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

248 points by aazaa 7y ago

glofish 7y ago
If you print $100 in your basement it is counterfeiting, punishable with 25 years in prison. If you print 1 trillion as a banker it is called" "a bold initiative to calm market tumult".
- rankam 7y ago
  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.
  - bigbob2 7y ago
    What is the justification for considering one to be fake and the other real?
    - virmundi 7y ago
      The government is considered the sole producer of currency. As such they are the hallmark of valid money. Anyone in the basement is creating a knock off.
- RobRivera 7y ago
  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
  - amznthrowaway5 7y ago
    Same nonsense we were told in 2008. The financial stuff is far too complicated for us mere mortals to judge, leave it all up to the bankers. All of this despite the fact that economics is a corrupt pseudoscience.
- ipnon 7y ago
  These are short-term loans, not a gift.
  - deleted 7y ago
    [deleted]
cheeseomlit 7y ago
Where does that money come from?
- Ir738urbb 7y ago
  That money comes from increasing the monetary supply, thereby applying an effective tax upon all holders of the US dollar. Time to hoard real gold, not IOUs you can wipe your ass with.
- peteradio 7y ago
  Your future and your children's future. No kidding!
- chasd00 7y ago
  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.
- dntbnmpls 7y ago
  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.
Fauntleroy 7y ago
It'll be very interesting to see how individuals who value "pure" capitalism where market dynamics handle everything reckon with the realities of disaster and epidemic response.
ouid 7y ago
They're just going to cause more panic, honestly.
- mindslight 7y ago
  They pushed the button that makes the ecomony go. Why doesn't it go?
inetknght 7y ago
Can someone tell me, with a straight face, how this won't cause inflation at one of the worst points to have such?
- bryanlarsen 7y ago
  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.
  - yumraj 7y ago
    > If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse. Surely in the beginning, with just China impacted, that was the case. But right now with a global pandemic it's not clear if its a supply shock, or both. Curious, if supply is lower and the demand lowers more, then what does it mean. A depression??
    - a_tractor 7y ago
      >Curious, if supply is lower and the demand lowers more, then what does it mean. A depression?? Seems like break even? Its kind of like how a person who normally works out everyday and is very active might reduce their caloric intake if they break their leg. From 4000 calories a day to maybe 2000 very suddenly might sound like a problem if he wasn't just gonna be sitting at home all day for a while. But obviously its more complicated than that, and the system we are talking about is not even close to organic, and in a more equivalent scenario the guy with the broken leg sitting at home is also no longer able to harvest his crop for the season to provide the food a local village depends upon, so...
oxymoran 7y ago
The point here is not where did the money come from, it’s why is it needed? And the answer is because there isn’t enough liquidity to cover the institutional sell off. Which means that they HAD to do this to prevent a run on the bank. That’s more alarming than the virus I think. Hospitals run on money. No money, no doctors. This article is much less PR: https://www.forexlive.com/centralbank/!/new-york-fed-to-conduct-purchases-across-a-range-of-maturities-20200312 https://www.forexlive.com/centralbank/!/new-york-fed-to-cond...
aliswe 7y ago
Not saying that fiat money is necessarily a good idea, and not clamping down on gold standard currency, or anything, but the article doesn't say that the money would be printed. If I'm not mistaken. If what the mostly conspiratpry documentaries say is true, then the Fed lends "the state" money (at interest) which is then needed to be paid back. That would mean that the Fed probably has money reserves on its own.
- lisper 7y ago
  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.
  - indigochill 7y ago
    >the actual value of goods and services in the economy is shrinking On this point, are you referring to goods that already exist but are in less demand (thus less value)? Or that fewer goods are being produced, thus the total value of goods (supposing we assign some arbitrary value per good) is less?
    - lisper 7y ago
      Both. The value of services is shrinking because there is less demand for e.g. cruises, air travel, restaurant meals, concerts, sporting events, etc. This is partially offset by increased demand for non-perishables, but that is only a small fraction of what is being lost. And the total value of physical goods is shrinking because supply chains are being disrupted and so less stuff is going to be produced. There is a lot of time lag of course. This is all going to play itself out over a period of weeks if we're very lucky, more likely months, and possibly years. Interesting times.
gdubs 7y ago
As the joke goes, a trillion here a trillion there and pretty soon you're talking about some real money! But in seriousness, the next week is a critical time in the world. I remember sitting in an airport when news of Lehman Brothers collapse was flashing on the TV screens. I'm reminded of that time. We learned later about how Hank Paulson got down on one knee and begged Nancy Pelosi to go along with is plan to save the economy. In retelling of that period, 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. Remember that when you see bold proposals in the coming days. As I've commented over the past few weeks, I think we've missed critical steps in fighting coronavirus. The lack of testing will maybe turn out to be one of the biggest scandals of my lifetime. My personal belief is that – at least in the United States – we did everything we could to prevent a short-term economic slowdown and instead we're on the verge of something much longer, much deeper. But if there were ever a time for us not to be partisan and tribal, it's now. We blew the past few weeks. We can't afford to blow any more. We really do need to come together, globally, but particularly here in the US to try and agree on the right next steps. We need to act boldly, now.
- tw04 7y ago
  >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-republicans-poised-to-reject-house-coronavirus-relief-bill https://thehill.com/homenews/senate/487258-senate-republican...
  - altec3 7y ago
    I think what gdubs was trying to get across is that sure, there are problems, people to blame, etc. but now is not the time. We have to get our act together and handle the situation. We can't have petty fighting betweeen parties. Now is the time to unite and act. We can fight, argue and point fingers once this is all behind us.
dev-ns8 7y ago
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. I see some people saying this should alleviate some of the losses incurred by the recent market crash. I however, don’t see how that is the case. To me this seems like a move from the fed to make sure we don’t enter into a liquidity crisis which doesn’t necessarily do anything to signify substantial move upwards in equities. Sure, the fact that investors and traders can now be fairly confident we won’t hit a liquidity crunch and therefore kill some fear in the market, but was that the biggest factor causing the fear and selling in the first place? My understanding was the selling, and rightfully so, comes from the affects of CoVid. Travel bans, event bans, trade bans, lower consumer activity, etc. I don’t see how injecting capital into the treasuries market alleviates any of these factors. If anything I think this would cause equity markets to sell off more in the mid to long term knowing that the fed had to do this to keep shops open and liquidity available to those that need it (I'm talking to you banks). 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. This puts our economy in stagflation which has a lot of the hallmarks of a recession...
- jaywalk 7y ago
  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.
  - dev-ns8 7y ago
    I agree. I think I'll be adding to my shorts here. I'd still be very interested in hearing a real experts opinion on what this QE move does to inflation.
- 01100011 7y ago
  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.
vijaybritto 7y ago
Nobody is asking anything about funds now. But so many seems to be angry about healthcare for all. A universal health care can survive this pandemic and also others. This is unbelievable
