Federal Reserve pledges asset purchases with no limit to support markets • Hacker News Board

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

#191

Post by js8 » Mon, Mar 23, 2020, 4:05 PM UTC

cs702 wrote: post #186

Every decade or so, with regularity, the world seems to go through a significant economic or financial crisis triggered by some or other "unexpected" shock: * The current crisis, starting now, in 2020; * The global financial crisis from 2008 to the early 2010's; * The dotcom, telecom, and tech bust of the early 2000's; * The Asian debt crisis of the late 1990's; * The Latin America debt crisis of the 1980's; * The oi…

> A natural question to ask is whether the financial infrastructure we have today has been well-engineered to be robust to these remarkably regular shocks.

Of course it isn't. If you go back in history even further, the pattern continues. That was the reason why Keynes' General Theory was developed. But people still refuse to believe that the instability is internal to the (capitalist) system. The economic theory needs to move away from equilibrium towards fully dynamic models, for example those that Steve Keen is developing.

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

#192

Post by nerfhammer » Mon, Mar 23, 2020, 4:08 PM UTC

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…

this is not about helping the stock market or even helping banks. it's about making sure corporations have enough liquidity to make payroll and basically function at all day-to-day, which depend on short-term lending markets that are now at risk of freezing.

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

#193

Post by vonmoltke » Mon, Mar 23, 2020, 4:11 PM UTC

daxorid wrote: post #149

stephen_g wrote: post #117

Earlier quoted context omitted.

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 l…

> Fed officials are predicting 30% unemployment

One official said it may happen: https://www.bloomberg.com/news/articles/2020-03-22/fed-s-bul...

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

#194

Post by talentedcoin » Mon, Mar 23, 2020, 4:17 PM UTC

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…

Thank you for putting it so well. Keeping the corporate bond market going does not sound like a noble goal on its face but it's vital in so many respects.

I appreciate (and indeed once shared) the knee-jerk libertarianism of the people saying "let them fail", but this view does not fully appreciate the consequences of allowing a violent deleveraging such as we're experiencing now to continue indefinitely.

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

#195

Post by tarsinge » Mon, Mar 23, 2020, 4:17 PM UTC

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…

But Japan did not let the banks and corporations fail, then they got zombie economy. Instead let entrepreneurs buy defaulting corporations with all their assets for $1 and see what can happen with fresh blood and creativity. No value is destroyed, assets and personnel stays, and hopefully consumer demand will go back after the pandemic.

Edit: ah yes shareholders lose money but that's the game. Retirement pensions? If you are not for socializing it then it's the game too.

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

#196

Post by Dumblydorr » Mon, Mar 23, 2020, 4:18 PM UTC

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…

Why not use new cash to massively scale up healthcare resources and prevent such crises? Giving more money to leisure recreation companies is just kicking the can down the road, we must have strategic reserves of epidemic response. This should be higher priority than nukes, aircraft carriers, or enriching stock holders...when do actual citizens lives' matter above mere dollars and cents in rich people's accounts?

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

#197

Post by momo-reina » Mon, Mar 23, 2020, 4:19 PM UTC

derefr wrote: post #188

dlgeek wrote: post #174

Earlier quoted context omitted.

No. That'd be considered an unconstitutional "taking" of the economic rights from people relying on those contractual terms. See Eastern Enterprises v. Apfel, 524 U.S. 498 (1998).

Re: that judgement, why is the stock market allowed to halt trading? For that matter, why are savings banks allowed to restrict access to their customers' savings during bank runs? Wouldn't people have the "economic right" to de-leverage [and thereby kill] these institutions in these situations?

You don’t own the money you deposit in the banks, the banks do. Through the act of depositing you are lending the banks your money, therefore it’s not your money anymore. They can default on the loan.

See https://thehutchreport.com/your-bank-account-who-really-owns...

Or read https://www.amazon.com/Where-Does-Money-Come-Ryan-Collins/dp...

Highly recommended.

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

#198

Post by OscarCunningham » Mon, Mar 23, 2020, 4:20 PM UTC

marcrosoft wrote: post #122

OscarCunningham wrote: post #104

Earlier quoted context omitted.

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

Not for long.

What makes you think that? People said similar things in late 2008 when the Fed greatly expanded its balance sheet, and then inflation went negative for the next year.

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

#199

Post by bjourne » Mon, Mar 23, 2020, 4:20 PM UTC

Danieru wrote: post #141

derefr wrote: post #134

Earlier quoted context omitted.

> 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…

> 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.

Says who? The whole point of loans is that there is a possibility that they will not be repaid. Banks thinks it is risky to lend money at the current interest rates so American taxpayers instead have to shoulder the whole burden. The assets owned by corporations is mostly in the form of financial instruments whose value is currently plummeting. The US government is taking on huge risks.

If these loans weren't risky banks themselves would issue them. Since they aren't it stands to reason that they in fact are risky!

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

#200

Post by hirsin » Mon, Mar 23, 2020, 4:20 PM UTC

derefr wrote: post #188

dlgeek wrote: post #174

Earlier quoted context omitted.

No. That'd be considered an unconstitutional "taking" of the economic rights from people relying on those contractual terms. See Eastern Enterprises v. Apfel, 524 U.S. 498 (1998).

Re: that judgement, why is the stock market allowed to halt trading? For that matter, why are savings banks allowed to restrict access to their customers' savings during bank runs? Wouldn't people have the "economic right" to de-leverage [and thereby kill] these institutions in these situations?

Just like Facebook doesn't have to respect your First Amendment rights, neither do other private enterprises like banks and stock markets need to respect your "economic rights"