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Federal Reserve slashes interest rates to zero

286 points by ncw96 7y ago

majos 7y ago
Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?
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- bluedevil2k 7y ago
  The Fed rate is the interest rates that the Fed pays banks for their deposits in the Fed. By lowering it, they’re incentivizing the banks to loan the money and provide liquidity into the market. Since banks need to make a profit on everything, they’ll loan the money out at a higher rate for things like mortgage, car loans, and credit cards. Depending on the credit worthiness and the collateral, the rates will differ (mortgage lower than an unsecured credit card). Ultimately, the Fed lowering the rates will lower all interest rates, but you’ll never get to 0% as a consumer.
  - triangleman 7y ago
    The federal funds rate is the rate banks pay when they borrow from the Fed.
  - xxpor 7y ago
    >but you’ll never get to 0% as a consumer. Unless we see negative fed rates. Not that I think going so negative we see consumer level 0% mortgages is likely.
    - jaggederest 7y ago
      Ironically, much of the tax advantage of owning vs renting is embodied in the mortgage interest tax deduction. If there were no interest, obviously it would be a good deal, but would not have the additional benefit of tax avoidance that it does at present.
      - dlp211 7y ago
        Much of the tax avoidance from primary residence property has been removed from the tax code already due to the TCJA. Not all of it, but most of it. It also makes no sense to have a mortgage for the tax break. Rentals have depreciation and the interest remains deductible as an expense on them there, so that isn't really an issue.
        aksss 7y ago
        Regarding tax avoidance from primary residence, what specifically? I can still deduct mortgage interest. Are you talking about not itemizing some home ownership expenses (like what?) because standard deduction increase? Just wondering what I’m missing..
        mobilefriendly 7y ago
        You can't deduct it with the new larger standard personal deduction, only if you itemize. The Trump tax bill was a reform made the mortgage deduction moot for about 20 million taxpayers.
    - tjomk 7y ago
      Take a look at Europe with negative rates. Every bank has a statement that if the rate goes below 0 your effective rate will still be above that.
    - steveeq1 7y ago
      if the consumer rate is 0%, what is the stop the consumer from borrowing an unlimited amount of money?
  - brianpgordon 7y ago
    One note... what you're describing is the IOER rate, not the fed funds rate. But other than that you're spot on.
  - thebeardisred 7y ago
    You'll never get zero on _some_ products. Retailers utilize low interest rates to provide "direct" financing to incentivize purchases at their stores. This is often provided as a "promotional"[1][2] rate with the hope that it will spur purchasing in the short term and then make money on the financing in a longer timeline. Often this is done at stores which sell "durable goods" (e.g. appliances or automobiles). The takeaway? You can absolutely get 0% as a consumer, as always though there is fine print. [1]: https://www.mymoneyblog.com/be_careful_of_0.html https://www.mymoneyblog.com/be_careful_of_0.html [2]: https://www.edmunds.com/car-loan/what-you-need-to-know-about-zero-percent-car-loans.html https://www.edmunds.com/car-loan/what-you-need-to-know-about...
    - wideasleep1 7y ago
      Back in '95, Wachovia ran a short credit card promo, called 'Prime For Life'. The account changed hands a few times, and is currently with Chase, but it remains nailed to prime, albeit an $88 annual fee. No, they have never raised my $7K limit, the effers. https://www.questia.com/magazine/1G1-16441751/wachovia-claims-a-first-lifetime-prime-rate-mastercard https://www.questia.com/magazine/1G1-16441751/wachovia-claim...
      - LeoTinnitus 7y ago
        I glossed over "credit card" at first and now I'm 100% jealous. That is single highhandedly the greatest credit card ever haha! I'd pay $88 for that. You garner barely any interest as it stands!
    - kube-system 7y ago
      That's kind of outside of the topic of finance though. Subsidized car loans are just as relevant to the financial markets as free samples at Costco are relevant to agriculture prices.
- myoon 7y ago
  No, this is the fed fund rate, which is just for banks to borrow really short term (overnight usually) to each other. Most consumer loans are based on the prime rate, which has a few points added to the fund rate to cover the cost of borrowing.
  - apta 7y ago
    Would someone be able to negotiate a 0% loan with a bank you think?
    - mandelbrotwurst 7y ago
      Not unless it's bundled into some other set of services with profit for the bank attached.
  - dcftoapv 7y ago
    Adding some further nuance to this point: - Many other rates in existing contracts are tied to the fed funds rate so things like existing mortgage and student loan payments may get smaller as a result of this action - This will only work for new contracts insofar as credit risk does not materially increase (which it will in an economic downturn); banks will increase consumer spreads against the fed funds rate on a go-forward basis
- kurthr 7y ago
  I think they're usually tied to the prime rate, but the spread is usually 13% or more. Prime, in turn is usually 2-3% above the fed funds. So you might find a CC with rates as low 15%!
- perl4ever 7y ago
  No, because the expense of processing loans becomes more significant the lower interest rates go. It's like people complain about gas prices not dropping as much as the price of oil, ignoring that the non-oil costs largely don't go down. Also, as something I read pointed out, the fact that people are rushing to "risk free" debt doesn't mean they are equally rushing to loan money to you, which has some risk. So for both reasons, consumer loans aren't dropping as much as you'd hope.
- kube-system 7y ago
  In financial markets, there's a formula that banks use to determine interest rates: Interest Rate = Real Risk Free Rate + Expected Inflation + Default Risk Premium + Liquidity Premium + Maturity Premium Fed bond rates are what determine the 'risk-free' rate. A bank can have the fed hold on to their cash and it is really safe there. Safe enough, that financial markets consider it 'risk free'. This is why all of your loans are dependent on this number. Banks add on a premium for inflation -- they want the dollars they get paid back in to be worth the same in real value, not nominal. They also add a premium for default risk. This is the obvious one -- the riskier the loan, the more the bank will have to charge to break even over a large number of loans, where some of them won't be paid back. The liquidity premium is kind of like a charge for FOMO. If it is hard for the bank to sell (or liquidate) your loan, they might be stuck with a your loan contract in a filing cabinet when they really need some cash. If they can sell your loan on the open market, then they'll give you a better rate here. And finally, the maturity premium is a charge for uncertainty. A bank can be pretty certain that they know what the financial markets will look like in the short term. But for a 30 year loan? The financial market could be a much different beast in 30 years. This is a lot of risk on a bank that has their cash tied up for that long of a period.
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colinbartlett 7y ago
My "high interest" savings accounts already took a recent haircut and this will accelerate that. I understand that's the idea: make investing attractive and savings unattractive. But for a regular joe like me, this is exactly the time I want to be saving more so it stings.
- jkraker 7y ago
  I moved some of my high yield savings account into a 12 month CD recently to maintain a more tolerable interest rate for the next 12 months while the savings account interest rate inevitably tanks. That means I can't touch it for 12 months if I want the interest, but I was careful with the amount I put in the CD so that I will most likely not have to touch it. This should in no way be construed to be advice because I'm unqualified to give it. It's just an option.
