Fed to inject $1.5T to prevent ‘unusual disruptions’ in markets

>But if there were ever a time for us not to be partisan and tribal, it's now.

You say that like both parties are trying to deny testing and are refusing to provide the social safety net for workers to stay home when they're sick. This is very much not a "both sides" discussion. This is: the GOP needs to stop trying to pretend like nothing is wrong and actually DO SOMETHING to prevent this from becoming an even bigger disaster.

Ahh, the old cowardly downvote without comment because you don't like the reality of the situation that there is one party that's very much to blame.

https://thehill.com/homenews/senate/487258-senate-republican...

I don't think anyone is being partisan and tribal for the hell of it. Before last night, Trump's concern re: coronavirus was myopically focused on the economy. Now we're shutting the borders, as if we don't have upwards of a thousand cases here already. And as a sibling comment notes, it seems like Senate Republicans are poised to veto the coronavirus bill that's passed the House.

It's not "partisan and tribal" to criticize this administration and the GOP for their failure to respond. If they were doing a good job here, it would be one thing. But they're not, and for that we need to hold them accountable.

This disease didn't exist 4 months ago and you're calling it a scandal that they can't process billions of tests in that short time frame? It's also not enough to be tested just once as there have been many false negatives. Scaling that up is an immense challenge. It was also exacerbated by the fact that China wouldn't allow our researchers into the country to study the disease. Meanwhile they've already reached stage 1 clinical trials for a vaccine in just 2 months. Fastest turnaround time ever for any clinical trial of a vaccine, ever.

> The lack of testing will maybe turn out to be one of the biggest scandals of my lifetime.

If I had to choose one thing that should change right now, it is this. Aggressive testing of everyone, starting with contact persons, persons travelling from high risk areas and then basically everyone. Would allow a much better understanding of the situation and make any measures way more effective.

Other than that, the measures taken seem reasonable based on the situation when they ware taken (for expectations, refer to testing).

I'm sure you'll get partisan political comments, but you're correct. I will note that I don't agree with "we" doing anything... our government is rather thoroughly insulated from the will of the citizens of the US by its own design.

The dysfunction in our government is due to years of slow decay that have culminated in the present situation. This crisis will hopefully force enough people to realize the problem exists and its scope that we can finally take steps to correct the issue.

Electing a different party won't help, because we still have the electoral college, voter suppression, unlimited corporate donations, the spoils system, seniority in the legislature, and partisan judges on the supreme court. The Democrats are Corrupt and the GOP is corrupt. The two party system and first past the post have to go. We need to amend the constitution to avoid the situation recurring in the future.

People are about to die because our president is a fool, and the fact that he's still in charge is the fault of all of us who voted or didn't vote over the past half century.

In all honesty, I don't see anything in the government changing for this crisis... they can't change. Lots of people are going to get sick and die, and hopefully in the aftermath people will finally be angry enough to repair our country.

Assuming there are enough of us left.

If you must compare the two, the virus is actually killing people. All those economists, bankers were lying and if we know anything today is that we shouldn't have let them off the hook so easily with the whole bailout.

Maybe a lot of people are so skeptical today about the virus because of the crisis fear mongering in 2008.

> But if there were ever a time for us not to be partisan and tribal, it's now.

We are in the middle of a problem exacerbated by politics, that will require political decisions to solve.

When politicians are doing nothing, or making the problem worse, this is not the time to shrug our shoulders, and be apolitical. Political decisions have consequences.

> The lack of testing will maybe turn out to be one of the biggest scandals of my lifetime.

Testing more people is not going to change anything, this virus is so easy to transmit that we should take for granted that we will catch it anyway.

What we can do instead is realize that we are facing something big and protect vulnerable people from it by asking them to stay at home and create a system to send them food safely, it is almost useless to prevent healthy and young people to work as it will just block the economy/transportation/health work/everything

I'm sorry, I simply don't understand the thought process here...

Question 1) Is the spread inevitable, or can we achieve containment?

Question 2) If it can't be contained, and worldwide spread is inevitable, approximately how many new cases per day do you want to see for the next 6 months?

