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To me, I think the most critical thing to make note of is the extreme focus on what the fed and other central banks are going to do. The fact that most people

To me, I think the most critical thing to make note of is the extreme focus on what the fed and other central banks are going to do. The fact that most people (rightly) assume that fed action is the most significant factor for the market should really give people pause. Lastly, people should really consider what happens when fed action is no longer enough, and what happens then.

pbourke 7y ago
Yeah. Fed was able to intervene in 2008 because it was a financial crisis. This is a physical event that will affect the real economy. You can print all the money in the world, it won't make people go to the restaurant or buy a car.
- brettproctor 7y ago
  Agreed. I've also appreciated the quote of "Last time I checked the fed can't print a vaccine"
- ceejayoz 7y ago
  The Fed also has substantially less wiggle room now. Interest rates are already very low, especially for boom times.
  - brettproctor 7y ago
    Last time they dropped it from 5.25% to 0, and still had to print ~$3.7T. With only 1.5% to cut and GDP 50% larger than it was back then, how much QE will they attempt this round?
- webninja 7y ago
  In 2008+ when they “printed money” via “Quantitative Easing”, they would buy bonds off the market. This puts printed money in the hands of bond holders. Presumably bond holders are very rich. Presumably very rich people already have a good enough car and already frequent restaurants. Now if the Fed printed money and put it in the hands of the middle class, not just the hands of the upper class, I’d bet you new cars would be bought and restaurants would be dined.
  - heartbeats 7y ago
    What you're describing is called "helicopter money". It was just tried in Hong Kong, with unimpressive results. https://www.zerohedge.com/economics/hong-kong-embraces-helicopter-money-govt-gives-every-adult-citizen-hk10000 https://www.zerohedge.com/economics/hong-kong-embraces-helic... https://ftalphaville.ft.com/2020/02/26/1582705518000/Helicopter-money-is-here/ https://ftalphaville.ft.com/2020/02/26/1582705518000/Helicop...
    - HappySweeney 7y ago
      The article is dated Feb 25, and mentions that the disbursement has yet to occur, so we don't have any data on the success of the measure, or do I have this wrong?
    - salty_biscuits 7y ago
      Australia had a similar thing during the gfc and they managed to dodge a recession.
  - wrkronmiller 7y ago
    > Presumably bond holders are very rich. I'm not sure that's a safe assumption. These bonds could be held by pension funds etc... If I am a blue-collar worker nearing retirement, and I find out my pension plan just imploded, it's definitely going to impact my spending negatively.
    - webninja 7y ago
      87% of Americans do not have pensions. [1] The median savings for American families whose wage earners are between 56 and 61, is $17,000. [1] 34% of American adults have zero savings (retirement + non-retirement). [1] Anecdotally, I had a Grandpa with a $60k/yr pension and he was definitely upper class. [1] https://www.cnbc.com/2017/06/13/heres-how-many-americans-have-nothing-at-all-saved-for-retirement.html https://www.cnbc.com/2017/06/13/heres-how-many-americans-hav...
      - 7y ago
- volkl48 7y ago
  From what I've been reading, it's looking like the most obvious immediate impact is a supply-side crunch, not demand-side. Things are not getting made/made at normal rates, and that's starting to ripple up through supply chains. Can't buy the car stuck on an assembly line because the widget plant for some key piece is only fulfilling 1/3rd of orders. https://www.nytimes.com/2020/02/29/upshot/coronavirus-recession-US.html https://www.nytimes.com/2020/02/29/upshot/coronavirus-recess... And for that, you're still right that there's no financial intervention to fix it.
  - matwood 7y ago
    Exactly. I had to buy a new washer and dryer today, and any brands from that side of the world are weeks away from delivery right now.
  - pbourke 7y ago
    My hypothesis has been a supply crunch simultaneous with a demand crunch. We are seeing substantially altered consumer behavior in China. If they are drastic, these events can make lasting changes in people’s willingness to spend money. If you spend months inside, avoiding gatherings, worrying about your health and that of loved ones, not going to restaurants, postponing discretionary purchases do you immediately snap back to pre crisis levels once it’s over? What’s the economic activity in locked down areas of Italy right now? What is the possibility that US escapes unscathed given clown car response at the federal level?
  - jacquesm 7y ago
    There will be substantial demand side effects as well. People that live in times of uncertainty stay liquid as much as they can. So if they can put off some major purchase that is more likely to happen now than before.
- perl4ever 7y ago