- munk-a 7y ago
  But don't worry! Joe Biden has guaranteed he'd veto such an act even if it got through the house and senate.
  - bwooceli 7y ago
    this is a very disingenuous read of that interview.
    - munk-a 7y ago
      Just to note, the full interview transcript is here[1] and the reply to > It comes to your desk. Do you veto it? he replied with > I would veto anything that delays providing the security and the certainty of healthcare being available now. If they got that through in by some miracle or there`s an epiphany that occurred and some miracle occurred that said, OK, it`s passed. Then you got to look at the cost. Unlike on hackernews politician's statements shouldn't be read charitably and in the best light possible because not saying "no" is a clear signal to a lot of the folks listening to the interview. I think reading it in the light of "yes" is fair, but he at least waffled a lot more than was warranted. 1. http://www.msnbc.com/transcripts/the-last-word/2020-03-09 http://www.msnbc.com/transcripts/the-last-word/2020-03-09
      - bscphil 7y ago
        Thanks for providing the context. I agree that it's very difficult to read this as anything other than a carefully worded statement that he would at the very least consider a veto. His statements elsewhere suggest that he thinks the cost is in fact prohibitive.
      - 6gvONxR4sf7o 7y ago
OscarTheGrinch 7y ago
Gotta soothe those Animal Spirits.
newyankee 7y ago
What can a retail investor really do ? Is this even a free market. Cannot even do passive investing safely enough.
- taiwanboy 7y ago
  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?
  - munk-a 7y ago
    Unfortunately the US economy isn't very healthy - it's over-leveraged on debt and has been artificially propped up by cash injections into the market. In actuality this recession may be caused by corvid-19 but it was ready to go at the first serious economic hiccup.
    - cryptica 7y ago
      I think if anything, the Fed was probably overjoyed about COVID-19; they were just waiting for an excuse to do a massive cash injection without sparking massive backlash and protests. The new rules against gathering in large crowds are an added bonus; the Fed is not only excused, they are legally protected from any possible backlash.
  - jmeyer2k 7y ago
    I've seen this argument by investors, but what's going to change? The virus isn't going to magically get better overnight one day. It doesn't expire. This is either going to be EXTREMELY bad in the short run or very bad over a long period of time. Either way, the economy is either going to be hurt very badly all at once or slowly deteriorate as countries have to stay quarantined. (Something that the US may have to do soon.)
ivankolev 7y ago
That smells a lot like panic move and I am not sure it will move the needle much. Economy will severly shrink no matter what Fed do.
- qayxc 7y ago
  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.
  - A4ET8a8uTh0 7y ago
    I would normally agree with you, but whatever the intentions were, the market pointedly shrugged it off. I might even suggest that this FED move along with last week cut is part of the reason for the panic..
    - infinite8s 7y ago
      The financial economy is much much bigger than just the equities market.
- blisterpeanuts 7y ago
  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.
k__ 7y ago
What does this actually mean and how can I profit from it?
- blisterpeanuts 7y ago
  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.
- chasd00 7y ago
  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.
- cycrutchfield 7y ago
  Buy puts
munk-a 7y ago
How much more effective would it be to put this purchasing power toward simply combating the virus? Probably a lot...
- eranima 7y ago
  The Fed doesn't have that power though, nor should they. That's up to congress to decide
  - mushufasa 7y ago
    Exactly. The fed controls monetary policy and acts independently. The US Executive + Legislative branch control fiscal policy, which would be where they could spend on virus programs. The fed is independent precisely so it can act fast in times like these. It's a limited scope but it's something, whereas the extremely partisan congress + Trump likely won't move as fast if at all.
- adaisadais 7y ago
  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...
  - selectodude 7y ago
    The Fed isn’t responsible for cutting checks. Congress can direct the Fed to sell bonds and then distribute the money but the dollars were never the American people’s to begin with.
- oxymoran 7y ago
  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.
asickness231 7y ago
"inject 1.5t" by that do they mean a 1.5t panic bailout for wall street? how can we find 1.5t in the budget but no money for universal healthcare, student loan forgiveness, ubi etc. The markets wouldn't be so important if there were a safety net. </soapbox>
- anonu 7y ago
  Not all dollars are created equally
  - munk-a 7y ago
    Yea, dollars put into student loan forgiveness actually pay themselves off many times over due to the high velocity of cash in the hands in young people - money injected into the market has a comparatively low velocity and tends to just get exported overseas.
    - jvanderbot 7y ago
      I tend to agree philosophically, but is there data to support this? I'd like to upgrade to informed agreement.
      - munk-a 7y ago
        Here is one source based on income bracket[1] which I think is a pretty strong corollary. Here is a nice visualization of spending by age group[2] and the original source for that data[3]. 1. https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/03/household-expenditures-and-income https://www.pewtrusts.org/en/research-and-analysis/issue-bri... 2. https://engaging-data.com/household-spending-age/ https://engaging-data.com/household-spending-age/ 3. https://www.bls.gov/cex/home.htm https://www.bls.gov/cex/home.htm
    - tomp 7y ago
      Why would you forgive student loans? That way you reward incompetence. Instead, you should give each young person $300k - some would repay their student loans, others (who were more prudent with their choice of education) would have down-payment for a house or something... Forgiving just the student loans would create massive perverse incentives.
eranima 7y ago
Yet another bailout for wall street. Why couldn't these investors stop buying starbucks every day and save up like the rest of us?
- anonu 7y ago
  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.
  - munk-a 7y ago
    Nope, sorry - this is literally an injection of cash into Wall Street. Political spin can do massively crazy things but this particular injection is specifically going straight into Wall Street - saying otherwise is extremely disingenuous.
    - anonu 7y ago
      Just plain wrong. There are financial markets (stock, bond markets, etc..) and there are financial market companies that operate in that market. The two are distinct. This is analogous to: oil in the ground (the financial market) and companies like Exxon and Chevron (financial market companies). The financial markets are connected to every aspect of the "average" American's life. 65%+ of working-age Americans are invested in some way through the markets - either a brokerage account or a retirement account (401k, IRA, defined benefit plan, etc...). So if the US Government steps in to stabilize the markets with an injection of capital, yes, you can argue ad infinitum that this helps the Goldman Sachs of the world. But guess what, financial market companies love volatility. That's when the real money is made. So sure, theyll make money on the way up, but they will also make plenty of money on the way down as well. An injection of capital into the markets helps the average American. It brings stability to people's nest eggs and retirement funds. It puts a floor on panic selling. There's nothing disingenuous in my distinction of financial markets vs financial market companies. I a merely pointing out that the market is way more complex and interconnected than is being portrayed in this thread.
  - 7y ago
tmpynews 7y ago
I honestly don't think this is going to work. Markets and investors are notoriously greedy and have a very short memory. This infusion will lift the market for a day (if at all) and institutions will make money and the next day the news cycle will take over and the selling will continue. We are in the early phases of negative news so not sure effective this will be.
- daxfohl 7y ago