I would say the answer to #1 is that spread is absolutely inevitable. There are way too many vectors, and it is way too virulent. I'd go further and say that I believe tens if not hundreds of millions of people have already been infected and will never have serious illness, but such a claim is really besides the point.

I would say the answer to #2 is; just so many as you don't run out of ventilators. And absolutely start setting up rows of ventilators in dedicated facilities in major cities.

So to those saying we should have done more, sooner... I ask, to what end? Follow through on the hypothetical "done more sooner" scenario. Worldometer says the US has 1,518 active cases, of which 10 are serious. So 10 people in the country are in an ICU for COVID-19 right now?

"Test everyone!" To what end? You don't need to test people in order to know if they need an ICU. The ICUs are not full - and you don't need more testing to tell you that. The main benefit to more testing would be that people who are self-quarantining due to potential exposure could maybe stop self-quarantining earlier. That's a fairly marginal benefit.

This isn't a situation where the world is going to shut down until a vaccine is available and administered to a billion people. This is a situation where the vast majority of people have mild symptoms, then herd immunity, and then will very much need to get back to work in order to buy groceries and pay their mortgage.

- We need to unite and overcome tribalist instincts

- The GOP (the current ruling party) bears a majority of the blame for the recent screw ups (though _both_ parties are to blame for the decades-long problems with the healthcare system)

Both things are true.

"But if there were ever a time for us not to be partisan and tribal, it's now" - Completely agree. I think GOP should ask Trump to step down and have someone responsible in charge.

> it's clear that the world's top economists felt we were perilously close to a full-blown disaster – trucks not bringing goods into cities, things grinding to a halt, etc.

The same top economists who didn't see the financial crisis coming? More like the top economists hired/backed by bankers felt that bankers would lose a lot of money and made the excuse of bread lines to dupe congress.

> But if there were ever a time for us not to be partisan and tribal, it's now.

No. I prefer the partisanship. It's when the government is united that you know bad things is going to happen. Everytime there is an illegal war, the government unites. Everytime the american people gets screwed over, it's always the united government. And the same messaging is used "if there were ever a time for us not to be partisan and tribal, it's now."

But then again, the partisanship is just for show anyways. They all work for the same masters.

> We need to act boldly, now.

Like what? Give more money to bankers and wall street? Like last time?

Every time there is a fear mongering event - 9/11, Financial Crisis, Red Scare, etc, it's the american public that loses more rights/privileges and the elites/government/state that gets more control.

> We blew the past few weeks

No, "we" didn't blow anything. Plenty of us have been preparing for this for well over a month. And now, you want taxpayers, savers, the conscientious, and the prepared to bail out the people who were buying TSLA at $800 and selling VIX with a 10-handle with a pandemic on our doorstep, all while name-calling those of us who bothered to read the research "crazy"?

No, let them all blow up. They deserve to soak in their margin calls.

Not all dollars are created equally

Often this type of action is not the government spending that level of money with nothing in return. Generally it is buying an asset it intends to sell later (often at a profit).

The Federal Reserve is not a government entity and has nothing to do with the budget, which is set by the US congress.

We have a fiat currency. The Government creates “money” whenever it pleases. The money is “Backed by the full faith and credit of the United States”.

I completely agree that in the long term this is completely faulty and just helps to exacerbate the underlying causes of economic crisis. But our government (typically) does not act in long-term interests. We as a people do not hold our politicians accountable.

I 100% agree that the Fed's actions are troubling and it's boxed itself into a corner, and has very ineffective tools for what it's trying to do, but ...

This injection isn't really comparable because those other things are expenditures, while the 1.5t refers to short-term loans to very creditworthy borrowers. It really doesn't come at the cost of providing universal healthcare.

The Fed isn't printing 1.5 trillion greenbacks and handing out fat sacks on Wall St. They are providing short-term loans to increase the amount of money in circulation (liquidity). The intent is to increase the total amount of trading occurring so that the market can return to equilibrium sooner than later. The Fed wants to prevent firms from not making trades solely for lack of liquidity in the market.

edit: "from making profitable trades" -> "from not making trades"

When you hear the Fed, it is referring to the Federal Reserve. The Federal Reserve is independent of the federal government. Essentially, it's the entity that can print money. When it does, it doesn't just give the money away, but it injects the cash by purchasing assets and making loans. It also does the reverse by selling assets. So this money doesn't come out of the Federal budget.

https://en.wikipedia.org/wiki/Federal_Reserve#Tools

Folks. Companies listed on the stock market hire average folks who need the money to provide for their spouses and kids. Companies that provide staples to you like food and gas and transportation and medical supplies.