  - lbotos 7y ago
    you can also get 4-5 smaller CDs (whatever smaller means for you) so if you did need some funds, you wouldn't have to lose all of the interest.
  - jader201 7y ago
    Some banks have “no penalty” CDs that allow you to close them in the event that you need the money without taking a hit on any accrued interest. And this can happen as early as 7 days after opening the account. So the risk is very low. They’re slightly less yield than regular CDs, but not much. A really good option during this time. My bank actually sent an email prior to the last interest rate drop, and I moved most of my savings (that I didn’t think I’d need to touch for a year) into an 11-month CD before the rates dropped.
- perl4ever 7y ago
  What do you think is the difference between saving and investing??
  - nightski 7y ago
phkahler 7y ago
IMHO this is a really bad idea. Let's hope they raise them slowly this time, unlike 2007-8 when they went back up quickly and triggered mayhem.
- michaelyoshika 7y ago
  Don't know why this is downvoted. Cutting interest only benefits the wall street in the next couple months. Basically this admin only knows two things: 1, Cut interest rate 2, Cut tax And it doesn't care if the world explodes after they step down.
  - imglorp 7y ago
    Most republican administrations have displayed that "get mine and get out" behavior--causing recessions--since Teddy Roosevelt.
    - dcftoapv 7y ago
      Obama's admin let one of the world's foremost financial institutions fail and caused a mass market panic / giant economic setback. Their reasoning was entirely political and caused millions of people to lose their jobs. I'm independent, but claiming that Republicans cause recessions is pretty ironic considering the economic damage the last Democratic admin did.
      - imglorp 7y ago
        In that case, the recession began during Bush, who provided the first bailout around $800B. Obama did another bailout of similar amount. I was talking about starting recessions, not digging out of them, so my statement holds.
      - HaloZero 7y ago
        Which financial institution are you referring to here?
      - deleted 7y ago
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dcftoapv 7y ago
This is not going to help - It takes two years for monetary supply changes to fully propagate through the economy - Cutting rates to 0% has not been effective in Japan or Europe The fed does have a role to play here - They can provide liquidity to the market - They can serve as a backstop in a time of crisis DC needs to get their shit together - Eliminating Trump's tariffs would do more to increase long-term investment than cutting rates to 0% - They should have created targeted lending program to help businesses that need short-term cash flow assistance yesterday; the next best time to do it is right f*ing now
- paganel 7y ago
  As someone said before, I think this is more about sending a message, as in "we're going to do whatever it takes". To be honest I don't know what the future will hold from a financial/economics point of view, but imho this is an once-in-a-century crisis.
  - dcftoapv 7y ago
    You're right, and they made a lot of changes that are necessary to keep the global economy functioning over the next few months. I did not mean to imply that they shouldn't be taking action. I am very skeptical about cutting rates again. There are much more effective actions that could be taken at the policy level. The fed is doing what it can, but it doesn't have the right tools to lead the charge on this.
    - paganel 7y ago
      Yeah, this should definitely be teamed up with corresponding fiscal and trade policies, the Fed cannot sort all of this mess by itself.
aazaa 7y ago
The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale never before seen. If the Fed loses this fight, game over.
- jgalt212 7y ago
  > If the Fed loses this fight, game over. Only in the sense that the fate of the world rests in inflated asset prices. That's not to say actions of the Fed cannot stabilize the markets, which is very important. But if the world is scared and scared for a long time (demand shock), there's not much the Fed can do. Then it will come down to whether or not the USG can become the "consumer of last resort" via fiscal stimulus.
- dharma1 7y ago
  Direct purchases of shares will do little to alleviate this crisis. The treasury purchases will fund the government to help industries which are badly affected from going under, companies with cash flow issues, and employees who need to take time off - which they already announced on Friday. I think $500b will be the beginning, will likely be much more needed
  - dcftoapv 7y ago
    Asset purchases will help to stabilize markets - The fed became a huge driver of liquidity from from 2016-2018 - There was a noticeable increase in market toxicity when they started letting assets roll of their balance sheet in 2018 I'm more optimistic about the impacts of their role as a liquidity provider than I am about their role holding down the effective overnight borrowing rate.
    - dnautics 7y ago
      Are you optimistic about the wealth transfer implications of their activity?
superkuh 7y ago
Not only that but they've removed the reserve requirements entirely for "thousands" of banks. There are only ~4500 commercial banks in the USA total. So that's at least a good fraction of them. These banks can now create money out of nothing as much as they want.
- mandelbrotwurst 7y ago
  Do you have a source for this? That doesn't appear to be the case at least according to the Fed's website (https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm ), which shows the most recent change to the requirements being in January - setting it at 3% for large banks.
  - superkuh 7y ago
    Sorry. I should have included that. https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-t... Start of paragraph 4.
    - mandelbrotwurst 7y ago
      Thanks.
  - vpribish 7y ago
    https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... last item, heading is "Reserve Requirements" "... the Board has reduced reserve requirement ratios to zero percent effective on March 26"
- jganetsk 7y ago
  Reserve requirements never really limited the ability of banks to create money. Canada hasn't had reserve requirements for >20 years. Neither does the UK, New Zealand, Australia, Sweden and Hong Kong. But all banks are indeed subject to capital requirements, and that does limit money creation Anyway, reserve requirements are generally not effective, including in the USA. Much has been written about this. Banks are usually not reserve constrained (especially post QE), there are many ways to game reserve requirements, there are many ways to get reserves when you need them, and central banks increase reserves systematically when they are in demand via interest rate mechanisms. [1] https://en.wikipedia.org/wiki/Reserve_requirement#Countries_and_districts_without_reserve_requirements https://en.wikipedia.org/wiki/Reserve_requirement#Countries_... [2] https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III [3] http://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me_8_14_13.pdf http://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me_... [4] http://bilbo.economicoutlook.net/blog/?p=9075 http://bilbo.economicoutlook.net/blog/?p=9075 [5] http://macromusings.libsyn.com/marc-lavoie-on-canadian-central-bank-policy-real-time-payments-and-the-post-keynesian-tradition http://macromusings.libsyn.com/marc-lavoie-on-canadian-centr...
daddypro 7y ago
Does this interest rate transfer to lower mortgage rates? Is now a good time to refinance loans?
- onlyrealcuzzo 7y ago
  No. This is a rate for banks only. You get the rate banks pass on to consumers, which is obviously higher, because they need to make money.
  - WalterBright 7y ago
    Mortgage interest rates are usually "prime + x". So the prime reducing will reduce "prime + x" by the same amount. For the same reason, I expect margin interest to drop by the same amount.
- adeelk93 7y ago
