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That would both put a massive strain on the Social Security trust and not pressure employers at all, since they'd likely be happy to have the most expensive emp
by zymhan 7y ago
That would both put a massive strain on the Social Security trust and not pressure employers at all, since they'd likely be happy to have the most expensive employees retire early.
- thrill 7y agoIf we can afford a $1.5 trillion injection into the markets, then we can afford moving the SS retirement age to 60 where the most vulnerable exist.
- OscarCunningham 7y agoThe money being "injected into the market" is in exchange for assets. They're not just giving it away.
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- QuesnayJr 7y agoThe $1.5 trillion injection doesn't actually cost any money. The Fed is making short-term fully-collateralized loans.
- claudeganon 7y agoYes, just like how poor people can get 1.5 trillion in subsidized payday loans to cover the gap between pay checks...oh wait. It’s absolutely a bailout.
- ivalm 7y agoPayday loans are generally not overnight and are typically not collateralized; they are in fact very risky. Repo's are overnight borrowing collateralized by the US Treasuries. Basically it is borrowing to maintain capitalization requirements in these high volatility times. From the perspective of the US government they have literally 0 risk (you are guaranteed to get back either USD denominated money or US treasury).
- SilasX 7y agoIf you want to use that analogy ... You should compare it to a payday loan that is collateralized [1]. And then where the collateral happens to be insufficient because a glut of that item just came on the market (analogous to the sudden rush of banks needing to convert their Treasurys to cash). For the ordinary person, "Sorry, can't help you, you just have to deal with the fact that everyone else is selling that product too and so it doesn't provide the value you want and you have to take a big loss or an interest rate corresponding to higher risk." For banks, "Omg! You can't sell your bonds at par because everyone else is trying to sell before maturity? You poor thing, let me buy them up for you with new money!" [1] Sometimes referred to as "title loans", as you might e.g. put up your (remaining equity in your) car as the collateral.
- ivalm 7y agoExcept for they are not using random bonds, they are using Treasuries. This isn't random toxic debt, it's the debt of the US government to itself. More akin to "if banks are insolvent this ensures a certain degree of quantitative easing", which is a good thing since we are undershooting our inflation targets as is.
- gbear605 7y agoIt’s a bailout that doesn’t cost the government any money and that is guaranteed to be returned. Unfortunately, poor people aren’t a guaranteed return or the government would give subsidized payday loans. That said, the whole system needs to be changed to make it so that no one is in a situation to need a payday loan.
- kortilla 7y agoIf a payday loan required full collateral this comparison would make sense.
- claudeganon 7y agoTitle loans on cars and second mortgages do just that, yet the people borrowing never get bailed out the same way by the fed. And guess what, medical bills are the number one cause of bankruptcy in the US, insurance companies are refusing to guarantee coverage for Coronavirus treatment, and the Trump administration just blocked states expanding Medicaid to do the same. Might need to think about systemic risk a little differently.
- kortilla 7y agoThere is no bailout here. It would be like the fed stepping in to offer title loans because the title loan companies get too scared. No debts are being forgiven here.
- tathougies 7y agoExcept this time the federal reserve is paying money for loans collateralized by the federal government. It's a bit like purchasing your home loan from your bank and then giving it back after they pay you a bit of interest for it.
- dgacmu 7y agoIt costs, just not the face value. From a government revenue perspective, it's going at around half a point lower than before, which costs about $20m/day. (There are a lot of different ways to look at the effect of that money injection, but this is one way to try to simplify it into a cost measure that doesn't require thinking about the effects on the economy)
- kurthr 7y agoWell, they are presumably generating some 10s of basis points of profit (lack of loss) for the banking party, so it's more like putting a $B out there for the taking, but providing a lot more "liquidity". That's the really disturbing thing... the bond market hasn't been liquid this week! Lots of no-bid.
- nostrademons 7y agoTechnically lowering the SS age doesn't cost any money either. The government controls the money supply; they could just print money and hand it out. The real problem is that if they did this it wouldn't actually have any real short-term effect other than making the things seniors want to buy more expensive. Money's a fiction: it's purpose is to incentivize people to produce things that other people want. If you increase the amount of money in a population but don't increase the supply of goods, it just means everything gets more expensive. You still have the same amount of hospital beds, senior living centers, cruise berths, golf courses, etc. to go around but now the market-clearing price of buying one goes up, some fraction of poor old people end up without one, and their spot is taken by a richer young person. Over the long-term there's a reallocation of labor that actually does change things: that senior might retire and his job will be filled by someone younger, or people who might've gone into pediatric nursing instead work at a nursing home, or luxury condos might be converted into assisted living. All of these have unintended consequences that ripple down to others, eg. if condos are converted to senior homes it raises the price of housing for young people.
- bpodgursky 7y agoPrinting money and QE are not the same, and it spreads misinformation to equate them.
- kortilla 7y ago> Technically lowering the SS age doesn't cost any money either. The government controls the money supply; they could just print money and hand it out. The government doesn’t do this though. That’s why there is confidence in the USD.
- nostrademons 7y agoThe government does, actually: Article 1, Section 8 of the U.S. Constitution explicitly gives Congress the power "to collect taxes; to coin money and regulate its value; provide for punishment for counterfeiting", among other powers. It's just that Congress has delegated this to multiple independent organizations within the government. The U.S. Mint makes physical coins and paper money. The U.S. Treasury issues government debt. The IRS collects taxes. The Secret Service prosecutes counterfeiting. The Federal Reserve serves as the lender of last resort to the banking system. The President submits the budget, which must be approved by Congress. The division between the President, Congress, U.S. Treasury, and Federal Reserve forms a very important check on the tendency of most governments to just print money to cover government services, since different branches of government are responsible for determining how much is spent; where it's spent; where it's collected from, and under what terms it'll be repaid; and how much it's worth. But it's worth remembering that constitutionally, Congress has the power to create all of those agencies, and Congress also has the power to unmake them. I don't necessarily think that doing so is a good idea, but it's possible.
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- Mountain_Skies 7y agoThe $1.5 trillion thing is a bit confusing. That came from the Federal Reserve, not the US Treasury so didn't it just essentially chip away a little bit at the value of all dollars in existence instead of adding to the national debt? The Fed just created that money out of thin air (or zooming electrons) as far as I can tell. A small inflationary tax on everyone holding dollars?
- ComputerGuru 7y agoThey’re technically short-term loans only (like, overnight) to avoid that issue.
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- PeterStuer 7y agoYou will gt downvoted like there is no tomorrow here, but you are factually correct. Sadly people do not grasp our fiduciary currency based financial system. We create money all in extreme amounts all the time. Money is not some sort of 'ore' which we have to mine out of the planet through hard labor. It's a resource we create at will by simple agreement and at the push of a button in unlimited quantities. The 'downside' is that 'new' money potentially can devalue existing money, as there is just more to go around. Giving the massive amounts of money we create daily to those that need it, for instance to retire after a reasonable lifetime of work, in some twisted logic feels 'bad', where lavishing it on those that do not need it, so they can use it just to hoard, speculate, or buy back their own stock, seems to be accepted as 'fine'.
- dmix 7y agoComparing fed injections to expanding social security spending is not "factually correct" though, it's a very weak analogy and two very different things. You can be critical of QE, monetary policy, and the general priorities of the government but it doesn't make OP's point a helpful one. Especially considering the lack of centralized control, let alone the various other major differences between it and entitlement spending.
- rolltiide 7y agoOh right because all of our pensions systems are based on people actually dying after 60, keep forgetting that.