  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.
  - chasd00 7y ago
    it's not a stimulus it's loans to prevent a liquidity crisis and the credit markets from freezing up. It was the credit markets in 2008 that nearly killed the world economy. They dwarf the stock market.
    - daxfohl 7y ago
      Still, given the market was like Meh, seems like nobody thought it was very useful. That said, yeah I see how you are right. Lots of businesses run month to month. When they run out of cash they go bankrupt. Once enough companies do so, the economy takes much longer to recover.
      - 6gvONxR4sf7o 7y ago
        Maybe keeping the market from doing something much worse than "meh" was the point, and this was a success?
- dageshi 7y ago
  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.
bushido 7y ago
Reminds me of the legends of the Plunge Protection Team (PPT)[0]. A group of people who report directly to the POTUS who're attributed responsibility by pro traders to do large buy orders when the markets are dropping sharply. https://www.investopedia.com/terms/p/plunge-protection-team.asp https://www.investopedia.com/terms/p/plunge-protection-team....
neonate 7y ago
https://archive.md/DFXnu https://archive.md/DFXnu
mushufasa 7y ago
we're about to witness the limits of Quantitative Easing. I predict this will be the first of several such moves, to diminishing effects.
lend000 7y ago
In times of panic, remember that in the worst likely scenario, this virus will slow consumer spending, increase demand for hospitals, stagnate productivity for about 12 months, and kill about 0.4% of the world's population (using Spanish flu infection patterns for reference, which infected ~25% of the world population). At that point, there will be sufficient herd immunity (and likely effective treatments or vaccines) to allow the virus to decay into obscurity. Then the economy will pick up the pieces again, with actual technology, hard capital, and active workers in the workforce still existing after the hard times. I expect this market crash to look most like 1987, which saw new highs 2 years later. The long term consequences, besides loss of life, are that most market interventions will protect interest rates for large businesses with huge credit lines and existing debt, while small businesses go under, furthering consolidating income inequality. Would a crash be worse without intervention? Perhaps. But the long term consequences would also be more natural and redistribute resources more fairly, in my opinion.
- chillacy 7y ago
  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.
  - lend000 7y ago
    Note that I wrote "worst likely scenario" not "worst possible scenario." Worst possible scenario is not really useful for short to mid term planning in an unconstrained event space (gamma ray burst or massive meteor hits Earth, etc.).
- AncientTree 7y ago
  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%.
JustSomeNobody 7y ago
Wait for it. Next week stock buybacks will be all over the news. I bet AT&T will be leading the charge.
- oarabbus_ 7y ago
  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.
  - oiasdjfoiasd 7y ago
    maybe, but china has already solved the issue and other countries will as well.
  - rabuse 7y ago
    Exactly. This is just the beginning, and our efforts are a lot more lax than these other countries combating this issue.
mdszy 7y ago
Universal healthcare? Too expensive. $1.5T to bail out wall street? Sure!
- jacquesm 7y ago
  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.
  - chasd00 7y ago
    i'll add it prevents runs on the bank which, in turn, prevents the market from bottoming out. But even then, if banks lose access to cash and money stops moving there is no market. There's nothing. I think many people in this thread don't understand the gravity of money ceasing to move around the global economy.
  - thedance 7y ago
    The number of affected people is pretty large, but it's also worth remembering that about half of American households have no direct exposure to stock markets: no pension, no 401(k) plan, no direct holdings. If you're trying to prop up the stock market you're only directly benefitting, at most, half the people.
    - jacquesm 7y ago
      Fair enough. But half the people is a substantial number. What bugs me is how short lived the 'up' was. You'd expect more from such a massive injection. All it seems to have done was prop up the market long enough for some laggards to exit their positions as well and then it was back where it all started. Very scary.
  - sequoia 7y ago
    Is it impossible to provide a basement/bottom to these pension funds without rewarding/bailing out hedge funds & rich bankers & investors? I have no idea, I'm asking honestly. I understand both the fact that market crash would negatively impact people's retirement, and that it really rankles to have to prop up/"bail out" rich investors when we claim to not be able to afford healthcare. It's worth noting that if there were more baseline social services such as healthcare, it would be less necessary to gamble on the stock market for one's retirement. Also: people nearing retirement should not be highly exposed to the worst market volatility. If they are, either they or their investment manager is mismanaging their money–you're supposed to reduce risk more and more as you approach retirement. I'm 35 & not concerned about this vis-a-vis my retirement as there's lots of time for it to recover.
hastes 7y ago
Really love how people are on Twitter and other outlets blaming this action on Trump already when it literally has absolutely nothing to do with him and he has opposed almost all action the Fed has taken so far. Social media and the hive mind read the title and not the information mentality is really getting tiring for me..
- TrumpMyGuns 7y ago
  yep, the best part is the white house streams a ton of stuff and you can go in the youtube and watch it all anytime you want. that's how i get my info. of course twits love to read sources that already follow their own personal narrative.
jacquesm 7y ago
That worked for about 45 minutes and then the market dropped right back down again. Incredible. At this rate there won't be enough liquidity to cover these sell-offs if they continue. I don't think that's ever happened before.
- nine_zeros 7y ago
  This isn't and will never be a liquidity problem. This is a real crises. Economic activity is going down to 1980s levels
0xcafecafe 7y ago
As I understand, they stepped in to bridge the bid/ask spread and act as a temporary market maker to solve a liquidity crunch. Can someone more knowledgeable tell me why the bid ask spread is so wide to begin with?
- rjbwork 7y ago
  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.
intopieces 7y ago
I thought that the US never really unwound QE and the risk there was that when another financial crisis hit there wouldn't be any more tools in the kit to fix the economy. Is that where we are now?
- beefman 7y ago
  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 https://fred.stlouisfed.org/graph/?g=qkTu [2] https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS [3] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [4] https://www.federalreserve.gov/monetarypolicy/policy-normalization-discussions-communications-history.htm https://www.federalreserve.gov/monetarypolicy/policy-normali... [5] https://www.federalreserve.gov/monetarypolicy/policy-normalization-qa.htm https://www.federalreserve.gov/monetarypolicy/policy-normali... [6] https://fred.stlouisfed.org/series/IORR https://fred.stlouisfed.org/series/IORR
olliej 7y ago
Only corporations get a welfare net.
cryptica 7y ago
When the Fed says that they will "pump 1.5 trillion dollars into the financial system", in reality what they mean is "pump 1.5 trillion into Facebook, Google, Amazon, Apple and all other crony-capitalist institutions which already have a ton of money and which couldn't exist without this constant injection of free cash". The Fed has turned the system is a giant pyramid scheme which rewards the rich for being rich and systematically locks out value producers. This new Fed money is not going to reach value producers; it will go to straight financiers, venture capitalist, investment bankers, shareholders, lawyers, fund managers. In the meantime farmers in the US are committing suicide and nobody gives a crap. This is profoundly immoral. I bet the Fed chose this very opportune moment to announce this injection because they know that with the Coronavirus news, people are not going to gather in large crowds to protest. They're exploiting the situation to give their cronies handouts.