  It will, but not just yet. There’s too many people trying to refi right now and supply can’t keep up with demand, so rates are higher than they should be. Give it another 3-6 months and I wouldn’t be surprised if mortgage rates fell by another 1%.
  - SomewhatLikely 7y ago
    There must be some floor based on default rates right? If 2% of people default you can't go below 2%. And of course default rates go up in recessions.
    - JoshuaDavid 7y ago
      If 2% of people default per year you can't go below 2%.
    - adeelk93 7y ago
      I personally don’t think there’s a floor, all that matters is spread over treasuries. If we go with your 2% number, that’s the spread between the mortgage risk and the risk-free rate. If risk-free goes to -1%, then it’d make sense for mortgages to go to 1%. This is something that already happens in European countries. I don’t think there’s an inherent reason for the risk-free rate to be a positive number. On a different note, 2% default != 2% loss. Mortgages are secured by the property, losing investors only a small fraction in foreclosure, so a 2% default * 25% severity = 0.5% loss.
josiahtu 7y ago
Imagine if Trump had tried as hard to contain coronavirus as he’s trying to pump markets rn
- Animats 7y ago
  I have to agree. A full lockdown of the country with a return to normal at the speed China achieved would do more than fooling around with interest rates. In the current situation, there's not much productive a business can do with more loans anyway.
  - Consultant32452 7y ago
    They won't come out and say it, but the plan is to let the virus slow roll through the population of young/healthy to build up herd immunity. Some will die, but it will be better in the long run. You can tell that's the plan as they're talking about "flattening the curve." The area under the curve is the same, but they want to allow it to slow roll through the population so we don't over load the healthcare system. Compare this "flattening the curve" plan to what China has done. They have gone full on "shut down everything" and isolated the whole country. Their idea is to eradicate the virus in the country. This is a worse plan because it means they will not have herd immunity, though they may transition to that plan as time moves forward. This is why a full shutdown of the country is a bad idea. What happens then is when you start opening the country up there's a whiplash effect and it starts spreading rapidly again. For what it's worth, the UK publicly announced this is their plan. I forget the stat but they said they plan to let 40 or 60% of their population get it.
  - sfj 7y ago
    China's economy has is no way returned to normal. https://www.capitaleconomics.com/wp-content/uploads/2020/03/Slide4-52-1024x583.png https://www.capitaleconomics.com/wp-content/uploads/2020/03/... https://www.capitaleconomics.com/wp-content/uploads/2020/03/Slide9-22-1024x583.png https://www.capitaleconomics.com/wp-content/uploads/2020/03/...
- war1025 7y ago
  You mean like shutting down travel from contaminated countries, which was widely viewed as a terrible choice just a week ago? There was only one way for the virus to get here, and that was through travel. CDC fucked up the testing after that failed, which got us to where we are now. Testing is supposed to be fixed this week. CDC just recommended people not gather in groups of more than 50. Things are starting to tighten down significantly. At this moment, I feel like we have a very real chance of getting a handle on things within the next two weeks. From there, we live through another month or two of lockdown and slow burn our way into summer. It's going to be hard, but I don't think we're dead in the water yet.
spodek 7y ago
In the context of Covid, wouldn't lowering economic activity help keep people home? It seems more than "just" saving lives. Purely economically, wouldn't a crashed health care system hurt the economy for a longer term?
- sarah180 7y ago
  A depression can kill a lot more people than COVID-19. This is why the state of California just told young, healthy people to continue to visit restaurants for now as long as tables are six feet apart. This is not just an idea from thin air: they're doing lots of projections on models of what is actually going to do more harm. Think of it this way: if the economy shrinks by 30%, that means we have to spend 30% less on everything. That's 30% less funding for wellness, hospitals & emergency services. 30% less that people spend on self-care like gym memberships. 30% less on gasoline to get to outdoor activities. If your food budget drops by 30%, there's a good chance you're going to eat less healthy foods. If people are going out 30% less often, you will see increases in both physical and mental illness ,as we know that social contact improves health. This is why the Twitter meme of "everybody panic and go home and stay there for three weeks" may actually do a lot more harm than good even if it helps slow the spread of COVID-19. Unless you think your state and county leadership is incompetent, follow their advice, as they are best informed about the local conditions.
  - dingo_bat 7y ago
    > if the economy shrinks by 30%, that means we have to spend 30% less on everything Doesn't ring true. If my salary drops by 30%, my expenses would not all drop by that percentage. Things like food and medicine would drop a little, not close to 30%. Things like vacation spending may drop by 100%.
- sn9 7y ago
  This is more to help people avoid losing their jobs and paychecks as demand craters and business look to cut costs.
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coretx 7y ago
The EU is printing more EUR, helping everyone. The USA is lowering the interest, helping the ultra rich.
- sarah180 7y ago
  This is effectively how you print money in a modern economy. They're giving banks access to a lot more cash and have reduced reserve requirements to 0%, meaning that banks can loan new money without limitation and without fear that they'll be able to borrow to cover those loans. Most money is not actually on paper, so the amount you print is not the point.
  - coretx 7y ago
    You can only benefit / capitalize on the decreased interest if you are in possession of capital already.
  - sfj 7y ago
    But who are they going to lend to? Aren't most companies losing cashflow due to loss of employees/supply, and don't have demand due to everyone staying home? The only companies that are going to be borrowing are those that are out of money and need to try and weather the current crisis. If the banks make a mistake here and the companies they lend to go bankrupt, they go bankrupt too.
yalogin 7y ago
Why is this warranted yet? This is a terrible that will only signal that the fed is panicking and nothing else. There are no indications that the supply chain is disrupted or that the economy is sputtering. It will happen at some point in the next few weeks with or without the infusion and rate cuts now. These things are much better done when warranted rather than now. As of now it’s only a humanitarian crisis and only thing that will help is effective communication to contain the pandemic. These infusions now will soon be forgotten by the next bad news and the effect will not persist.
- michaelyoshika 7y ago
  Earlier this weekend Trump said he could have fired Powell but choose not too. Imagine you were Powell, what would you do?
  - chance_state 7y ago
    What you felt was right, rather than self-preserving, perhaps?
  - deleted 7y ago
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  - peteradio 7y ago
    Somehow I doubt Powell is living paycheck to paycheck. Professionals shouldn't cave under pressure that's why they make the big bucks. This is only a rebuttal to the "what would you do?" I have no idea whether or not he was pressured or if this is a good or bad move.
allovernow 7y ago
Bank runs are coming. We are witnessing financial collapse and possibly the early failure of the American empire. Futures trading was halted today. Market will tank tomorrow. That's after a $1.5T stimulus. This is it.
- HenryKissinger 7y ago
  This comment won't age well. No bank run is coming, and we are not witnessing financial collapse, nor the failure of the American empire.
  - allovernow 7y ago
