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When US injects 1.5T into the markets, it seems a lot like the US theoretically can absorb 1.5T of goods and services from the rest of the world with money that

When US injects 1.5T into the markets, it seems a lot like the US theoretically can absorb 1.5T of goods and services from the rest of the world with money that didn't exist the day before. It seems absurd if true. Can anyone with knowledge on the matter clarify?

ianai 7y ago
Money only has meaning during exchange. If it’s sitting in someone’s coffers and not being traded for goods or services then it is essentially removed from the market. By dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions. They seem to think that if you’re hoarding X dollars then an additional Y dollars will be less valuable to you to hoard and more likely to be traded for goods and services. Except they gave it to the wrong people. It appears that instead companies bought back stock or otherwise didn’t stimulate trade. People who have little money to hoard are more likely to spend an additional dollar of income than people already able to hoard money. Edit-there are about 128 million households in the US. That 1.5 T would be about 11,718$ per household if given straight to them.
- SamReidHughes 7y ago
  That money wasn’t given, it is lent overnight. What is a US household going to do with a collateral-backed $11718 loan made today that they have to repay tomorrow morning?
  - ianai 7y ago
    Continue on with the full details of the loans please.
    - Armisael16 7y ago
      What precisely are you looking for? They’re overnight duration and nearly riskless: they’re repo-market loans collateralized with treasuries, so even if the bank just runs away with the money the fed still has made a profit.
      - mox1 7y ago
        It's a overnight loan, backed by US Treasuries of some type (ie Bond's guaranteed by US Government). Bank gives Bond, Fed gives $$, swap back a few hours later. The closest analogy would be a homeowner offering their house as collateral for a ~12 hour loan....
        ianai 7y ago
        My point holds. The details underlie that it’s an even weaker effort. I said “by dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions (...) instead companies bought back stock or otherwise didn’t stimulate trade.” The details only serve your point in so far as they muddy the waters. My point holds. The fundamental problem is that people must socially distance to flatten the curve. That’s having all sorts of ripple effects as people are being laid off due to the crashing of demand for their services. So now whole swaths of people are facing hardships leading to missing home and rent payments. For instance MGM: https://www.fox5vegas.com/coronavirus/mgm-resorts-announces-layoffs-closures-several-employees-with-coronavirus/article_3c2b555c-6568-11ea-96cc-43d1f76ae752.amp.html https://www.fox5vegas.com/coronavirus/mgm-resorts-announces-...
        fragmede 7y ago
        Payday loans are another analogy, with some added price gouging on top because f*ck the poor. Here's my previous pay check (s), so the payday loan place knows how much money I make; here's some sort of proof that I haven't been fired yet, so they believe that my next pay check is coming within a few hours/days; and heres's some legal-equivalent of the title to my car, for them to repo in case I'm not able to pay back the loan. A 12-hour loan of $12k might seem ridiculous but an entire industry has been built on top of $300 loans for 72-hours, at great profit (until regulations came in to cap the profit).
        ianai 7y ago
        They’re not really apples for apples comparisons as people don’t have the same abilities to make money in 12 hours that businesses do. Overnight loans serve a purpose to businesses that people or households don’t have a direct analog to use. I’d recon it’s more useful to offer a household or person a 1-3 month loan or credit line to help cover any lost wages due to sickness or fallout from the covid response.
- perl4ever 7y ago
  "By dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions" I believe this is wrong. Nobody's increasing or trying to increase the amount of money by a large amount. They're just trying to provide a lot of money to be borrowed in the short term, which should have absolutely no inflationary effect. And it's vital to be able to borrow money, because everybody needs to deal with a crisis now rather than in a week or month or year. It's just about taking resources from the future, not taking from the rest of the world.

ianai 7y ago

Money only has meaning during exchange. If it’s sitting in someone’s coffers and not being traded for goods or services then it is essentially removed from the market. By dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions. They seem to think that if you’re hoarding X dollars then an additional Y dollars will be less valuable to you to hoard and more likely to be traded for goods and services. Except they gave it to the wrong people. It appears that instead companies bought back stock or otherwise didn’t stimulate trade. People who have little money to hoard are more likely to spend an additional dollar of income than people already able to hoard money. Edit-there are about 128 million households in the US. That 1.5 T would be about 11,718$ per household if given straight to them.

SamReidHughes 7y ago
That money wasn’t given, it is lent overnight. What is a US household going to do with a collateral-backed $11718 loan made today that they have to repay tomorrow morning?
- ianai 7y ago
  Continue on with the full details of the loans please.
  - Armisael16 7y ago
    What precisely are you looking for? They’re overnight duration and nearly riskless: they’re repo-market loans collateralized with treasuries, so even if the bank just runs away with the money the fed still has made a profit.
    - mox1 7y ago
      It's a overnight loan, backed by US Treasuries of some type (ie Bond's guaranteed by US Government). Bank gives Bond, Fed gives $$, swap back a few hours later. The closest analogy would be a homeowner offering their house as collateral for a ~12 hour loan....
      - ianai 7y ago
        My point holds. The details underlie that it’s an even weaker effort. I said “by dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions (...) instead companies bought back stock or otherwise didn’t stimulate trade.” The details only serve your point in so far as they muddy the waters. My point holds. The fundamental problem is that people must socially distance to flatten the curve. That’s having all sorts of ripple effects as people are being laid off due to the crashing of demand for their services. So now whole swaths of people are facing hardships leading to missing home and rent payments. For instance MGM: https://www.fox5vegas.com/coronavirus/mgm-resorts-announces-layoffs-closures-several-employees-with-coronavirus/article_3c2b555c-6568-11ea-96cc-43d1f76ae752.amp.html https://www.fox5vegas.com/coronavirus/mgm-resorts-announces-...
      - fragmede 7y ago
        Payday loans are another analogy, with some added price gouging on top because f*ck the poor. Here's my previous pay check (s), so the payday loan place knows how much money I make; here's some sort of proof that I haven't been fired yet, so they believe that my next pay check is coming within a few hours/days; and heres's some legal-equivalent of the title to my car, for them to repo in case I'm not able to pay back the loan. A 12-hour loan of $12k might seem ridiculous but an entire industry has been built on top of $300 loans for 72-hours, at great profit (until regulations came in to cap the profit).
        ianai 7y ago
        They’re not really apples for apples comparisons as people don’t have the same abilities to make money in 12 hours that businesses do. Overnight loans serve a purpose to businesses that people or households don’t have a direct analog to use. I’d recon it’s more useful to offer a household or person a 1-3 month loan or credit line to help cover any lost wages due to sickness or fallout from the covid response.
perl4ever 7y ago
"By dropping 1.5T into the market the fed hoped the financial system would increase circulation enough to stimulate transactions" I believe this is wrong. Nobody's increasing or trying to increase the amount of money by a large amount. They're just trying to provide a lot of money to be borrowed in the short term, which should have absolutely no inflationary effect. And it's vital to be able to borrow money, because everybody needs to deal with a crisis now rather than in a week or month or year. It's just about taking resources from the future, not taking from the rest of the world.