Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Federal Reserve pledges asset purchases with no limit to support markets

cnbc.com

Post reply on HN
Print view View original

141–150 of 368 posts

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

#141

Post by Danieru »

derefr wrote: post #134
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…

Trying to "pause" commitments would take years to implement. It would be like trying to go through the world's internet and "suspending" all user requests and server processing.

Instead the Fed and US government have a much simpler and near instant tool: act as the lender of last resort.

A bonus feature of this implementation is it costs not much money. Big corporations have lots of assets and the government is sure to be re-paid.

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

#142

Post by onlyrealcuzzo »

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…

We already have zombie companies with 10 years of 0 rates.

This was exposing that.

Once you start with this shit, you never get out of it. The market starts pricing it in, and if you ever try to back off, asset prices fall, and that's the end of the world to the 0.001%.

See us with 0% rates since 2008. See Europe with negative rates since 2012. See Japan since 1989.

We will have a zombie economy if this happens, just like Japan.

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

#144

Post by Danieru »

paulsutter wrote: post #140
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)

No banks need a bailout. In fact that banks are now required to act so super safe is part of what is driving the rapid decline.

As corporate bonds get more risky banks are not allowed to hold as much of them. Triggering sales, which increases the risk, and thus triggers more sales.

Banks are fine, it is the corporations which need to re-issue bonds that are going to hit a wall.

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

#145

Post by burroisolator »

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.

Why wouldn't helicopter money solve the liquidity problem? Imagine you're a rich investor and you get a check from the government. You see a Company X that is suffering from liquidity issues but otherwise is doing great. Company X's stock is now plummeting because of fears of its insolvency. You, along with other investors who also received checks from the government as part of this helicopter money policy, decide to buy Company X stock. Company X is now better able to do an equity capital raise thanks to the money that you have injected.

Is the argument that the Fed is better than private households in being a distressed investor? Or that wealthy households would decide to cash in the check from the government and literally store it under their mattresses instead of investing it (directly or indirectly) and add to the liquidity?

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

#146

Post by thoughtstheseus »

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…

Agreed, deleveraging fast is dangerous. That said if any large company gave themselves less than six months to refinance that’s on them. Everyone knows markets can become dislocated and closed for periods.

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

#147

Post by [deleted] »

QuesnayJr wrote: post #96
QuesnayJr wrote: post #45

Earlier quoted context omitted.

What would you prefer? 20% unemployment? Anyway, central banks don't really do asset allocation -- they buy the least risky assets they can. Their real goal is to keep the currency from deflating.

I find it funny that while I am actual economist, whenever I comment on my actual area of expertise, I get voted down. Random topics where I know nothing, I get upvoted. Actual expertise, voted down.

[deleted]

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

#148

Post by nostromo »

derefr wrote: post #134
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…

Banks would almost immediately be insolvent, which is exactly what the Fed is trying to prevent.

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

#149

Post by daxorid »

stephen_g wrote: post #117
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…

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…

> 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

Okay.

Fed officials are predicting 30% unemployment, and we're seeing a massive collapse in goods and services production (not food, but it may as well be in a 70% services based economy) as cities go into lockdown. To respond to this, we intend to spend a lot.

I'm a bit confused as to how the current situation doesn't mirror, nearly perfectly, the Zimbabwe example. We are literally printing and spending into a severe supply (yes, services follow supply curves just as much as goods do) and unemployment shock.

Post reply on HN