    The fed had now pushed one $1.5T stimulus package and lowered rates to zero in an absolutely desperate attempt to prop up a market when the entire country is about to shut down - what are they propping up when no one is going to spend any money? Don't believe me? China. Iran. Italy. Spain. Austria. Multiple Nordic countries. Nationwide shutdown. Coming to a state near you. 300MM people just panicked at the same time, and the stores have been empty for two days. Imagine what's going to happen when they all discover fractional reserve banking.
    - allovernow 7y ago
      Just documenting for the future: today the NYSE halted at least once and Dow dropped 13%. PA announced shutdown of all non essential businesses.
beefman 7y ago
Original source: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
matt_the_bass 7y ago
I think the issue is cash-flow. So the govt should do things to mitigate cash-flow. Such as pause rent/mortgage payments for 2 months for anyone that is out of work due to this.
- kshacker 7y ago
  It maybe works for mortgage as government deals with banks regularly. But what if you rented from an individual owner who needs your rent? Liberalized (without proving that you are looking for a job for let us say next 3 months) unemployment insurance may be a better solution that keeps the economy churning.
  - matt_the_bass 7y ago
    I agree it’s not as simple as only mortgage freeze. But if the land lord needs the rent, probably that’s for their mortgage. But yes, I agree better unemployment insurance is a good idea.
    - LeoTinnitus 7y ago
      A mortgage freeze would save the landlord and they wouldn't need the rent. If they need the rent when their mortgage payment is frozen, then they're not a good landlord. Chances are, they won't be a landlord for long when the lender calls the loan due as well. Let's not offload the onus on landlords personally responsibility to manage their finances. If they don't have a mortgage to pay, they'll get by just fine if they can't collect rent.
- tree3 7y ago
  As that does is shift the cash flow problems to someone else.
  - matt_the_bass 7y ago
    My point is that cash-flow is the issue. And most Americans pay a substantial portion of their income towards housing. What does cutting the fed interest rate by 1% do for “typical” Americans? I don’t think it reduces day to day stress which in turn causes more problems. I don’t have a complete answer, but I feel like the answers that are given by the government are not the best answers and not the most effective use of funds.
somewhereoutth 7y ago
This feels like the end of an era - an era that ran from the fall of the Berlin Wall up to the appearance of Covid-19. A global era, a largely peaceful era, a profligate era, and an era of growing inequality. Who knows what comes next...
sershe 7y ago
At this point, I'm actually starting to wonder. If we literally do nothing about the virus, or do the bare minimum, the worst case scenario based on the numbers I hear is 7.7b * 0.6 (total infections) * 0.02-0.03 (presumed mortality rate after the healthcare system collapses MINUS the rate if it doesn't), ~115m people are going to die worldwide. This appears to me to be the absolute worst case scenario given current knowledge; gradually slowing infection rates, the fact that the developing world skews younger and is less connected, etc., may make it better. That 115m will skew heavily towards the elderly, i.e. loss in days-of-life would be significantly less than you would expect. Now, if you put value on days of human life (which you totally can do; first, as a matter of policy, you won't pay a million dollars to give a 90 year old another year of life, nor would you pay a billion to cure cancer in one teenager; second, you do it every day when you take quantifiable risks to make money or for convenience, everything from being a logger or a deep sea fisherman, to merely driving)... if you put value on human life, how much would this waste of life be worth? And how much waste of life is a worldwide recession or depression going to produce - in direct deaths, days lost by billions of people in s terrible economy, esp. if it gets to GD levels or worse, or in the developing world where it definitely will if the economy grinds to a halt; and on top of that in purely monetary terms, as people are not able to do things from buying houses to merely making ends meet, depending on the circumstances? At this point everybody seems to admit it's beyond containment and the only thing we are trying to do is flatten the curve and prevent the deaths. Is entering a recession, or worse a depression and risking a total collapse really worth it? I am starting to doubt it. PS. Frankly this reminds me of plane crash reporting. Everybody is, comparatively speaking, overreacting because the event is visible and distinct, even though many more people die in cars every day.
- isignal 7y ago
  There's a billion people in India and so far the mortality and spread rates there aren't similar to other countries. There is a theory that humid and warm places will not have these mortality rates (as validated by our common sense that summer time flu is less common). I don't think we have enough information about the virus to generalize to the whole world yet.
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shartshooter 7y ago
Stopping production for a significant period of time was the first gut punch covid is throwing. The second one seems to be landing on Europe and third will be North America. This means China will have a head start on getting supply up and running. If the ROW is at a standstill in production, China will fill that gap which could further displace a lot of production in the west. China getting containment in order didn’t bounce back but also bounce ahead in many places.
- matt_the_bass 7y ago
  I think that may be plausible. But I also think that a lot of companies relying on Chinese manufacturing all suddenly saw they had all their manufacturing eggs in one basket. I’m not suggesting that we should move manufacturing back to US, but we should diversify. I’m seeing that some of my suppliers have already moved to other Asian countries. I expect that diversification to continue.
  - shartshooter 7y ago
    Agreed. The fallout from this, beyond loss of life and impact to day-to-day, will be really interesting and will seem obvious in hindsight.
js2 7y ago
SARS-CoV-2 doesn't care about monetary policy. Why not give money directly to the people who need it? They'll spend the money right away. I'm willing to sacrifice my 401(k) and retire on just SS if need be if my government is willing to help everyone worse off than me.
- webninja 7y ago
  There’s thousands of rich bourgeoisie in this world that don’t think like you. But your comment gives me hope that there’s more people out there that are driven by things other than fear and greed.
- sfj 7y ago
  Curious why you need to government involved? Why not just take your money out of your 401(k) yourself? You'll suffer a penalty, but people are in need.
  - ShinyObject 7y ago
    Because uncoordinated individual action is ineffective against large scale problems, which should be obvious right now.
    - sfj 7y ago
      If he gave his money to a few people in need, it would be effective for them, wouldn't it? And probably better spent then after going through the tangled mess of government bureaucracy. What more could you hope for?
      - js2 7y ago
        The GoFundMe model of health insurance and welfare doesn’t work. It’s my government’s job. It’s why we have social security and medicare and Medicaid and TANF, etc, in the first place. I can’t do it alone. Promoting the general welfare is right in the preamble of our constitution: > We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. And in the letter of transmittal, Washington wrote: > Individuals entering into society, must give up a share of liberty to preserve the rest. The magnitude of the sacrifice must depend as well on situation and circumstance, as on the object to be obtained. It is at all times difficult to draw with precision the line between those rights which must be surrendered, and those which may be reserved.
gdubs 7y ago
We need fiscal stimulus, and we need it yesterday. Time to put money in people’s pockets.

