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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

#131

Post by miohtama »

12elephant wrote: post #71
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…

The Fed is also buying corporate bonds as of today: https://www.federalreserve.gov/newsevents/pressreleases/file...

Let's see how this is going to play out!

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

> Which companies will the Fed give free money to? Which companies will they allow to fail? How low should corporate borrowing costs be and for which companies? How much debt should they allow each company to carry? What if companies issue bonds to buyout competitors? What if a company defaults on the Fed? The Fed can’t answer any of these questions. That won’t stop them from showering America’s largest and most indebted companies with free cash

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

#132

Post by onlyrealcuzzo »

lukas099 wrote: post #13
chadmeister wrote: post #6

Awful policy. The fed needed to hold off on this and the previous rate cut until Congress finally passed a useful bill. Powell had all the power to force Congress to act and he's blown it again.

The Fed's job is to keep the value of currency steady and support full employment, not to play games with Congress.

The dollar index is well within its normal range.

No amount of buying corporate debt will keep people employed.

This is to artificially reflate asset prices.

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

#133

Post by onlyrealcuzzo »

OscarCunningham wrote: post #101
hnaccy wrote: post #79

Earlier quoted context omitted.

How can the Fed support full employment if governments are forcing people to stay inside and business to close?

By making lending to the closed businesses so attractive that they can stay open over the course of the quarantine. (Likewise people can stay fed.)

But that's not what this is doing at all. This is keeping existing corporate debt artificially priced.

Unless they lower rates to negative, new debt isn't getting any cheaper.

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

#134

Post by derefr »

Danieru wrote: post #126

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 ris…

> It is 110% not good to have any major corporation go into a technical default.

Q: rather than going into debt, would it be possible for the government to just... suspend the activation of financial covenants generally for a while? Enact a law putting a temporary patch on how contract law works vis-a-vis financial instruments?

Something like... any covenant with triggers written after date X would now be required to be written to include additional language Y; and any covenant triggers written before date X would be implicitly interpreted as if they did contain language Y. Language Y specifies that the activation of the covenant is suspended when the government says a certain named financial-market state "Z" pertains; and, when state "Z" is declared as having ended, only then would the covenant be evaluated for activation, based on the present state of the debtor, rather than its state during the historical period during condition "Z". Effectively, the covenant wouldn't be able to "see into" whatever happened during "Z" to apply its triggering logic to it.

(I'm picturing here how you can, in an RDBMS, create constraints that don't validate until a transaction is complete, such that you can temporarily put a table into a constraint-violating state during the TX, and—as long as you fix things before the end of the TX—everything will be fine, and the trigger won't run.)

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

#135

Post by jeoeo9nn »

Danieru wrote: post #126

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 ris…

And of course this is all just emotional paranoia.

None of those things are real except as emotional gates on social agency so the privileged under the law can get first dibs.

Remember Thiel & Trump, probably the rest, really believe romantic notions like tough guys must rule as “that’s the way society has to be because that’s how it has always been”.

Trump literally said it the other day and Thiels ramble was posted here recently.

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

#136

Post by onlyrealcuzzo »

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?

If you were like the wealthiest 0.0001% -- you would have vastly more wealth/assets than you could ever accumulate by laboring. In this case, everything you mentioned is good. For everyone else, it's bad.

If you're retired, this is possibly good for you. Reducing bond yields to 0 is usually very bad for pensions and retirees... But maybe you've got a lot of equities?

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

#137

Post by dillonmckay »

naringas wrote: post #123
tonyhb wrote: post #54

Earlier quoted context omitted.

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?

Yes.

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

#139

Post by nostromo »

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…

QE is revenue neutral or positive. They buy an asset with created cash, and sell it later for a small profit.

Helicopter money is revenue negative and the created cash cannot be recovered.

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

#140

Post by paulsutter »

Danieru wrote: post #126

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 ris…

If the banks periodically need a bailout, shouldn't bankers be paid like civil servants? (because that's what they are, apparently)
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