  Printing money is just as vital. A financial crisis is when suddenly money isn't accessible, so the economy needs more to keep up with normal demand. A non-financial crisis in the "real" world needs corresponding action in the real world, which means we need to borrow from the future - people need to be assured they will be paid back for what they are doing now. So more money is needed to correspond to the increased activity. It's not the same, but similar. If you had any sort of disruption in your personal life, you didn't have income coming in or whatever, wouldn't a large loan be really helpful if you didn't have enough savings? It doesn't matter if it's a "real" problem, or just some senseless legal thing.
H8crilA 7y ago
Why would anyone believe in a bunch of bureaucrats in the first place is beyond me. They showed tremendous incompetence in letting the crisis happen (laughable oversight, too low rates). This whole meme "the FED will bail us out" has to die before it dies naturally of fatal failure. The real economy is the real economy, not a bunch of econ PhDs wondering why the Phillips curve is not working any more. But we all know it'll take a fatal failure to remove it from people's minds. Seriously, just think about it - you're trusting a bunch of bureaucrats that know no better than to follow what the bond market thinks (https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...). The blind leading the visually impaired. And yes, as of Friday (last closing) the bond market tells the FED very clearly to cut the fed funds twice, already on the next meeting (Mar 18, 2020). Since Dec 2018 when Jerome Powell was humiliated by the markets and also somewhat by the President he dares not to do anything else than what the markets tell him to do, so very good chance for 2 cuts.
- brettproctor 7y ago
  (To be clear, I personally don't think the fed will be able to get themselves out of this one. I'm just stating most market participants think they can.) I certainly agree w/ you that it will take a fatal failure to kill this meme, and I think that failure might be coming up.
- aguyfromnb 7y ago
  >too low rates Define "too low". The world is awash in capital, no one is going to borrow from you at 5%+. Or are you one of those "we should raise rates so we can lower them later" people? >you're trusting a bunch of bureaucrats that know no better than to follow what the bond market The Fed are confined to monetary mechanisms. The rest falls on politicians. But the powers-that-be seem to have decided that they will not allow us to have a deflationary bust again, so they are going to print money and deal with the inflationary consequences down the road.
  - H8crilA 7y ago
    > Define "too low". The world is awash in capital. You defined it in the next sentence. Capital should be the judge of prospectuses - i.e. of ideas to implement in the real world. When there's too much capital there's no judge (i.e. it's not really capitalism any more). All bubbles are a consequence of too much money and too much credit/faith in something.
deleted 7y ago
[deleted]
onlyrealcuzzo 7y ago
Somewhat counter-intuitively, but didn't Double Line (or some other firm) produce an article that the lower interest rates are, the less affect there is in lowering the rate? One would assume that a cut from 1% to 0.5% would mean a 50% change in Interest Payments. While a 8% to a 7.5% cut would mean only a ~6% change. In practice, it's much more complicated than that.
erokar 7y ago
What the fed do will matter little this time, I think. This crisis have been managed very badly by most Western countries, and the markets have started to price that in. I think we're 1/4-1/6 of the way down before this bottoms out. Sold all my stocks at the end of January.
- dehrmann 7y ago
  > 1/4-1/6 We're down ~10%. A 60% drop sounds extreme for how much long-term impact this could have.
  - wheelerwj 7y ago
    i don't know. We're going to have serious supply chain issues for the foreseeable future. A few months with decreased production is going to set things back pretty significantly. And with the possibility of 6-18 months of delays and decreased production, i can see it taking 5-7 years to fully recover from.
qqqwerty 7y ago
I think the fed realizes that they can only do so much in a situation like this. Adjusting interest rates is a very crude lever, and it won't really have much of an impact on something like a sudden unemployment spike due to supply chain disruptions and quarantine impacts (at least not in the short term). My main concern is that the White House might put pressure on the Fed to take action, possibly forcing a misstep. It's possible we see a big spike in inflation due to supply constraints, and it feels like monetary stimulus could actually make the situation worse. Or, if the concerns regarding unsustainable debt levels prove true, we could dive head first into a recession, possibly pushing us into a deflationary spiral. At that point, fiscal stimulus would probably be the only real option, but the current administration seems like they would not be capable of getting that one right (more tax cuts would likely be one of the least effective forms of stimulus, and the 'tax reform' bill has left us with a lot less ammo on that front). I guess what I am getting at, is that I am not really concerned about the Fed. I am way more concerned about the government bungling their response. They cut taxes and pressured the fed to lower interest rates when the economy was doing fine against very vocal warnings that it would be much harder to deal with a future recession. And now that we are faced with a potential recession trigger, I am not very confident they will get this one right.