286 points by ncw96 7y ago

Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?

deleted 7y ago
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- deleted 7y ago
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bluedevil2k 7y ago
The Fed rate is the interest rates that the Fed pays banks for their deposits in the Fed. By lowering it, they’re incentivizing the banks to loan the money and provide liquidity into the market. Since banks need to make a profit on everything, they’ll loan the money out at a higher rate for things like mortgage, car loans, and credit cards. Depending on the credit worthiness and the collateral, the rates will differ (mortgage lower than an unsecured credit card). Ultimately, the Fed lowering the rates will lower all interest rates, but you’ll never get to 0% as a consumer.
- triangleman 7y ago
  The federal funds rate is the rate banks pay when they borrow from the Fed.
- xxpor 7y ago
  >but you’ll never get to 0% as a consumer. Unless we see negative fed rates. Not that I think going so negative we see consumer level 0% mortgages is likely.
  - jaggederest 7y ago
    Ironically, much of the tax advantage of owning vs renting is embodied in the mortgage interest tax deduction. If there were no interest, obviously it would be a good deal, but would not have the additional benefit of tax avoidance that it does at present.
    - dlp211 7y ago
      Much of the tax avoidance from primary residence property has been removed from the tax code already due to the TCJA. Not all of it, but most of it. It also makes no sense to have a mortgage for the tax break. Rentals have depreciation and the interest remains deductible as an expense on them there, so that isn't really an issue.
      - aksss 7y ago
        Regarding tax avoidance from primary residence, what specifically? I can still deduct mortgage interest. Are you talking about not itemizing some home ownership expenses (like what?) because standard deduction increase? Just wondering what I’m missing..
        mobilefriendly 7y ago
        You can't deduct it with the new larger standard personal deduction, only if you itemize. The Trump tax bill was a reform made the mortgage deduction moot for about 20 million taxpayers.
  - tjomk 7y ago
    Take a look at Europe with negative rates. Every bank has a statement that if the rate goes below 0 your effective rate will still be above that.
  - steveeq1 7y ago
    if the consumer rate is 0%, what is the stop the consumer from borrowing an unlimited amount of money?
- brianpgordon 7y ago
  One note... what you're describing is the IOER rate, not the fed funds rate. But other than that you're spot on.
- thebeardisred 7y ago
  You'll never get zero on _some_ products. Retailers utilize low interest rates to provide "direct" financing to incentivize purchases at their stores. This is often provided as a "promotional"[1][2] rate with the hope that it will spur purchasing in the short term and then make money on the financing in a longer timeline. Often this is done at stores which sell "durable goods" (e.g. appliances or automobiles). The takeaway? You can absolutely get 0% as a consumer, as always though there is fine print. [1]: https://www.mymoneyblog.com/be_careful_of_0.html https://www.mymoneyblog.com/be_careful_of_0.html [2]: https://www.edmunds.com/car-loan/what-you-need-to-know-about-zero-percent-car-loans.html https://www.edmunds.com/car-loan/what-you-need-to-know-about...
  - wideasleep1 7y ago
    Back in '95, Wachovia ran a short credit card promo, called 'Prime For Life'. The account changed hands a few times, and is currently with Chase, but it remains nailed to prime, albeit an $88 annual fee. No, they have never raised my $7K limit, the effers. https://www.questia.com/magazine/1G1-16441751/wachovia-claims-a-first-lifetime-prime-rate-mastercard https://www.questia.com/magazine/1G1-16441751/wachovia-claim...
    - LeoTinnitus 7y ago
      I glossed over "credit card" at first and now I'm 100% jealous. That is single highhandedly the greatest credit card ever haha! I'd pay $88 for that. You garner barely any interest as it stands!
  - kube-system 7y ago
    That's kind of outside of the topic of finance though. Subsidized car loans are just as relevant to the financial markets as free samples at Costco are relevant to agriculture prices.
myoon 7y ago
No, this is the fed fund rate, which is just for banks to borrow really short term (overnight usually) to each other. Most consumer loans are based on the prime rate, which has a few points added to the fund rate to cover the cost of borrowing.
- apta 7y ago
  Would someone be able to negotiate a 0% loan with a bank you think?
  - mandelbrotwurst 7y ago
    Not unless it's bundled into some other set of services with profit for the bank attached.
- dcftoapv 7y ago
  Adding some further nuance to this point: - Many other rates in existing contracts are tied to the fed funds rate so things like existing mortgage and student loan payments may get smaller as a result of this action - This will only work for new contracts insofar as credit risk does not materially increase (which it will in an economic downturn); banks will increase consumer spreads against the fed funds rate on a go-forward basis
kurthr 7y ago
I think they're usually tied to the prime rate, but the spread is usually 13% or more. Prime, in turn is usually 2-3% above the fed funds. So you might find a CC with rates as low 15%!
perl4ever 7y ago
No, because the expense of processing loans becomes more significant the lower interest rates go. It's like people complain about gas prices not dropping as much as the price of oil, ignoring that the non-oil costs largely don't go down. Also, as something I read pointed out, the fact that people are rushing to "risk free" debt doesn't mean they are equally rushing to loan money to you, which has some risk. So for both reasons, consumer loans aren't dropping as much as you'd hope.
kube-system 7y ago
In financial markets, there's a formula that banks use to determine interest rates: Interest Rate = Real Risk Free Rate + Expected Inflation + Default Risk Premium + Liquidity Premium + Maturity Premium Fed bond rates are what determine the 'risk-free' rate. A bank can have the fed hold on to their cash and it is really safe there. Safe enough, that financial markets consider it 'risk free'. This is why all of your loans are dependent on this number. Banks add on a premium for inflation -- they want the dollars they get paid back in to be worth the same in real value, not nominal. They also add a premium for default risk. This is the obvious one -- the riskier the loan, the more the bank will have to charge to break even over a large number of loans, where some of them won't be paid back. The liquidity premium is kind of like a charge for FOMO. If it is hard for the bank to sell (or liquidate) your loan, they might be stuck with a your loan contract in a filing cabinet when they really need some cash. If they can sell your loan on the open market, then they'll give you a better rate here. And finally, the maturity premium is a charge for uncertainty. A bank can be pretty certain that they know what the financial markets will look like in the short term. But for a 30 year loan? The financial market could be a much different beast in 30 years. This is a lot of risk on a bank that has their cash tied up for that long of a period.
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colinbartlett 7y ago

My "high interest" savings accounts already took a recent haircut and this will accelerate that. I understand that's the idea: make investing attractive and savings unattractive. But for a regular joe like me, this is exactly the time I want to be saving more so it stings.