monkpit 7y ago
Adblock wall on safari mobile with Firefox focus...
deleted 7y ago
[deleted]
laughingbovine 7y ago
Guys this is low-level plumbing work to keep the market moving. If they DIDNT do this, then people wouldn't be able to make trades, and that would cause trust to be lost in the system, and that would be really bad. Someone correct me if I'm wrong, but I believe this money is for what are effectively loans that will get paid back in a very short amount of time.
- RIMR 7y ago
  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.
  - imcoconut 7y ago
    I actually tend to agree with you philosophically. But practically the outcome of inaction on the fed's part would very likely be disastrous to regular Americans. Think about America during the great depression. Modern fed theory and policy is all aimed toward preventing something like that from happening again. It's possible that without TARP, QE, etc. in 2008 (and onward) the great recession would have become great depression 2.0. While a complete economic reset might be in order, the question is how well would America fare during the transition?
kds3 7y ago
US Treasury successfully completed today's 30Y auction. NY Fed was just worried that without $1.5T injection, the auction would have failed. They're not as stupid as you might think.
catacombs 7y ago
Amazing how this relief just materializes. Student loan debt in the United States, a financial catastrophe waiting to happen, is at about $1.5 trillion.
- postalrat 7y ago
  Apparently college students wait till after they pay off their debts to vote.
hogFeast 7y ago
I had a conversation with a "very serious" economist the other day about monetary policy was basically solved, and that the Great Moderation proved that we were totally in control...$1.5trn...govt debt monetized, every time we pull back the market collapses, and now we are on fire again...this is connected, if you give a heroin addict more heroin, their health will improve...keep doing it, and they will get sick. The game is over. The market saw this, and kept falling. It is over...hopefully, things will improve from now and we stop pumping money into markets (and we realise that central bankers had no fucking idea what they were doing...they were just doing whatever was politically expedient, which is...hand out free money).
sytelus 7y ago
So here's the thing: 80% of the population doesn't own stock. When fed pumps such massive money to prep the stocks, where does that money end up? I guess the idea is that then we pump the stock so companies continue to hire people so unemployment remains low. Considering the vast majority of jobs are low paying, if not outright minimum wage jobs, this means these trillions of dollars of fed charity is basically meant for nothing but making sure people gets paid minimum wage for next couple of months. On the other hand, if US government equally distributed 1.5T to each citizen then each person would get $5000 which is about 1/3rd of minimum wage income for a year. That seems like far better deal than trying to keep pumping the stock.
- jovial_cavalier 7y ago
  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.
  - strbean 7y ago
    Giving Person A a "good deal" on loans so they can loan that money to Person B at a great profit isn't so different from just giving money to Person A.
    - jovial_cavalier 7y ago
      Yes it is, because they have to pay the money back... The money they make isn't "fake" in some sense, like you're making it out to be. It's real utility that they have generated by providing liquidity. Loaning money is not a get rich quick scheme. There is risk involved.
      - strbean 7y ago
        Fair point that the interest accrued is coming out of the pre-existing money supply. Doesn't really change the thrust of my comment that you quoted though - they are being handed the ability to accrue capital. Also, this is getting a little into the weeds philosophically, but injecting large amounts of capital in this way increases the money supply (and by much more than the amount of capital injected). In a sense, this is a tax on everyone who was not a recipient of that capital via a reduction in the purchasing power of their capital. Generally, consumer prices aren't going to go up in this case... but tons of people who had no investments have been looking at this crash as an opportunity to get in the game, and these efforts to prop up the markets with monetary policy in the face of an honest-to-goodness crisis can feel a little gatekeeper-ish.
marcrosoft 7y ago
This is direct inflation. How is Gold not soaring right now?
anthony_doan 7y ago
We could prevent this by actually have universal healthcare, better funding to CDC, and better sick leave. Yes, unfortunately, it have to be political. There is no escaping it, when it comes to healthcare. It is much more urgent when country keeps on creating new viruses and we become more globally connected.
- missedthecue 7y ago
  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.
LatteLazy 7y ago
When the problem is confidence, an injection of cash fixed the issue. When the problem is the a bleak economic outlook because of coronavirus, oil prices, trade wars and structural issues, you're just spending money to make a number look good for a few more weeks.
nie100sowny 7y ago
Coronavirus is not a cause, but it is just an igniter. The true cause of a crisis is pumping money into institutions which should bankrupt years ago. Pumping because we were too much afraid of normal crisis back then and now we get that crisis, but multiplied by 10 in terms of impact and time period. Crisis is good in economy. It let big, old and damaged trees to fall and to give more sun light to small healthy trees which may start to grow. Instead of pumping money into stock market which only feeds the richest ones, we should let them bankrupt to make a space for more healthy businesses. Unfortunately people on average do not understand it and still elect interventionists. It postpones crisis, increases income gap and make crisis at the end much more damaging. We are very close to see a bankruptcy of Italy. Then banks which bought their bonds will follow. With the Deutche Bank on top.
- HSO 7y ago
  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.
kingpiss 7y ago
I start my first real programming job tomorrow, and the stock market crashes today. I think I am going to have to keep looking.
sadfev 7y ago
Is this really required? Markets were really inflated before the virus crisis now they are overreacting, let the markets settle before announcing any stimulus. I think this is premature and frankly too much of an interference from the Fed
fallingfrog 7y ago
Amazing how all this money can be summoned out of nowhere when it’s rich people who are in trouble. But paid sick days for restaurant workers? No way. I’ve been in a position where I was working at McDonald’s and literally running to the back of the restaurant to vomit in a trash can and they still didn’t let me go home, even without pay. Have fun eating out for the next couple months.
natch 7y ago
Can someone do an ELI5 on this? Questions: Is this the same as printing money? Long or medium term, could this lead to inflation? Where is this money injected into? “The economy” is too vague. Who specifically gets it or gets access to it? Why them and not others? Ridiculous question but wondering what the rules are based on: Can a DAO get some of it? Could the money (or liquidity) instead be targeted differently, either say as a one-shot stimulus given to individual taxpayers or as a short-term sample of UBI? or alternatively toward some beneficial area such as the sustainable energy sector? Are insiders and old boys networks pocketing a windfall here? Are they going to sabotage my long awaited opportunity to buy low? Need a refresher on basic macroeconomics I guess.
throwawaymanbot 7y ago
another financial Coup ..The tax payer pays for cheap almost free loans for the Richest of the rich. Laughable. They are ruining the system. It will ultimately collapse. CoronoaVirus and its effect on the Western system, is just a coming tiny taste of what will happen when they ruin it totally.
bfrog 7y ago
Cool, glad we can try to artificial support the boomers 401ks, meanwhile the SMBs won't see a dollar of that and live month to month
pauljurczak 7y ago
Free markets demand that loses of financial elites have to be socialized.
econcon 7y ago
People sold stocks and cryptos to hold onto cash to save themselves from the fall. And Fed comes and dilutes other people's cash further.

