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

#321

Post by marcosdumay » Mon, Mar 23, 2020, 9:12 PM UTC

asdffdsa wrote: post #221

sf_rob wrote: post #103

Earlier quoted context omitted.

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?

Not by design from the FED, but yes, it's by design.

Helicopter money has many other desirable characteristic, like a much short lag to get into the real economy (so the government can adjust it with an easier to control bullwhip effect) and its wide distribution meaning that it distorts less one market or another.

There are very few reasons to explain why a government would make money creating so unconstrained that banks actually do not create as much as they can, and allow interest rates to go negative, instead of going for the helicopters.

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

#322

Post by andrekandre » Mon, Mar 23, 2020, 9:18 PM UTC

resters wrote: post #151

matthewdgreen wrote: post #40

Earlier quoted context omitted.

I think it's just as likely that the markets will simply stop performing any sort of useful price discovery function, leading to huge misallocations of productive resources -- resources we desperately need right now.

This is actually the goal, to prevent price discovery and to make it less likely that the political system would require firms to use adequately cautious levels of underwriting capital. The perverse incentive for firms is that the more accurately they structure their financials to be highly vulnerable to systemic risk, the more likely it will be that the decision to do so will be rewarded by policymakers. Simply put,…

i don’t disagree with your points at all, but just want to point out something i think a lot of people may not be thinking about in these scenarios:

maybe govts are looking at their economies not just as systems of production but literally matters of national security, i.e if an economy looses its largest producers of certain products and industries, it looses a huge amount of economic leverage and hegemony... by bailing out companies temporarily they can be saved, and at least in theory recover faster without becoming vulnerable in the short term

letting companies that are over leveraged or inefficient die may be more “capitalist” (and lead to stronger economy long term) but practically speaking it would most likely be unacceptable damage to a sovereign nation like the u.s

just imagine the u.s without general motors or chrysler or ford for example...

(just to note, i’m not qualified to opine on whether this is good policy, just stating my understanding)

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

#323

Post by samsonradu » Mon, Mar 23, 2020, 9:23 PM UTC

ForHackernews wrote: post #318

jkhdigital wrote: post #243

Earlier quoted context omitted.

> We are talking about companies which have plenty of assets and strong businesses. We are also talking about companies that are leveraged to the tits to juice their return on equity. What is glossed over in all of these discussions about bailouts is that the managers of these corporations respond directly to financial incentives, and the existence of a "lender of last resort" such as the Fed ensures that corporation…

> the holders of U.S. dollars, whose currency is devalued as money is printed I know that's what the macroeconomics 101 textbook says, but is there any empirical evidence this actually drives higher inflation? We've had historically low inflation for over a decade now[0], a decade during which the Fed has undertaken successive rounds of QE to the tune of $40-$85 billion per month.[1] [0] https://www.usinflationcalcul…

My 2 cents on low inflation:

- Inflation gets 'exported' along with production to countries with lower manufacturing costs (because globalization). So no inflation but no working class either, resulting in income inequality - a problem of its own.

- Depending on jurisdiction, inflation should include or adjust the weight of house prices (Eurozone), education costs, medical costs. These are goods that cannot be outsourced, hence they reflect higher inflation.

- Shrinkflation - https://www.economicshelp.org/blog/24369/inflation/shrinkfla...

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

#324

Post by ahelwer » Mon, Mar 23, 2020, 9:32 PM UTC

RealityVoid wrote: post #320

jdkee wrote: post #266

Earlier quoted context omitted.

"the existence of a "lender of last resort" such as the Fed " This. The moral hazard here is enormous. And why should the Fed serve the interests of equity owners over the national interest in a strong, reserve dollar?

My feeling is that the answer to this is because these companies (arguably) produce something of value to the world. Letting them become bankrupt would mean they do not produce that something of value so that would be bad economics. And a case of not seeing the forest for the trees. The role of economy is to sustain a certain confort to the population, an people should forget that at their own peril.

Bankruptcy doesn't mean the company's assets are thrown in the trash. It just means the current equity & bond holders get rinsed. Other presumably smarter people can then come in and run the company.

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

#325

Post by elamje » Mon, Mar 23, 2020, 9:37 PM UTC

waterfowl wrote: post #301

elamje wrote: post #237

Earlier quoted context omitted.

There is a lot of popular sentiment that misses the mark of the Fed, largely due to most Americans not taking time to study and understand it, but just seeing this large entity that has first-order effects that seem to only benefit banks and investors. The parent here ^ seems to understand the nuance, that a lot of Fed decisions are for the CREDIT markets, not the stock markets. I highly recommend reading the Greensp…

"the Greenspan or Bernanke biographies" Which ones would you recommend? The autobiographies?

The Age of Turbulence, and The Courage to Act

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

#326

Post by toomuchtodo » Mon, Mar 23, 2020, 9:43 PM UTC

ahelwer wrote: post #324

RealityVoid wrote: post #320

Earlier quoted context omitted.