jkraker 7y ago
I moved some of my high yield savings account into a 12 month CD recently to maintain a more tolerable interest rate for the next 12 months while the savings account interest rate inevitably tanks. That means I can't touch it for 12 months if I want the interest, but I was careful with the amount I put in the CD so that I will most likely not have to touch it. This should in no way be construed to be advice because I'm unqualified to give it. It's just an option.
- lbotos 7y ago
  you can also get 4-5 smaller CDs (whatever smaller means for you) so if you did need some funds, you wouldn't have to lose all of the interest.
- jader201 7y ago
  Some banks have “no penalty” CDs that allow you to close them in the event that you need the money without taking a hit on any accrued interest. And this can happen as early as 7 days after opening the account. So the risk is very low. They’re slightly less yield than regular CDs, but not much. A really good option during this time. My bank actually sent an email prior to the last interest rate drop, and I moved most of my savings (that I didn’t think I’d need to touch for a year) into an 11-month CD before the rates dropped.
perl4ever 7y ago
What do you think is the difference between saving and investing??
- nightski 7y ago

phkahler 7y ago

IMHO this is a really bad idea. Let's hope they raise them slowly this time, unlike 2007-8 when they went back up quickly and triggered mayhem.

michaelyoshika 7y ago
Don't know why this is downvoted. Cutting interest only benefits the wall street in the next couple months. Basically this admin only knows two things: 1, Cut interest rate 2, Cut tax And it doesn't care if the world explodes after they step down.
- imglorp 7y ago
  Most republican administrations have displayed that "get mine and get out" behavior--causing recessions--since Teddy Roosevelt.
  - dcftoapv 7y ago
    Obama's admin let one of the world's foremost financial institutions fail and caused a mass market panic / giant economic setback. Their reasoning was entirely political and caused millions of people to lose their jobs. I'm independent, but claiming that Republicans cause recessions is pretty ironic considering the economic damage the last Democratic admin did.
    - imglorp 7y ago
      In that case, the recession began during Bush, who provided the first bailout around $800B. Obama did another bailout of similar amount. I was talking about starting recessions, not digging out of them, so my statement holds.
    - HaloZero 7y ago
      Which financial institution are you referring to here?
    - deleted 7y ago
      [deleted]

dcftoapv 7y ago

This is not going to help - It takes two years for monetary supply changes to fully propagate through the economy - Cutting rates to 0% has not been effective in Japan or Europe The fed does have a role to play here - They can provide liquidity to the market - They can serve as a backstop in a time of crisis DC needs to get their shit together - Eliminating Trump's tariffs would do more to increase long-term investment than cutting rates to 0% - They should have created targeted lending program to help businesses that need short-term cash flow assistance yesterday; the next best time to do it is right f*ing now

paganel 7y ago
As someone said before, I think this is more about sending a message, as in "we're going to do whatever it takes". To be honest I don't know what the future will hold from a financial/economics point of view, but imho this is an once-in-a-century crisis.
- dcftoapv 7y ago
  You're right, and they made a lot of changes that are necessary to keep the global economy functioning over the next few months. I did not mean to imply that they shouldn't be taking action. I am very skeptical about cutting rates again. There are much more effective actions that could be taken at the policy level. The fed is doing what it can, but it doesn't have the right tools to lead the charge on this.
  - paganel 7y ago
    Yeah, this should definitely be teamed up with corresponding fiscal and trade policies, the Fed cannot sort all of this mess by itself.

aazaa 7y ago

The Fed can, and will do much, much more. The signal here should be read as "whatever it takes to avoid a depression." Among other steps, this is likely to mean: - Negative-yielding long-term treasuries - Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon. The steps already taken and the ones to be taken will create financial manipulation on a scale never before seen. If the Fed loses this fight, game over.

jgalt212 7y ago
> If the Fed loses this fight, game over. Only in the sense that the fate of the world rests in inflated asset prices. That's not to say actions of the Fed cannot stabilize the markets, which is very important. But if the world is scared and scared for a long time (demand shock), there's not much the Fed can do. Then it will come down to whether or not the USG can become the "consumer of last resort" via fiscal stimulus.
dharma1 7y ago
Direct purchases of shares will do little to alleviate this crisis. The treasury purchases will fund the government to help industries which are badly affected from going under, companies with cash flow issues, and employees who need to take time off - which they already announced on Friday. I think $500b will be the beginning, will likely be much more needed
- dcftoapv 7y ago
  Asset purchases will help to stabilize markets - The fed became a huge driver of liquidity from from 2016-2018 - There was a noticeable increase in market toxicity when they started letting assets roll of their balance sheet in 2018 I'm more optimistic about the impacts of their role as a liquidity provider than I am about their role holding down the effective overnight borrowing rate.
  - dnautics 7y ago
    Are you optimistic about the wealth transfer implications of their activity?

superkuh 7y ago

Not only that but they've removed the reserve requirements entirely for "thousands" of banks. There are only ~4500 commercial banks in the USA total. So that's at least a good fraction of them. These banks can now create money out of nothing as much as they want.

mandelbrotwurst 7y ago
Do you have a source for this? That doesn't appear to be the case at least according to the Fed's website (https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm ), which shows the most recent change to the requirements being in January - setting it at 3% for large banks.
- superkuh 7y ago
  Sorry. I should have included that. https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-to-zero-and-launches-massive-700-billion-quantitative-easing-program.html https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-t... Start of paragraph 4.
  - mandelbrotwurst 7y ago
    Thanks.
- vpribish 7y ago
  https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... last item, heading is "Reserve Requirements" "... the Board has reduced reserve requirement ratios to zero percent effective on March 26"
jganetsk 7y ago
Reserve requirements never really limited the ability of banks to create money. Canada hasn't had reserve requirements for >20 years. Neither does the UK, New Zealand, Australia, Sweden and Hong Kong. But all banks are indeed subject to capital requirements, and that does limit money creation Anyway, reserve requirements are generally not effective, including in the USA. Much has been written about this. Banks are usually not reserve constrained (especially post QE), there are many ways to game reserve requirements, there are many ways to get reserves when you need them, and central banks increase reserves systematically when they are in demand via interest rate mechanisms. [1] https://en.wikipedia.org/wiki/Reserve_requirement#Countries_and_districts_without_reserve_requirements https://en.wikipedia.org/wiki/Reserve_requirement#Countries_... [2] https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III [3] http://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me_8_14_13.pdf http://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me_... [4] http://bilbo.economicoutlook.net/blog/?p=9075 http://bilbo.economicoutlook.net/blog/?p=9075 [5] http://macromusings.libsyn.com/marc-lavoie-on-canadian-central-bank-policy-real-time-payments-and-the-post-keynesian-tradition http://macromusings.libsyn.com/marc-lavoie-on-canadian-centr...

daddypro 7y ago

Does this interest rate transfer to lower mortgage rates? Is now a good time to refinance loans?