248 points by aazaa 7y ago

If you print $100 in your basement it is counterfeiting, punishable with 25 years in prison. If you print 1 trillion as a banker it is called" "a bold initiative to calm market tumult".

rankam 7y ago
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.
- bigbob2 7y ago
  What is the justification for considering one to be fake and the other real?
  - virmundi 7y ago
    The government is considered the sole producer of currency. As such they are the hallmark of valid money. Anyone in the basement is creating a knock off.
RobRivera 7y ago
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
- amznthrowaway5 7y ago
  Same nonsense we were told in 2008. The financial stuff is far too complicated for us mere mortals to judge, leave it all up to the bankers. All of this despite the fact that economics is a corrupt pseudoscience.
ipnon 7y ago
These are short-term loans, not a gift.
- deleted 7y ago
  [deleted]

cheeseomlit 7y ago

Where does that money come from?

Ir738urbb 7y ago
That money comes from increasing the monetary supply, thereby applying an effective tax upon all holders of the US dollar. Time to hoard real gold, not IOUs you can wipe your ass with.
peteradio 7y ago
Your future and your children's future. No kidding!
chasd00 7y ago
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.
dntbnmpls 7y ago
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.

Fauntleroy 7y ago

It'll be very interesting to see how individuals who value "pure" capitalism where market dynamics handle everything reckon with the realities of disaster and epidemic response.

ouid 7y ago

They're just going to cause more panic, honestly.

mindslight 7y ago
They pushed the button that makes the ecomony go. Why doesn't it go?

inetknght 7y ago

Can someone tell me, with a straight face, how this won't cause inflation at one of the worst points to have such?

bryanlarsen 7y ago
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.
- yumraj 7y ago
  > If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse. Surely in the beginning, with just China impacted, that was the case. But right now with a global pandemic it's not clear if its a supply shock, or both. Curious, if supply is lower and the demand lowers more, then what does it mean. A depression??
  - a_tractor 7y ago
    >Curious, if supply is lower and the demand lowers more, then what does it mean. A depression?? Seems like break even? Its kind of like how a person who normally works out everyday and is very active might reduce their caloric intake if they break their leg. From 4000 calories a day to maybe 2000 very suddenly might sound like a problem if he wasn't just gonna be sitting at home all day for a while. But obviously its more complicated than that, and the system we are talking about is not even close to organic, and in a more equivalent scenario the guy with the broken leg sitting at home is also no longer able to harvest his crop for the season to provide the food a local village depends upon, so...

oxymoran 7y ago

The point here is not where did the money come from, it’s why is it needed? And the answer is because there isn’t enough liquidity to cover the institutional sell off. Which means that they HAD to do this to prevent a run on the bank. That’s more alarming than the virus I think. Hospitals run on money. No money, no doctors. This article is much less PR: https://www.forexlive.com/centralbank/!/new-york-fed-to-conduct-purchases-across-a-range-of-maturities-20200312 https://www.forexlive.com/centralbank/!/new-york-fed-to-cond...

aliswe 7y ago

Not saying that fiat money is necessarily a good idea, and not clamping down on gold standard currency, or anything, but the article doesn't say that the money would be printed. If I'm not mistaken. If what the mostly conspiratpry documentaries say is true, then the Fed lends "the state" money (at interest) which is then needed to be paid back. That would mean that the Fed probably has money reserves on its own.

lisper 7y ago
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.
- indigochill 7y ago
  >the actual value of goods and services in the economy is shrinking On this point, are you referring to goods that already exist but are in less demand (thus less value)? Or that fewer goods are being produced, thus the total value of goods (supposing we assign some arbitrary value per good) is less?
  - lisper 7y ago
    Both. The value of services is shrinking because there is less demand for e.g. cruises, air travel, restaurant meals, concerts, sporting events, etc. This is partially offset by increased demand for non-perishables, but that is only a small fraction of what is being lost. And the total value of physical goods is shrinking because supply chains are being disrupted and so less stuff is going to be produced. There is a lot of time lag of course. This is all going to play itself out over a period of weeks if we're very lucky, more likely months, and possibly years. Interesting times.

gdubs 7y ago

As the joke goes, a trillion here a trillion there and pretty soon you're talking about some real money! But in seriousness, the next week is a critical time in the world. I remember sitting in an airport when news of Lehman Brothers collapse was flashing on the TV screens. I'm reminded of that time. We learned later about how Hank Paulson got down on one knee and begged Nancy Pelosi to go along with is plan to save the economy. In retelling of that period, 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. Remember that when you see bold proposals in the coming days. As I've commented over the past few weeks, I think we've missed critical steps in fighting coronavirus. The lack of testing will maybe turn out to be one of the biggest scandals of my lifetime. My personal belief is that – at least in the United States – we did everything we could to prevent a short-term economic slowdown and instead we're on the verge of something much longer, much deeper. But if there were ever a time for us not to be partisan and tribal, it's now. We blew the past few weeks. We can't afford to blow any more. We really do need to come together, globally, but particularly here in the US to try and agree on the right next steps. We need to act boldly, now.

tw04 7y ago
>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-republicans-poised-to-reject-house-coronavirus-relief-bill https://thehill.com/homenews/senate/487258-senate-republican...
- altec3 7y ago
  I think what gdubs was trying to get across is that sure, there are problems, people to blame, etc. but now is not the time. We have to get our act together and handle the situation. We can't have petty fighting betweeen parties. Now is the time to unite and act. We can fight, argue and point fingers once this is all behind us.

dev-ns8 7y ago

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. I see some people saying this should alleviate some of the losses incurred by the recent market crash. I however, don’t see how that is the case. To me this seems like a move from the fed to make sure we don’t enter into a liquidity crisis which doesn’t necessarily do anything to signify substantial move upwards in equities. Sure, the fact that investors and traders can now be fairly confident we won’t hit a liquidity crunch and therefore kill some fear in the market, but was that the biggest factor causing the fear and selling in the first place? My understanding was the selling, and rightfully so, comes from the affects of CoVid. Travel bans, event bans, trade bans, lower consumer activity, etc. I don’t see how injecting capital into the treasuries market alleviates any of these factors. If anything I think this would cause equity markets to sell off more in the mid to long term knowing that the fed had to do this to keep shops open and liquidity available to those that need it (I'm talking to you banks). 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. This puts our economy in stagflation which has a lot of the hallmarks of a recession...

jaywalk 7y ago
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.
- dev-ns8 7y ago
  I agree. I think I'll be adding to my shorts here. I'd still be very interested in hearing a real experts opinion on what this QE move does to inflation.
01100011 7y ago
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.