These are the companies you are actively shorting. Think about that. This isn’t the same as 2008.

This isn’t a bailout for wall street, it’s an attempt to bailout the economy as a whole because there isn’t enough money in the banking system to cover the institutional sell off. In other words, they had to do this to prevent a run on the banks which would royally fuck everyone.

By contrast, the Hong Kong plan is to mail a grand to every citizen (iirc)

Because the people that pay for campaigns already have healthcare. The more money you allow into politics, the more politics is about money.

$1.5 Trillion goes into a certain aspect of the money supply to help maintain credit spreads, etc. This is completely different than your agenda list expenses. If you flooded the entire US economy with $1.5 trillion in straight cash it would likely cause inflation, but the Fed isn't injecting it into that level of the money supply.

>how can we find 1.5t in the budget

Central bank ≠ treasury.

Just a reminder, "bailout" is loans, not gifts. US government got it's 2008 bailout money back with interest.

While good long term health is nice, no one wants to be on the receiving end of mass hysteria when individuals find out they can't withdraw their money.

these are overnight loans that are intended to allow normal overnight financing to continue even if the markets siezed up because everybody is so panicked nobody wants to let loose of their cash.

Yes, this means the Fed is very very worried about the state of the market, it means they think it's at risk of stopping normal operation. Maybe not ongoing crisis but they're worried about crisis in the near future.

The fact that the stock market circuit breaker has been hit a grand total of once before, back when it used a different set of rules and was easier to hit, and then we've hit it twice in a week is pretty fucking bad news, if that sets the backstory for you at all.

>inject 1.5t" by that do they mean a 1.5t panic bailout for wall street?

Banking clients are demanding more liquid assets (ie cash) than banks have access to, so they are swapping treasuries for cash from the Fed.

It's not like this is banking profits; would you rather the bank fail and you or your business or your employer lose everything you had there? Because that is also an option.

> The markets wouldn't be so important if there were a safety net.

The markets literally pay for the entirety of any safety net. Without the markets there are no jobs, so no payroll or income tax revenue. Without tax revenue, there are no safety nets.

Without the markets, there are no investments, so no capital gains tax revenue.

Without the markets, there is nothing to sell, so no sales tax revenue.

Without the markets, there is capacity for charity.

If you don't understand how critical the markets are to the functioning of the country, you don't understand how countries function.

This is debt, not equity.

The "budget" is equity.

Yes. The 500 million they injected yesterday stopped the freefall for 30 minutes. https://www.bloomberg.com/news/articles/2020-03-12/n-y-fed-t...

No idea how you get downvoted. Market has already sold off the gains from the stimulus. Lasted a few minutes. Not very well spent money IMO.

I doubt they expect it to "lift" the market in a meaningful way, they're just trying to smooth out some of the volatility. Having lived through the 2007/8 financial crash, yeah... market declines happen, not the end of the world when they do.

Like you said, this is to make sure we don't enter a liquidity crisis. The market will stay down for a while, but this will allow businesses to weather the storm instead of going under.

Will the fed's move fail to move asset prices higher but also cause inflation? If they're only making funds available for short-term loans, I'd figure neither equities or inflation will be significantly affected by the fed actions today.

I would not be surprised if we see inflation though. The virus is going to lower productivity due to all the extra overhead. Prices in many areas will probably go up even as the economy stalls. Hopefully the governments react appropriately.

> Speculation on my part as I still don’t fully grok repo markets and only have a vague sense of how the treasuries market impacts equities but I’ll continue.

From my understanding the US treasury market is the most liquid and largest market for any asset in the world. Up until recently these treasuries had a positive real interest rate, so if you are a corporation with large amounts of cash (typically a bank) you don't want to hold this as cash in a banking account but rather you want to hold treasuries and get a small return. If there aren't enough people trading treasuries anymore and liquidity dries up this can have devastating effects on companies because they might hold lots of assets in the form of treasuries but they need to convert them to dollars to pay their employees or suppliers and need to sell treasuries for that. The repo facility of the FED is a buyer (or seller) of last resort that can hand out dollars for treasuries thus ensuring that there's no shortage of dollars.