pbourke 7y ago

Yeah. Fed was able to intervene in 2008 because it was a financial crisis. This is a physical event that will affect the real economy. You can print all the money in the world, it won't make people go to the restaurant or buy a car.

brettproctor 7y ago
Agreed. I've also appreciated the quote of "Last time I checked the fed can't print a vaccine"
ceejayoz 7y ago
The Fed also has substantially less wiggle room now. Interest rates are already very low, especially for boom times.
- brettproctor 7y ago
  Last time they dropped it from 5.25% to 0, and still had to print ~$3.7T. With only 1.5% to cut and GDP 50% larger than it was back then, how much QE will they attempt this round?
webninja 7y ago
In 2008+ when they “printed money” via “Quantitative Easing”, they would buy bonds off the market. This puts printed money in the hands of bond holders. Presumably bond holders are very rich. Presumably very rich people already have a good enough car and already frequent restaurants. Now if the Fed printed money and put it in the hands of the middle class, not just the hands of the upper class, I’d bet you new cars would be bought and restaurants would be dined.
- heartbeats 7y ago
  What you're describing is called "helicopter money". It was just tried in Hong Kong, with unimpressive results. https://www.zerohedge.com/economics/hong-kong-embraces-helicopter-money-govt-gives-every-adult-citizen-hk10000 https://www.zerohedge.com/economics/hong-kong-embraces-helic... https://ftalphaville.ft.com/2020/02/26/1582705518000/Helicopter-money-is-here/ https://ftalphaville.ft.com/2020/02/26/1582705518000/Helicop...
  - HappySweeney 7y ago
    The article is dated Feb 25, and mentions that the disbursement has yet to occur, so we don't have any data on the success of the measure, or do I have this wrong?
  - salty_biscuits 7y ago
    Australia had a similar thing during the gfc and they managed to dodge a recession.
- wrkronmiller 7y ago
  > Presumably bond holders are very rich. I'm not sure that's a safe assumption. These bonds could be held by pension funds etc... If I am a blue-collar worker nearing retirement, and I find out my pension plan just imploded, it's definitely going to impact my spending negatively.
  - webninja 7y ago
    87% of Americans do not have pensions. [1] The median savings for American families whose wage earners are between 56 and 61, is $17,000. [1] 34% of American adults have zero savings (retirement + non-retirement). [1] Anecdotally, I had a Grandpa with a $60k/yr pension and he was definitely upper class. [1] https://www.cnbc.com/2017/06/13/heres-how-many-americans-have-nothing-at-all-saved-for-retirement.html https://www.cnbc.com/2017/06/13/heres-how-many-americans-hav...
    - 7y ago
volkl48 7y ago
From what I've been reading, it's looking like the most obvious immediate impact is a supply-side crunch, not demand-side. Things are not getting made/made at normal rates, and that's starting to ripple up through supply chains. Can't buy the car stuck on an assembly line because the widget plant for some key piece is only fulfilling 1/3rd of orders. https://www.nytimes.com/2020/02/29/upshot/coronavirus-recession-US.html https://www.nytimes.com/2020/02/29/upshot/coronavirus-recess... And for that, you're still right that there's no financial intervention to fix it.
- matwood 7y ago
  Exactly. I had to buy a new washer and dryer today, and any brands from that side of the world are weeks away from delivery right now.
- pbourke 7y ago
  My hypothesis has been a supply crunch simultaneous with a demand crunch. We are seeing substantially altered consumer behavior in China. If they are drastic, these events can make lasting changes in people’s willingness to spend money. If you spend months inside, avoiding gatherings, worrying about your health and that of loved ones, not going to restaurants, postponing discretionary purchases do you immediately snap back to pre crisis levels once it’s over? What’s the economic activity in locked down areas of Italy right now? What is the possibility that US escapes unscathed given clown car response at the federal level?
- jacquesm 7y ago
  There will be substantial demand side effects as well. People that live in times of uncertainty stay liquid as much as they can. So if they can put off some major purchase that is more likely to happen now than before.
perl4ever 7y ago
Printing money is just as vital. A financial crisis is when suddenly money isn't accessible, so the economy needs more to keep up with normal demand. A non-financial crisis in the "real" world needs corresponding action in the real world, which means we need to borrow from the future - people need to be assured they will be paid back for what they are doing now. So more money is needed to correspond to the increased activity. It's not the same, but similar. If you had any sort of disruption in your personal life, you didn't have income coming in or whatever, wouldn't a large loan be really helpful if you didn't have enough savings? It doesn't matter if it's a "real" problem, or just some senseless legal thing.