vijaybritto 7y ago

Nobody is asking anything about funds now. But so many seems to be angry about healthcare for all. A universal health care can survive this pandemic and also others. This is unbelievable

munk-a 7y ago
But don't worry! Joe Biden has guaranteed he'd veto such an act even if it got through the house and senate.
- bwooceli 7y ago
  this is a very disingenuous read of that interview.
  - munk-a 7y ago
    Just to note, the full interview transcript is here[1] and the reply to > It comes to your desk. Do you veto it? he replied with > I would veto anything that delays providing the security and the certainty of healthcare being available now. If they got that through in by some miracle or there`s an epiphany that occurred and some miracle occurred that said, OK, it`s passed. Then you got to look at the cost. Unlike on hackernews politician's statements shouldn't be read charitably and in the best light possible because not saying "no" is a clear signal to a lot of the folks listening to the interview. I think reading it in the light of "yes" is fair, but he at least waffled a lot more than was warranted. 1. http://www.msnbc.com/transcripts/the-last-word/2020-03-09 http://www.msnbc.com/transcripts/the-last-word/2020-03-09
    - bscphil 7y ago
      Thanks for providing the context. I agree that it's very difficult to read this as anything other than a carefully worded statement that he would at the very least consider a veto. His statements elsewhere suggest that he thinks the cost is in fact prohibitive.
    - 6gvONxR4sf7o 7y ago

OscarTheGrinch 7y ago

Gotta soothe those Animal Spirits.

newyankee 7y ago

What can a retail investor really do ? Is this even a free market. Cannot even do passive investing safely enough.

taiwanboy 7y ago
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?
- munk-a 7y ago
  Unfortunately the US economy isn't very healthy - it's over-leveraged on debt and has been artificially propped up by cash injections into the market. In actuality this recession may be caused by corvid-19 but it was ready to go at the first serious economic hiccup.
  - cryptica 7y ago
    I think if anything, the Fed was probably overjoyed about COVID-19; they were just waiting for an excuse to do a massive cash injection without sparking massive backlash and protests. The new rules against gathering in large crowds are an added bonus; the Fed is not only excused, they are legally protected from any possible backlash.
- jmeyer2k 7y ago
  I've seen this argument by investors, but what's going to change? The virus isn't going to magically get better overnight one day. It doesn't expire. This is either going to be EXTREMELY bad in the short run or very bad over a long period of time. Either way, the economy is either going to be hurt very badly all at once or slowly deteriorate as countries have to stay quarantined. (Something that the US may have to do soon.)

ivankolev 7y ago

That smells a lot like panic move and I am not sure it will move the needle much. Economy will severly shrink no matter what Fed do.

qayxc 7y ago
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.
- A4ET8a8uTh0 7y ago
  I would normally agree with you, but whatever the intentions were, the market pointedly shrugged it off. I might even suggest that this FED move along with last week cut is part of the reason for the panic..
  - infinite8s 7y ago
    The financial economy is much much bigger than just the equities market.
blisterpeanuts 7y ago
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.

k__ 7y ago

What does this actually mean and how can I profit from it?

blisterpeanuts 7y ago
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.
chasd00 7y ago
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.
cycrutchfield 7y ago
Buy puts

munk-a 7y ago

How much more effective would it be to put this purchasing power toward simply combating the virus? Probably a lot...

eranima 7y ago
The Fed doesn't have that power though, nor should they. That's up to congress to decide
- mushufasa 7y ago
  Exactly. The fed controls monetary policy and acts independently. The US Executive + Legislative branch control fiscal policy, which would be where they could spend on virus programs. The fed is independent precisely so it can act fast in times like these. It's a limited scope but it's something, whereas the extremely partisan congress + Trump likely won't move as fast if at all.
adaisadais 7y ago
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...
- selectodude 7y ago
  The Fed isn’t responsible for cutting checks. Congress can direct the Fed to sell bonds and then distribute the money but the dollars were never the American people’s to begin with.
oxymoran 7y ago
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.

asickness231 7y ago

"inject 1.5t" by that do they mean a 1.5t panic bailout for wall street? how can we find 1.5t in the budget but no money for universal healthcare, student loan forgiveness, ubi etc. The markets wouldn't be so important if there were a safety net. </soapbox>

anonu 7y ago
Not all dollars are created equally
- munk-a 7y ago
  Yea, dollars put into student loan forgiveness actually pay themselves off many times over due to the high velocity of cash in the hands in young people - money injected into the market has a comparatively low velocity and tends to just get exported overseas.
  - jvanderbot 7y ago
    I tend to agree philosophically, but is there data to support this? I'd like to upgrade to informed agreement.
    - munk-a 7y ago
      Here is one source based on income bracket[1] which I think is a pretty strong corollary. Here is a nice visualization of spending by age group[2] and the original source for that data[3]. 1. https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/03/household-expenditures-and-income https://www.pewtrusts.org/en/research-and-analysis/issue-bri... 2. https://engaging-data.com/household-spending-age/ https://engaging-data.com/household-spending-age/ 3. https://www.bls.gov/cex/home.htm https://www.bls.gov/cex/home.htm
  - tomp 7y ago
    Why would you forgive student loans? That way you reward incompetence. Instead, you should give each young person $300k - some would repay their student loans, others (who were more prudent with their choice of education) would have down-payment for a house or something... Forgiving just the student loans would create massive perverse incentives.

eranima 7y ago

Yet another bailout for wall street. Why couldn't these investors stop buying starbucks every day and save up like the rest of us?

anonu 7y ago
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.
- munk-a 7y ago
  Nope, sorry - this is literally an injection of cash into Wall Street. Political spin can do massively crazy things but this particular injection is specifically going straight into Wall Street - saying otherwise is extremely disingenuous.
  - anonu 7y ago
    Just plain wrong. There are financial markets (stock, bond markets, etc..) and there are financial market companies that operate in that market. The two are distinct. This is analogous to: oil in the ground (the financial market) and companies like Exxon and Chevron (financial market companies). The financial markets are connected to every aspect of the "average" American's life. 65%+ of working-age Americans are invested in some way through the markets - either a brokerage account or a retirement account (401k, IRA, defined benefit plan, etc...). So if the US Government steps in to stabilize the markets with an injection of capital, yes, you can argue ad infinitum that this helps the Goldman Sachs of the world. But guess what, financial market companies love volatility. That's when the real money is made. So sure, theyll make money on the way up, but they will also make plenty of money on the way down as well. An injection of capital into the markets helps the average American. It brings stability to people's nest eggs and retirement funds. It puts a floor on panic selling. There's nothing disingenuous in my distinction of financial markets vs financial market companies. I a merely pointing out that the market is way more complex and interconnected than is being portrayed in this thread.
- 7y ago

tmpynews 7y ago

I honestly don't think this is going to work. Markets and investors are notoriously greedy and have a very short memory. This infusion will lift the market for a day (if at all) and institutions will make money and the next day the news cycle will take over and the selling will continue. We are in the early phases of negative news so not sure effective this will be.