> On top of this factor, this move by the fed surely will push inflation higher and I would assume production would slow given all the virus affects mentioned above.

I don't think this will push inflation higher. This is not QE (though there is a meme that it is) where the FED buys treasuries (and MBS) outright and holds them until expiry. If a bank sells treasuries to the repo facility then it will have to buy them back until a pre-determined date. So if the repo facility works it will compress the spread in the treasury market and thus reduce funding costs for banks and ensure that enough dollars are around. Right now it seems like lots of companies are hoarding cash and drawing close to the full amount of their credit lines which means banks are short dollars. Because most of these credit lines will probably be used to fund ongoing operations (pay employees, etc.) or bridge a shortfall in revenues they are unlikely to cause companies to invest more or hire more and drive up prices.

Christine Lagarde today announced TLTRO III (https://www.ecb.europa.eu/mopo/implement/omo/tltro/html/inde...) which serves the same purpose. Helping companies and households to survive a shortfall in income. In short, you don't want to have a bunch of companies going bankrupt just because the economy stopped for a couple of months - the bureaucratic costs and resulting uncertainty for consumers would be much too costly.

But don't worry! Joe Biden has guaranteed he'd veto such an act even if it got through the house and senate.

The answer would be something like "Increasing the money supply has been very successful at mitigating previous recessions without causing inflation."

Unfortunately, previous recessions were caused by demand-side shocks. So increasing the money supply increases demand and mitigates the deflation that usually accompanies a demand driven recession.

It's not clear whether the upcoming recession is supply or demand driven. Shutting down factories in China causes supply shocks; laying people off because of social isolating will cause demand shocks.

If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse.

Not an expert but I think the argument is that this is just swapping one asset (government securities) for another (central bank reserves). So, the working monetary base is not necessarily increasing.

It's "only" a big loan, so the money will be reeled back in. It would only cause inflation if it sloshed around the system long enough for McDonalds workers to get some and use it to compete for consumer goods. As long as none of it makes it outside of "the system" we're fine.

Economic theories regarding inflation aren't so simple. It is not simply true that increasing the money supply causes a proportional increase in inflation. There are other factors. Where does the money go? How is it being spent? Is product output increasing with increased demand? If the money ends up in wealthy bank accounts, not being spent, then it won't really affect our consumer prices, will it? If consumers have more money to spend, but factories can meet the increased demand, that won't increase prices either, but it will drive growth.

There is plenty of evidence for this. Consider that the US money supply more than doubled since 2008, yet our purchasing power for general goods didn't halve.

Asset prices have doubled, though. Fueled by QE or real growth? I'm inclined to think the former. Food for thought.

Demand for money is up, because there is a lot of volume being moved. This drives prices up; we are actually experiencing deflation right now. QE increases liquidity, lowers demand for money, and corrects the prices.

That is the idea, anyway.

Finally.

I agree with you!

Need to see wood not just trees.

That's also why I'm so triggered all the time when some bozo talks about "recession risk" again as if that was the problem.

This is a systemic crisis (in fact, my bet is on system collapse) and it's been years in fact decades in the making. If it hadn't been "coronavirus" hysteria it would have been something else to ignite the tinderbox.

Good riddance. It's kind of inconvenient for me personally but I think the system is stupid, evil and not accessible to reason or even pleading for change. As long as some portion of people can happily profit from status quo, they ride roughshod over everybody else and compensate their conscience with meaningless social wokeness and virtue signaling on IG/Fakebook.

Let the system burn down, maybe then people will listen to reason.

This isn't and will never be a liquidity problem. This is a real crises. Economic activity is going down to 1980s levels

Past performance is no guarantee of future success. Using the worst case scenario so far as meaning "worst possible scenario" is a fallacy (consider that the past "worst case" was already surprising to people back then because it was worse than the "past's past").

Not to imply we should panic over a low probability event, just pointing out that we should be careful about Kurtosis.

Agreed, we need to just push onwards and all will be back to normal in 12 months.