onlyrealcuzzo 7y ago
No. This is a rate for banks only. You get the rate banks pass on to consumers, which is obviously higher, because they need to make money.
- WalterBright 7y ago
  Mortgage interest rates are usually "prime + x". So the prime reducing will reduce "prime + x" by the same amount. For the same reason, I expect margin interest to drop by the same amount.
adeelk93 7y ago
It will, but not just yet. There’s too many people trying to refi right now and supply can’t keep up with demand, so rates are higher than they should be. Give it another 3-6 months and I wouldn’t be surprised if mortgage rates fell by another 1%.
- SomewhatLikely 7y ago
  There must be some floor based on default rates right? If 2% of people default you can't go below 2%. And of course default rates go up in recessions.
  - JoshuaDavid 7y ago
    If 2% of people default per year you can't go below 2%.
  - adeelk93 7y ago
    I personally don’t think there’s a floor, all that matters is spread over treasuries. If we go with your 2% number, that’s the spread between the mortgage risk and the risk-free rate. If risk-free goes to -1%, then it’d make sense for mortgages to go to 1%. This is something that already happens in European countries. I don’t think there’s an inherent reason for the risk-free rate to be a positive number. On a different note, 2% default != 2% loss. Mortgages are secured by the property, losing investors only a small fraction in foreclosure, so a 2% default * 25% severity = 0.5% loss.

josiahtu 7y ago

Imagine if Trump had tried as hard to contain coronavirus as he’s trying to pump markets rn

Animats 7y ago
I have to agree. A full lockdown of the country with a return to normal at the speed China achieved would do more than fooling around with interest rates. In the current situation, there's not much productive a business can do with more loans anyway.
- Consultant32452 7y ago
  They won't come out and say it, but the plan is to let the virus slow roll through the population of young/healthy to build up herd immunity. Some will die, but it will be better in the long run. You can tell that's the plan as they're talking about "flattening the curve." The area under the curve is the same, but they want to allow it to slow roll through the population so we don't over load the healthcare system. Compare this "flattening the curve" plan to what China has done. They have gone full on "shut down everything" and isolated the whole country. Their idea is to eradicate the virus in the country. This is a worse plan because it means they will not have herd immunity, though they may transition to that plan as time moves forward. This is why a full shutdown of the country is a bad idea. What happens then is when you start opening the country up there's a whiplash effect and it starts spreading rapidly again. For what it's worth, the UK publicly announced this is their plan. I forget the stat but they said they plan to let 40 or 60% of their population get it.
- sfj 7y ago
  China's economy has is no way returned to normal. https://www.capitaleconomics.com/wp-content/uploads/2020/03/Slide4-52-1024x583.png https://www.capitaleconomics.com/wp-content/uploads/2020/03/... https://www.capitaleconomics.com/wp-content/uploads/2020/03/Slide9-22-1024x583.png https://www.capitaleconomics.com/wp-content/uploads/2020/03/...
war1025 7y ago
You mean like shutting down travel from contaminated countries, which was widely viewed as a terrible choice just a week ago? There was only one way for the virus to get here, and that was through travel. CDC fucked up the testing after that failed, which got us to where we are now. Testing is supposed to be fixed this week. CDC just recommended people not gather in groups of more than 50. Things are starting to tighten down significantly. At this moment, I feel like we have a very real chance of getting a handle on things within the next two weeks. From there, we live through another month or two of lockdown and slow burn our way into summer. It's going to be hard, but I don't think we're dead in the water yet.

spodek 7y ago

In the context of Covid, wouldn't lowering economic activity help keep people home? It seems more than "just" saving lives. Purely economically, wouldn't a crashed health care system hurt the economy for a longer term?

sarah180 7y ago
A depression can kill a lot more people than COVID-19. This is why the state of California just told young, healthy people to continue to visit restaurants for now as long as tables are six feet apart. This is not just an idea from thin air: they're doing lots of projections on models of what is actually going to do more harm. Think of it this way: if the economy shrinks by 30%, that means we have to spend 30% less on everything. That's 30% less funding for wellness, hospitals & emergency services. 30% less that people spend on self-care like gym memberships. 30% less on gasoline to get to outdoor activities. If your food budget drops by 30%, there's a good chance you're going to eat less healthy foods. If people are going out 30% less often, you will see increases in both physical and mental illness ,as we know that social contact improves health. This is why the Twitter meme of "everybody panic and go home and stay there for three weeks" may actually do a lot more harm than good even if it helps slow the spread of COVID-19. Unless you think your state and county leadership is incompetent, follow their advice, as they are best informed about the local conditions.
- dingo_bat 7y ago
  > if the economy shrinks by 30%, that means we have to spend 30% less on everything Doesn't ring true. If my salary drops by 30%, my expenses would not all drop by that percentage. Things like food and medicine would drop a little, not close to 30%. Things like vacation spending may drop by 100%.
sn9 7y ago
This is more to help people avoid losing their jobs and paychecks as demand craters and business look to cut costs.

deleted 7y ago

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coretx 7y ago

The EU is printing more EUR, helping everyone. The USA is lowering the interest, helping the ultra rich.

sarah180 7y ago
This is effectively how you print money in a modern economy. They're giving banks access to a lot more cash and have reduced reserve requirements to 0%, meaning that banks can loan new money without limitation and without fear that they'll be able to borrow to cover those loans. Most money is not actually on paper, so the amount you print is not the point.
- coretx 7y ago
  You can only benefit / capitalize on the decreased interest if you are in possession of capital already.
- sfj 7y ago
  But who are they going to lend to? Aren't most companies losing cashflow due to loss of employees/supply, and don't have demand due to everyone staying home? The only companies that are going to be borrowing are those that are out of money and need to try and weather the current crisis. If the banks make a mistake here and the companies they lend to go bankrupt, they go bankrupt too.

yalogin 7y ago

Why is this warranted yet? This is a terrible that will only signal that the fed is panicking and nothing else. There are no indications that the supply chain is disrupted or that the economy is sputtering. It will happen at some point in the next few weeks with or without the infusion and rate cuts now. These things are much better done when warranted rather than now. As of now it’s only a humanitarian crisis and only thing that will help is effective communication to contain the pandemic. These infusions now will soon be forgotten by the next bad news and the effect will not persist.

michaelyoshika 7y ago
Earlier this weekend Trump said he could have fired Powell but choose not too. Imagine you were Powell, what would you do?
- chance_state 7y ago
  What you felt was right, rather than self-preserving, perhaps?
- deleted 7y ago
  [deleted]
- peteradio 7y ago
  Somehow I doubt Powell is living paycheck to paycheck. Professionals shouldn't cave under pressure that's why they make the big bucks. This is only a rebuttal to the "what would you do?" I have no idea whether or not he was pressured or if this is a good or bad move.

allovernow 7y ago

Bank runs are coming. We are witnessing financial collapse and possibly the early failure of the American empire. Futures trading was halted today. Market will tank tomorrow. That's after a $1.5T stimulus. This is it.