daxfohl 7y ago
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.
- chasd00 7y ago
  it's not a stimulus it's loans to prevent a liquidity crisis and the credit markets from freezing up. It was the credit markets in 2008 that nearly killed the world economy. They dwarf the stock market.
  - daxfohl 7y ago
    Still, given the market was like Meh, seems like nobody thought it was very useful. That said, yeah I see how you are right. Lots of businesses run month to month. When they run out of cash they go bankrupt. Once enough companies do so, the economy takes much longer to recover.
    - 6gvONxR4sf7o 7y ago
      Maybe keeping the market from doing something much worse than "meh" was the point, and this was a success?
dageshi 7y ago
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.

bushido 7y ago

Reminds me of the legends of the Plunge Protection Team (PPT)[0]. A group of people who report directly to the POTUS who're attributed responsibility by pro traders to do large buy orders when the markets are dropping sharply. https://www.investopedia.com/terms/p/plunge-protection-team.asp https://www.investopedia.com/terms/p/plunge-protection-team....

neonate 7y ago

https://archive.md/DFXnu https://archive.md/DFXnu

mushufasa 7y ago

we're about to witness the limits of Quantitative Easing. I predict this will be the first of several such moves, to diminishing effects.

lend000 7y ago

In times of panic, remember that in the worst likely scenario, this virus will slow consumer spending, increase demand for hospitals, stagnate productivity for about 12 months, and kill about 0.4% of the world's population (using Spanish flu infection patterns for reference, which infected ~25% of the world population). At that point, there will be sufficient herd immunity (and likely effective treatments or vaccines) to allow the virus to decay into obscurity. Then the economy will pick up the pieces again, with actual technology, hard capital, and active workers in the workforce still existing after the hard times. I expect this market crash to look most like 1987, which saw new highs 2 years later. The long term consequences, besides loss of life, are that most market interventions will protect interest rates for large businesses with huge credit lines and existing debt, while small businesses go under, furthering consolidating income inequality. Would a crash be worse without intervention? Perhaps. But the long term consequences would also be more natural and redistribute resources more fairly, in my opinion.

chillacy 7y ago
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.
- lend000 7y ago
  Note that I wrote "worst likely scenario" not "worst possible scenario." Worst possible scenario is not really useful for short to mid term planning in an unconstrained event space (gamma ray burst or massive meteor hits Earth, etc.).
AncientTree 7y ago
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%.

JustSomeNobody 7y ago

Wait for it. Next week stock buybacks will be all over the news. I bet AT&T will be leading the charge.

oarabbus_ 7y ago
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.
- oiasdjfoiasd 7y ago
  maybe, but china has already solved the issue and other countries will as well.
- rabuse 7y ago
  Exactly. This is just the beginning, and our efforts are a lot more lax than these other countries combating this issue.

mdszy 7y ago

Universal healthcare? Too expensive. $1.5T to bail out wall street? Sure!

jacquesm 7y ago
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.
- chasd00 7y ago
  i'll add it prevents runs on the bank which, in turn, prevents the market from bottoming out. But even then, if banks lose access to cash and money stops moving there is no market. There's nothing. I think many people in this thread don't understand the gravity of money ceasing to move around the global economy.
- thedance 7y ago
  The number of affected people is pretty large, but it's also worth remembering that about half of American households have no direct exposure to stock markets: no pension, no 401(k) plan, no direct holdings. If you're trying to prop up the stock market you're only directly benefitting, at most, half the people.
  - jacquesm 7y ago
    Fair enough. But half the people is a substantial number. What bugs me is how short lived the 'up' was. You'd expect more from such a massive injection. All it seems to have done was prop up the market long enough for some laggards to exit their positions as well and then it was back where it all started. Very scary.
- sequoia 7y ago
  Is it impossible to provide a basement/bottom to these pension funds without rewarding/bailing out hedge funds & rich bankers & investors? I have no idea, I'm asking honestly. I understand both the fact that market crash would negatively impact people's retirement, and that it really rankles to have to prop up/"bail out" rich investors when we claim to not be able to afford healthcare. It's worth noting that if there were more baseline social services such as healthcare, it would be less necessary to gamble on the stock market for one's retirement. Also: people nearing retirement should not be highly exposed to the worst market volatility. If they are, either they or their investment manager is mismanaging their money–you're supposed to reduce risk more and more as you approach retirement. I'm 35 & not concerned about this vis-a-vis my retirement as there's lots of time for it to recover.

hastes 7y ago

Really love how people are on Twitter and other outlets blaming this action on Trump already when it literally has absolutely nothing to do with him and he has opposed almost all action the Fed has taken so far. Social media and the hive mind read the title and not the information mentality is really getting tiring for me..

TrumpMyGuns 7y ago
yep, the best part is the white house streams a ton of stuff and you can go in the youtube and watch it all anytime you want. that's how i get my info. of course twits love to read sources that already follow their own personal narrative.

jacquesm 7y ago

That worked for about 45 minutes and then the market dropped right back down again. Incredible. At this rate there won't be enough liquidity to cover these sell-offs if they continue. I don't think that's ever happened before.

nine_zeros 7y ago
This isn't and will never be a liquidity problem. This is a real crises. Economic activity is going down to 1980s levels

0xcafecafe 7y ago

As I understand, they stepped in to bridge the bid/ask spread and act as a temporary market maker to solve a liquidity crunch. Can someone more knowledgeable tell me why the bid ask spread is so wide to begin with?

rjbwork 7y ago
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.

intopieces 7y ago

I thought that the US never really unwound QE and the risk there was that when another financial crisis hit there wouldn't be any more tools in the kit to fix the economy. Is that where we are now?

beefman 7y ago
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 https://fred.stlouisfed.org/graph/?g=qkTu [2] https://fred.stlouisfed.org/series/FEDFUNDS https://fred.stlouisfed.org/series/FEDFUNDS [3] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [4] https://www.federalreserve.gov/monetarypolicy/policy-normalization-discussions-communications-history.htm https://www.federalreserve.gov/monetarypolicy/policy-normali... [5] https://www.federalreserve.gov/monetarypolicy/policy-normalization-qa.htm https://www.federalreserve.gov/monetarypolicy/policy-normali... [6] https://fred.stlouisfed.org/series/IORR https://fred.stlouisfed.org/series/IORR

olliej 7y ago

Only corporations get a welfare net.

cryptica 7y ago

When the Fed says that they will "pump 1.5 trillion dollars into the financial system", in reality what they mean is "pump 1.5 trillion into Facebook, Google, Amazon, Apple and all other crony-capitalist institutions which already have a ton of money and which couldn't exist without this constant injection of free cash". The Fed has turned the system is a giant pyramid scheme which rewards the rich for being rich and systematically locks out value producers. This new Fed money is not going to reach value producers; it will go to straight financiers, venture capitalist, investment bankers, shareholders, lawyers, fund managers. In the meantime farmers in the US are committing suicide and nobody gives a crap. This is profoundly immoral. I bet the Fed chose this very opportune moment to announce this injection because they know that with the Coronavirus news, people are not going to gather in large crowds to protest. They're exploiting the situation to give their cronies handouts.

monkpit 7y ago

Adblock wall on safari mobile with Firefox focus...

deleted 7y ago

[deleted]

laughingbovine 7y ago

Guys this is low-level plumbing work to keep the market moving. If they DIDNT do this, then people wouldn't be able to make trades, and that would cause trust to be lost in the system, and that would be really bad. Someone correct me if I'm wrong, but I believe this money is for what are effectively loans that will get paid back in a very short amount of time.