The facts remain that children, young adults, adults and even elderly without comorbidities will survive. Deaths are still restricted to those with existing health problems, particularly the elderly.

From an economic perspective, this is the perfect pandemic. We should maintain all schooling and social activities to spread the virus as far and rapidly as possible, to gain herd immunity as quickly as possible. The vulnerable can self-isolate.

The savings in pensions and long-term healthcare for the elderly, as well as a reduction in housing prices owing to the deceased estates, will promote an economic boom that may even - in the long term - offset the short terms costs we are facing right now.

You can imagine a situation where the USA has survived the virus and gained mass immunity, with 5% of its elderly population perishing along the way, giving the USA a long-term advantage due to lower payroll taxes, versus Europe who shut down early, have continual flareups due to lack of herd immunity, and continue with a heavy taxation burden due to elderly losses of only 0.5%.

The fed doesn't pump stocks. It buys bonds and gives good deals on loans. It merely increases liquidity. It doesn't just give money to people.

Better sick leave and CDC funding would not do anything to alleviate volatility in the repurchase operations markets.

This is providing loans to banks so they can more easily capitalize themselves during this period of severe volatility. It is the specific purpose of the reserve banking system. It's not about stopping the virus.

Probably because the people wanting to loan the money don't think the people wanting to borrow the money are going to be able to pay it back, so they're charging larger interest rates to compensate them for the risk. That's really all the interest rate is.

They never unwound. The two main tools of monetary policy are the federal funds rate (FFR) and the assets side of the Fed's balance sheet.

The FFR started to rise in 2016 but never reached 'normal' levels before declining again in July of last year.[1][2]

The balance sheet started shrinking in 2018 but only managed to reach 2013 levels before expanding again in Q4 last year.[3]

All the while, the FOMC has been talking about "policy normalization", but they've punted on it again and again.[4][5]

It's not clear what kind of event we're seeing now or how much they'll be able to help. It's not even clear how much they helped last time. Counterfactuals are hard.

Edit: There's also the IORR rate, which Bernanke created in the last crisis.[6] As such, there's no historical 'normal' for it (other than zero, perhaps). I've never seen an economist even claim to understand what's going on with IORR -- and not claiming to understand something is a big deal for economists.

[1] https://fred.stlouisfed.org/graph/?g=qkTu

[2] https://fred.stlouisfed.org/series/FEDFUNDS

[3] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

[4] https://www.federalreserve.gov/monetarypolicy/policy-normali...

[5] https://www.federalreserve.gov/monetarypolicy/policy-normali...

[6] https://fred.stlouisfed.org/series/IORR

Apparently college students wait till after they pay off their debts to vote.

This is to help an otherwise very healthy US economy (low unemployment rate, solid gdp growth, income increases) from being taken down by an one time external, expiring event and panic that flows from it.

What is the point not supporting crucial companies in the stock market? Are you really better off if target or chevron or Hilton goes under? And tons of people have no jobs and there no access to staples?

For better or worse there has never been a time in recorded history with a “free market”. Money is simply a “social technology”(1). The goal of money ultimately is to promote stability and freedom (1).

In this case, the Fed is using Quantitative Easing (QE) to promote stability within the market. This should have a network affect throughout global markets. Hopefully this will stop the bleeding.

Regardless, buy buy buy.

(1) https://www.google.com/amp/s/www.nytimes.com/2014/04/13/book...

What do you mean? Passive investing has been a sound strategy throughout every other financial crisis we've weathered. There's no reason to believe it won't keep working now.

Just hold the course, and keep investing.

your retirement fund? do absolutely nothing, you are at extreme risk of selling low and buying high if you attempt to time the market. Just ride it out. That 7% per year average return includes the years you make 15% and the years you lose 15%.

in fact the next few months are probably a great time to sock away a little extra money in your 401k if you can afford it. Think of this as a 25% discount or match. This is not the end of the world, markets will come back in a year or two.

If you needed the money in the near term and you were still heavily invested in equities, uh... that was a mistake.

Daytrader? You do your thing.

Counterfeiting is creating something that is fake, but presenting as real. Counterfeiting has nothing to do with quantitative easing and you shouldn't conflate them.