H8crilA 7y ago

Why would anyone believe in a bunch of bureaucrats in the first place is beyond me. They showed tremendous incompetence in letting the crisis happen (laughable oversight, too low rates). This whole meme "the FED will bail us out" has to die before it dies naturally of fatal failure. The real economy is the real economy, not a bunch of econ PhDs wondering why the Phillips curve is not working any more. But we all know it'll take a fatal failure to remove it from people's minds. Seriously, just think about it - you're trusting a bunch of bureaucrats that know no better than to follow what the bond market thinks (https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html https://www.cmegroup.com/trading/interest-rates/countdown-to...). The blind leading the visually impaired. And yes, as of Friday (last closing) the bond market tells the FED very clearly to cut the fed funds twice, already on the next meeting (Mar 18, 2020). Since Dec 2018 when Jerome Powell was humiliated by the markets and also somewhat by the President he dares not to do anything else than what the markets tell him to do, so very good chance for 2 cuts.

brettproctor 7y ago
(To be clear, I personally don't think the fed will be able to get themselves out of this one. I'm just stating most market participants think they can.) I certainly agree w/ you that it will take a fatal failure to kill this meme, and I think that failure might be coming up.
aguyfromnb 7y ago
>too low rates Define "too low". The world is awash in capital, no one is going to borrow from you at 5%+. Or are you one of those "we should raise rates so we can lower them later" people? >you're trusting a bunch of bureaucrats that know no better than to follow what the bond market The Fed are confined to monetary mechanisms. The rest falls on politicians. But the powers-that-be seem to have decided that they will not allow us to have a deflationary bust again, so they are going to print money and deal with the inflationary consequences down the road.
- H8crilA 7y ago
  > Define "too low". The world is awash in capital. You defined it in the next sentence. Capital should be the judge of prospectuses - i.e. of ideas to implement in the real world. When there's too much capital there's no judge (i.e. it's not really capitalism any more). All bubbles are a consequence of too much money and too much credit/faith in something.

deleted 7y ago

[deleted]

onlyrealcuzzo 7y ago

Somewhat counter-intuitively, but didn't Double Line (or some other firm) produce an article that the lower interest rates are, the less affect there is in lowering the rate? One would assume that a cut from 1% to 0.5% would mean a 50% change in Interest Payments. While a 8% to a 7.5% cut would mean only a ~6% change. In practice, it's much more complicated than that.

erokar 7y ago

What the fed do will matter little this time, I think. This crisis have been managed very badly by most Western countries, and the markets have started to price that in. I think we're 1/4-1/6 of the way down before this bottoms out. Sold all my stocks at the end of January.

dehrmann 7y ago
> 1/4-1/6 We're down ~10%. A 60% drop sounds extreme for how much long-term impact this could have.
- wheelerwj 7y ago
  i don't know. We're going to have serious supply chain issues for the foreseeable future. A few months with decreased production is going to set things back pretty significantly. And with the possibility of 6-18 months of delays and decreased production, i can see it taking 5-7 years to fully recover from.

qqqwerty 7y ago

I think the fed realizes that they can only do so much in a situation like this. Adjusting interest rates is a very crude lever, and it won't really have much of an impact on something like a sudden unemployment spike due to supply chain disruptions and quarantine impacts (at least not in the short term). My main concern is that the White House might put pressure on the Fed to take action, possibly forcing a misstep. It's possible we see a big spike in inflation due to supply constraints, and it feels like monetary stimulus could actually make the situation worse. Or, if the concerns regarding unsustainable debt levels prove true, we could dive head first into a recession, possibly pushing us into a deflationary spiral. At that point, fiscal stimulus would probably be the only real option, but the current administration seems like they would not be capable of getting that one right (more tax cuts would likely be one of the least effective forms of stimulus, and the 'tax reform' bill has left us with a lot less ammo on that front). I guess what I am getting at, is that I am not really concerned about the Fed. I am way more concerned about the government bungling their response. They cut taxes and pressured the fed to lower interest rates when the economy was doing fine against very vocal warnings that it would be much harder to deal with a future recession. And now that we are faced with a potential recession trigger, I am not very confident they will get this one right.