RIMR 7y ago
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.
- imcoconut 7y ago
  I actually tend to agree with you philosophically. But practically the outcome of inaction on the fed's part would very likely be disastrous to regular Americans. Think about America during the great depression. Modern fed theory and policy is all aimed toward preventing something like that from happening again. It's possible that without TARP, QE, etc. in 2008 (and onward) the great recession would have become great depression 2.0. While a complete economic reset might be in order, the question is how well would America fare during the transition?

kds3 7y ago

US Treasury successfully completed today's 30Y auction. NY Fed was just worried that without $1.5T injection, the auction would have failed. They're not as stupid as you might think.

catacombs 7y ago

Amazing how this relief just materializes. Student loan debt in the United States, a financial catastrophe waiting to happen, is at about $1.5 trillion.

postalrat 7y ago
Apparently college students wait till after they pay off their debts to vote.

hogFeast 7y ago

I had a conversation with a "very serious" economist the other day about monetary policy was basically solved, and that the Great Moderation proved that we were totally in control...$1.5trn...govt debt monetized, every time we pull back the market collapses, and now we are on fire again...this is connected, if you give a heroin addict more heroin, their health will improve...keep doing it, and they will get sick. The game is over. The market saw this, and kept falling. It is over...hopefully, things will improve from now and we stop pumping money into markets (and we realise that central bankers had no fucking idea what they were doing...they were just doing whatever was politically expedient, which is...hand out free money).

sytelus 7y ago

So here's the thing: 80% of the population doesn't own stock. When fed pumps such massive money to prep the stocks, where does that money end up? I guess the idea is that then we pump the stock so companies continue to hire people so unemployment remains low. Considering the vast majority of jobs are low paying, if not outright minimum wage jobs, this means these trillions of dollars of fed charity is basically meant for nothing but making sure people gets paid minimum wage for next couple of months. On the other hand, if US government equally distributed 1.5T to each citizen then each person would get $5000 which is about 1/3rd of minimum wage income for a year. That seems like far better deal than trying to keep pumping the stock.

jovial_cavalier 7y ago
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.
- strbean 7y ago
  Giving Person A a "good deal" on loans so they can loan that money to Person B at a great profit isn't so different from just giving money to Person A.
  - jovial_cavalier 7y ago
    Yes it is, because they have to pay the money back... The money they make isn't "fake" in some sense, like you're making it out to be. It's real utility that they have generated by providing liquidity. Loaning money is not a get rich quick scheme. There is risk involved.
    - strbean 7y ago
      Fair point that the interest accrued is coming out of the pre-existing money supply. Doesn't really change the thrust of my comment that you quoted though - they are being handed the ability to accrue capital. Also, this is getting a little into the weeds philosophically, but injecting large amounts of capital in this way increases the money supply (and by much more than the amount of capital injected). In a sense, this is a tax on everyone who was not a recipient of that capital via a reduction in the purchasing power of their capital. Generally, consumer prices aren't going to go up in this case... but tons of people who had no investments have been looking at this crash as an opportunity to get in the game, and these efforts to prop up the markets with monetary policy in the face of an honest-to-goodness crisis can feel a little gatekeeper-ish.

marcrosoft 7y ago

This is direct inflation. How is Gold not soaring right now?

anthony_doan 7y ago

We could prevent this by actually have universal healthcare, better funding to CDC, and better sick leave. Yes, unfortunately, it have to be political. There is no escaping it, when it comes to healthcare. It is much more urgent when country keeps on creating new viruses and we become more globally connected.

missedthecue 7y ago
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.

LatteLazy 7y ago

When the problem is confidence, an injection of cash fixed the issue. When the problem is the a bleak economic outlook because of coronavirus, oil prices, trade wars and structural issues, you're just spending money to make a number look good for a few more weeks.

nie100sowny 7y ago

Coronavirus is not a cause, but it is just an igniter. The true cause of a crisis is pumping money into institutions which should bankrupt years ago. Pumping because we were too much afraid of normal crisis back then and now we get that crisis, but multiplied by 10 in terms of impact and time period. Crisis is good in economy. It let big, old and damaged trees to fall and to give more sun light to small healthy trees which may start to grow. Instead of pumping money into stock market which only feeds the richest ones, we should let them bankrupt to make a space for more healthy businesses. Unfortunately people on average do not understand it and still elect interventionists. It postpones crisis, increases income gap and make crisis at the end much more damaging. We are very close to see a bankruptcy of Italy. Then banks which bought their bonds will follow. With the Deutche Bank on top.

HSO 7y ago
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.

kingpiss 7y ago

I start my first real programming job tomorrow, and the stock market crashes today. I think I am going to have to keep looking.

sadfev 7y ago

Is this really required? Markets were really inflated before the virus crisis now they are overreacting, let the markets settle before announcing any stimulus. I think this is premature and frankly too much of an interference from the Fed

fallingfrog 7y ago

Amazing how all this money can be summoned out of nowhere when it’s rich people who are in trouble. But paid sick days for restaurant workers? No way. I’ve been in a position where I was working at McDonald’s and literally running to the back of the restaurant to vomit in a trash can and they still didn’t let me go home, even without pay. Have fun eating out for the next couple months.

natch 7y ago

Can someone do an ELI5 on this? Questions: Is this the same as printing money? Long or medium term, could this lead to inflation? Where is this money injected into? “The economy” is too vague. Who specifically gets it or gets access to it? Why them and not others? Ridiculous question but wondering what the rules are based on: Can a DAO get some of it? Could the money (or liquidity) instead be targeted differently, either say as a one-shot stimulus given to individual taxpayers or as a short-term sample of UBI? or alternatively toward some beneficial area such as the sustainable energy sector? Are insiders and old boys networks pocketing a windfall here? Are they going to sabotage my long awaited opportunity to buy low? Need a refresher on basic macroeconomics I guess.

throwawaymanbot 7y ago

another financial Coup ..The tax payer pays for cheap almost free loans for the Richest of the rich. Laughable. They are ruining the system. It will ultimately collapse. CoronoaVirus and its effect on the Western system, is just a coming tiny taste of what will happen when they ruin it totally.

bfrog 7y ago

Cool, glad we can try to artificial support the boomers 401ks, meanwhile the SMBs won't see a dollar of that and live month to month

pauljurczak 7y ago

Free markets demand that loses of financial elites have to be socialized.

econcon 7y ago

People sold stocks and cryptos to hold onto cash to save themselves from the fall. And Fed comes and dilutes other people's cash further.