This is a misrepresentation of the complexities of financial services, monetary, and fiscal policy.

Say what you will about the carelessness of risk-taking, shortterm thinking of the banks, but please don't misrepresent reality

These are short-term loans, not a gift.

The Fed doesn't have that power though, nor should they. That's up to congress to decide

I wish the Fed would give the $ back to the American people and let them decide what to do with it. The growth would be slower but it would be more genuine. This would help those most affected and would help to weed out bad actors. But I am not the Chairman...

You have to read between the lines here. They did this because there was not enough liquidity to cover the institutional sell off in the bond market. In other words, had they not done this, there very well could have been a run on the banks. That would be very very bad. You can’t fight the virus if hospitals can’t pay doctors.

I think you may have some basic misunderstandings of how money works in today's world. All money is debt, which is to say, it's a ledger entry that gives the holder a claim on future productivity. Whether that ledger entry is purely electronic or rendered onto a physical artifact (a coin or a bank note) is irrelevant. At the end of the day it's all just bookkeeping. The national debt is the money supply. The key to nirvana is keeping the money supply in balance with the actual value of goods and services in the economy in order to keep prices stable. But that also has to be balanced against the need for short-term liquidity. That's the tricky part because what is happening right now is that the actual value of goods and services in the economy is shrinking, but the need for liquidity is growing. Those present two conflicting demands on the Fed, which controls interest rates which (indirectly) control the money (debt) supply. There are no "reserves", there is only the policy and decision-making that ultimately controls how much money is out there, and thus the value of that money in terms of purchasing power. Too much and you have inflation, too little and you have deflation and liquidity crises.

Your future and your children's future. No kidding!

it's backed by "the full faith and credit of the United States" but as more money gets created out of thin air the value of existing money goes down and the credit of the United States goes down.

That's the balance between deflation, healthy inflation, and over/hyper inflation. Managing that balance is 1/2 of the Federal Reserve's job.

Like all fiat money, it's conjured up out of thin air. And since money is ultimately debt, every dollar conjured up has to be worked off by the people.

Not sure what effect this stimulus will have, if any, but long term economic fundamentals are sound, so right now might be a buying opportunity.

it means your ATM card will still work. You may not be able to profit from it unless you consider being able to feed yourself profiting.

Buy puts

This is not a wall Street bail out. This is a main Street bail out. Every American's life savings is in the stock market... Don't conflate the two please.

It's not a panic move at all.

It's a required reassurance to investors and companies to prevent actual panic moves (i.e. complete market crash).

I agree that the economy will shrink nonetheless, but there's a difference between a small recession and a full blown depression.

The goal is "to prevent ominous trading conditions from creating a sharper economic contraction", according to the article. Whether $1.5T is sufficient to accomplish this goal obviously remains to be seen. My guess (but don't bet your retirement portfolio on it) is that the economy will dip for 3-6 months, then as the virus exsanguinates, it will rebound.

There's massive efforts in several countries to develop or adapt vaccines to covid-19: Israel, Maryland, and Texas companies all have candidates ready for human testing, or about to be ready. It's likely that in about six months there will be one or more vaccines well into human testing or perhaps even fast-tracked into the market, at least for vulnerable populations, and the panic will die down.

I don't think you fully understand the subject. This money did not 'bail out wall street', it made sure the bottom did not drop out of the market which would affect pensions and savings plans of very large numbers of people. The thing to worry about is that it did not work.

this isn't spending, it's overnight loans to keep the market from seizing up if everybody's so panicked that nobody will let loose of their cash even for a "sure bet".

but as to your general sentiment, yeah, you're right, we've blown $1.5T on dumb bullshit like new military spending and a wall that mexico is going to pay for and yet we can't find any money for universal healthcare even when people are dying in the streets. Even when it would likely reduce healthcare spending.

They pushed the button that makes the ecomony go. Why doesn't it go?

Next week the coronavirus cases and death tolls will be 2-3x what they are today. Little chance of a V-shaped recovery. We are a long way from the bottom.

Maybe trust SHOULD be lost in this system if it can't withstand the real world without falling into chaos...

This money could do so much good in our society, and yet we're using it to prop up a broken capitalist system that contributes to economic problems for Americans.