My feeling is that the answer to this is because these companies (arguably) produce something of value to the world. Letting them become bankrupt would mean they do not produce that something of value so that would be bad economics. And a case of not seeing the forest for the trees. The role of economy is to sustain a certain confort to the population, an people should forget that at their own peril.

Bankruptcy doesn't mean the company's assets are thrown in the trash. It just means the current equity & bond holders get rinsed. Other presumably smarter people can then come in and run the company.

They mustn’t even be smarter, simply more ethical and responsible.

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

#327

Post by ijidak » Mon, Mar 23, 2020, 10:00 PM UTC

This warning is from the Bible, written well over 2,000 years ago.

"Woe to him who accumulates what is not his—For how long?—And who makes even greater his own debt! Will not your creditors rise up suddenly? They will wake up and violently shake you, And you will become something for them to plunder" Habakuk 2:6,7

Every financial crisis in recent memory is caused by excessive debt by some party.

- Consumers - Homeowners - Financial institutions - Corporate institutions - Governments

It's stunning how poorly this problem of excessive reliance & use of debt has been tackled by governments and regulators.

That, despite debt being well known as a source of financial meltdown for centuries!

Even with all the research, regulations, and rules on the book, this well-known problem of recurring debt crises has remained unsolvable by world leaders.

https://wol.jw.org/en/wol/d/r1/lp-e/101989322#h=8

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

#328

Post by dragontamer » Mon, Mar 23, 2020, 10:05 PM UTC

mistermann wrote: post #279

trimbo wrote: post #232

Earlier quoted context omitted.

Who with cash is going to buy all of these businesses and take on their debt? Apple? Microsoft? Some PE firms? Or is your proposal to default on all the debt for those industries and buy the companies in a firesale? Tourism would actually disappear in that scenario...

They United Stats Government should do it. They have literally unlimited funds, and this approach would actually be the most consistent with our "capitalistic" economic model. Not that we live in anything approaching a capitalist economy of course, but it would be funny if they were logically consistent for once.

> They United Stats Government should do it. They have literally unlimited funds, and this approach would actually be the most consistent with our "capitalistic" economic model.

That's actually called Socialism, when the government buys up companies and starts to own the means of production.

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

#329

Post by daxorid » Mon, Mar 23, 2020, 10:21 PM UTC

tylerhou wrote: post #288

jkhdigital wrote: post #243

Earlier quoted context omitted.

> We are talking about companies which have plenty of assets and strong businesses. We are also talking about companies that are leveraged to the tits to juice their return on equity. What is glossed over in all of these discussions about bailouts is that the managers of these corporations respond directly to financial incentives, and the existence of a "lender of last resort" such as the Fed ensures that corporation…

> Someone has to eat the losses, and in an actual free market there are two options: the equity holders, or the bondholders. The equity holders are eating the losses; have you seen the stock market? > Now, the Fed provides a third option: the holders of U.S. dollars, whose currency is devalued as money is printed to paper over the void which was opened up by the pandemic. And so the charade will continue. Money is be…

> Money is being temporarily created and lent

What is your definition of temporary? QE 1/2/3 were each supposed to be temporary. But each one was never enough, and fed smoothly into the next. Then they finally tried reducing their balance sheet and the repo market blew up. Then "Not QE" repo support was supposed to last two weeks. Then only a few months. Now "only" a year, and at a trillion dollars overnight and half that in 14 day operations. How certain are you that at year's end, overnight repo support will be less than $1T? On which track record of correct predictions from central bankers do you base this belief?

Since 2008, there's not a single Fed dot plot that has been even remotely accurate even six months out. SIX MONTHS. These people have absolutely zero credibility. They lied to you about the duration of QE 1/2/3, they lied to you about the duration of ZIRP, they lied to you about the direction and duration of rate hikes, they lied to you about repo market support amount and duration. During all this, they steadily changed their mandate from "price stability", to "some inflation", to "2% inflation", to "2% symmetric inflation", to "greater than 2% symmetric inflation".

But this time, with QE4, they're super cereal pinky swear scouts honor giving you every reason to believe that it's temporary.

Okay.

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

#330

Post by thoughtstheseus » Mon, Mar 23, 2020, 10:27 PM UTC

grecy wrote: post #305

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…

Thanks for the detailed explanation. I really don't understand a lot of what's going on, I hope you don't mind a few beginner questions > these bailouts are going to happen. No one who understands what is at stack would choose to "let the house fall". Are the measures being taken now just adding another layer onto the "house of cards" as some people describe it? Will these measures just make it all fall harder at som…

It’s divided between 3 schools of thought (1) governments can just continue to prop up financial markets indefinitely (2) you can temporarily prop up these markets but you can and will want to unwind government intervention over time and (3) this is just going to make a huge bubble that will burst eventually. People say you can grow out of these problems...

The Fed has an enormous amount of flexible firepower, it’s tough to sit back and not do everything you can to stop economic turmoil. They launched the most simulative economic policy of all time and stocks dropped today. If only there was action in other executive arms and congress.