, driving yields up as well.

Re: Federal Reserve pledges asset purchases with no limit to support markets

#129

Post by chadmeister »

JumpCrisscross wrote: post #107
burroisolator wrote: post #70

I 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…

> Give everyone a check The Fed doesn’t have the legal authority to do this. That’s why the Congress is passing stimulus bills. The Fed is focussing on our liquidity problem. That keeps solvent companies from going under due to illiquidity. Congress, and helicopter money, are needed to solve the solvency problem prompted by demand destruction.

Ah finally someone who understands basic economics. This is exactly right btw

Re: Federal Reserve pledges asset purchases with no limit to support markets

#130

Post by miohtama »

brenden2 wrote: post #9

Keep in mind they're only able to buy US treasuries and mortgage backed securities. If Congress changes the rules to allow the Fed to purchase stocks, we'll be in for some very interesting times. It could be that we get an economy of zombie companies, or valuations soar beyond what we've come to expect as normal. In any case, this is unprecedented and in my opinion not the right move. They're sacrificing our future i…

It is expected that they change their mandate and start buying corporate bonds directly

https://thesoundingline.com/do-not-allow-the-fed-to-buy-corp...

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