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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

#221

Post by asdffdsa »

sf_rob wrote: post #103
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…

The most recent episode of the Neoliberal Podcast covered this in layperson's terms. Despite being pro-helicopter money, they point out that the bureaucracy to do so isn't in place and that there isn't precedent/procedure for FED action of this kind. So for now the FED is using all of the tools it's used to and waiting on congress to act, hopefully with helicopter money but it will be slow even if the current argumen…

Is this, in some sense, by design?

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

#222

Post by lifty »

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?

Hard to say, but if FED does inject a lot of liquidity into the market, it's possible that the stock market will re-flate. So if you have equities and other hard assets (gold, real-estate, bitcoin etc.), you might do good in the future.

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

#223

Post by gridlockd »

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.

> This market downturn isn’t a lack of liquidity, or a lack of money, or toxic assets like the mortgage backed securities.

There absolutely is a lack of liquidity, that's why you see all these stock sales.

To name just one example, lots of companies have been buying back stock on margin because of extremely cheap loans. That stock is now worth far less, the loans keep maturing, new loans are harder to get and more expensive. So how do you raise cash? Sell stock. The cycle continues.

How did we get there? Not being over-leveraged in times of cheap money is a competitive disadvantage.

> People aren’t going to stores, restaurants, and airlines because of SARS-CoV-2, not a lack of credit or money.

They are also not going to work in many cases, supply chains have been disrupted, production has been slowed. That's a lot of income that has either disappeared or been put into question. That income is supposed to turn into spending, that spending is supposed to be someone else's income. It's a vicious circle.

The problem isn't so much what people are doing now, but what they're (not) going to be doing months down the line, and the uncertainty surrounding that.

> Printing money isn’t going to create customers for businesses effected by this pandemic.

Pretty much every business is affected by this pandemic. Without injecting liquidity, a massive wave of bankruptcies is going to follow suit in short order and the whole economy is going to go tits up.

You can argue that liquidity shouldn't have been injected in the past years during "the greatest economy of all times", but that milk has been spilled.

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

#224

Post by spikels »

KKKKkkkk1 wrote: post #208
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. We are talking about companies which have plenty of assets and strong businesses. That's where the problem lies. Who is going to decide that? Traditionally we have debt markets for that.

The biggest problem at the moment is the debt markets have almost completely stopped functioning. Let me repeat what the other poster said: “We are talking about companies with plenty of assets and strong businesses”. And they still can’t get needed short term financing. Should we let clearly creditworthy companies go bankrupt because the credit markets are temporarily closed?

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

#225

Post by pjc50 »

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?

Neither of those is the government. That ruling only applies to government action.

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

#226

Post by helen___keller »

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…

I mean, actions by the Federal reserve and congress are both part of the system so it's a little unfair to say the system should work without government intervention.

Particularly this time around, healthy and well run businesses following reasonable best practices are being decimated. And why shouldn't they? A large percentage of our economy was just shut off.

Add in leverage - which isn't inherently a bad thing - and suddenly you have a recipe for disaster with a system wide increase in debtors needing to default.

We need government intervention because the free market solution to half of businesses being forced to close, is for those businesses to go under and their employees to starve and their banks get squeezed and so on

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

#227

Post by salawat »

js8 wrote: post #191
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 nee…

People are terrible at grokking cycles with periodicity greater than about 1/10th of their lifespan I've noticed.

Something about the lure of "everything will be different" and subpar internalization of the lessons of the past just seems to end up causing unholy amounts of pain in the long run.

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

#228

Post by cryptica »

hn_throwaway_99 wrote: post #217
cryptica wrote: post #211

Earlier quoted context omitted.

>> We are talking about companies which have plenty of assets and strong businesses. If their businesses were so strong, they shouldn't have taken a loan that would jeopardize them so easily. The Fed should let them default and take all their cronies down with them. Give the system a good clean by wiping out the parasites. A lot of these so-called 'strong' companies had been using debt as a way to evade taxes... And…

This line of thinking is so much in fantasy land. Here is what would really happen: 1. Lots of businesses would fail, and we would experience another great depression. 2. You don't like populism now? The risks of outright fascism (beyond what you could say we already are experiencing) would go up exponentially. The main problem with the Ron Paul acolytes is they think that society wouldn't have a massive breakdown in…

>> 1. Lots of businesses would fail, and we would experience another great depression.

We need a great depression. Every depression brings new opportunities.

Have you considered the other side of the story? There are many people who have been locked out of opportunities (especially millennial) and who have been struggling to start or grow their own businesses for a whole decade because they could not compete against corporate monopolies. The failure of these corporations would be a huge opportunity for them.

>> 2. You don't like populism now? The risks of outright fascism (beyond what you could say we already are experiencing) would go up exponentially.

It's better to have fascism officially if that means everyone will be subject to the same rules and same level of hardship.

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

#229

Post by xyzzyz »

Causality1 wrote: post #207
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…

Why is it legal for corporations to build financial houses of cards like that?

For the exact same reason why it’s legal for individuals to take 30 year mortgages. Would you prefer world where you first need to save up for decades before being able to stop renting? It’s the same with businesses: they take loans, because they allow them to make money now, and it works just fine in normal times without an actual pandemic and forced lockdown of everything.

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

#230

Post by yread »

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 some companies obviously won't go back to business as usual - cruises will for sure take a couple of years before people forget
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