HenryKissinger 7y ago
This comment won't age well. No bank run is coming, and we are not witnessing financial collapse, nor the failure of the American empire.
- allovernow 7y ago
  The fed had now pushed one $1.5T stimulus package and lowered rates to zero in an absolutely desperate attempt to prop up a market when the entire country is about to shut down - what are they propping up when no one is going to spend any money? Don't believe me? China. Iran. Italy. Spain. Austria. Multiple Nordic countries. Nationwide shutdown. Coming to a state near you. 300MM people just panicked at the same time, and the stores have been empty for two days. Imagine what's going to happen when they all discover fractional reserve banking.
  - allovernow 7y ago
    Just documenting for the future: today the NYSE halted at least once and Dow dropped 13%. PA announced shutdown of all non essential businesses.

beefman 7y ago

Original source: https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...

matt_the_bass 7y ago

I think the issue is cash-flow. So the govt should do things to mitigate cash-flow. Such as pause rent/mortgage payments for 2 months for anyone that is out of work due to this.

kshacker 7y ago
It maybe works for mortgage as government deals with banks regularly. But what if you rented from an individual owner who needs your rent? Liberalized (without proving that you are looking for a job for let us say next 3 months) unemployment insurance may be a better solution that keeps the economy churning.
- matt_the_bass 7y ago
  I agree it’s not as simple as only mortgage freeze. But if the land lord needs the rent, probably that’s for their mortgage. But yes, I agree better unemployment insurance is a good idea.
  - LeoTinnitus 7y ago
    A mortgage freeze would save the landlord and they wouldn't need the rent. If they need the rent when their mortgage payment is frozen, then they're not a good landlord. Chances are, they won't be a landlord for long when the lender calls the loan due as well. Let's not offload the onus on landlords personally responsibility to manage their finances. If they don't have a mortgage to pay, they'll get by just fine if they can't collect rent.
tree3 7y ago
As that does is shift the cash flow problems to someone else.
- matt_the_bass 7y ago
  My point is that cash-flow is the issue. And most Americans pay a substantial portion of their income towards housing. What does cutting the fed interest rate by 1% do for “typical” Americans? I don’t think it reduces day to day stress which in turn causes more problems. I don’t have a complete answer, but I feel like the answers that are given by the government are not the best answers and not the most effective use of funds.

somewhereoutth 7y ago

This feels like the end of an era - an era that ran from the fall of the Berlin Wall up to the appearance of Covid-19. A global era, a largely peaceful era, a profligate era, and an era of growing inequality. Who knows what comes next...

sershe 7y ago

At this point, I'm actually starting to wonder. If we literally do nothing about the virus, or do the bare minimum, the worst case scenario based on the numbers I hear is 7.7b * 0.6 (total infections) * 0.02-0.03 (presumed mortality rate after the healthcare system collapses MINUS the rate if it doesn't), ~115m people are going to die worldwide. This appears to me to be the absolute worst case scenario given current knowledge; gradually slowing infection rates, the fact that the developing world skews younger and is less connected, etc., may make it better. That 115m will skew heavily towards the elderly, i.e. loss in days-of-life would be significantly less than you would expect. Now, if you put value on days of human life (which you totally can do; first, as a matter of policy, you won't pay a million dollars to give a 90 year old another year of life, nor would you pay a billion to cure cancer in one teenager; second, you do it every day when you take quantifiable risks to make money or for convenience, everything from being a logger or a deep sea fisherman, to merely driving)... if you put value on human life, how much would this waste of life be worth? And how much waste of life is a worldwide recession or depression going to produce - in direct deaths, days lost by billions of people in s terrible economy, esp. if it gets to GD levels or worse, or in the developing world where it definitely will if the economy grinds to a halt; and on top of that in purely monetary terms, as people are not able to do things from buying houses to merely making ends meet, depending on the circumstances? At this point everybody seems to admit it's beyond containment and the only thing we are trying to do is flatten the curve and prevent the deaths. Is entering a recession, or worse a depression and risking a total collapse really worth it? I am starting to doubt it. PS. Frankly this reminds me of plane crash reporting. Everybody is, comparatively speaking, overreacting because the event is visible and distinct, even though many more people die in cars every day.

isignal 7y ago
There's a billion people in India and so far the mortality and spread rates there aren't similar to other countries. There is a theory that humid and warm places will not have these mortality rates (as validated by our common sense that summer time flu is less common). I don't think we have enough information about the virus to generalize to the whole world yet.
- 7y ago

deleted 7y ago

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shartshooter 7y ago

Stopping production for a significant period of time was the first gut punch covid is throwing. The second one seems to be landing on Europe and third will be North America. This means China will have a head start on getting supply up and running. If the ROW is at a standstill in production, China will fill that gap which could further displace a lot of production in the west. China getting containment in order didn’t bounce back but also bounce ahead in many places.

matt_the_bass 7y ago
I think that may be plausible. But I also think that a lot of companies relying on Chinese manufacturing all suddenly saw they had all their manufacturing eggs in one basket. I’m not suggesting that we should move manufacturing back to US, but we should diversify. I’m seeing that some of my suppliers have already moved to other Asian countries. I expect that diversification to continue.
- shartshooter 7y ago
  Agreed. The fallout from this, beyond loss of life and impact to day-to-day, will be really interesting and will seem obvious in hindsight.

js2 7y ago

SARS-CoV-2 doesn't care about monetary policy. Why not give money directly to the people who need it? They'll spend the money right away. I'm willing to sacrifice my 401(k) and retire on just SS if need be if my government is willing to help everyone worse off than me.

webninja 7y ago
There’s thousands of rich bourgeoisie in this world that don’t think like you. But your comment gives me hope that there’s more people out there that are driven by things other than fear and greed.
sfj 7y ago
Curious why you need to government involved? Why not just take your money out of your 401(k) yourself? You'll suffer a penalty, but people are in need.
- ShinyObject 7y ago
  Because uncoordinated individual action is ineffective against large scale problems, which should be obvious right now.
  - sfj 7y ago
    If he gave his money to a few people in need, it would be effective for them, wouldn't it? And probably better spent then after going through the tangled mess of government bureaucracy. What more could you hope for?
    - js2 7y ago
      The GoFundMe model of health insurance and welfare doesn’t work. It’s my government’s job. It’s why we have social security and medicare and Medicaid and TANF, etc, in the first place. I can’t do it alone. Promoting the general welfare is right in the preamble of our constitution: > We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. And in the letter of transmittal, Washington wrote: > Individuals entering into society, must give up a share of liberty to preserve the rest. The magnitude of the sacrifice must depend as well on situation and circumstance, as on the object to be obtained. It is at all times difficult to draw with precision the line between those rights which must be surrendered, and those which may be reserved.

gdubs 7y ago

We need fiscal stimulus, and we need it yesterday. Time to put money in people’s pockets.