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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 mea

by 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?
    - dcftoapv 7y ago
      Look, I don't want to be alarmist, but the worst outcome here is not '08. It's the 1930s. This has caused material demand and supply side shocks that we haven't seen in my lifetime or my parents' lifetime. I'm likely on the younger side of the hacker news demographic and I still believe that this is the right action to take at this moment. We might be stuck paying it off for awhile, but I would rather deal with an inflated fed balance sheet than an entire generation of Americans coming of age during a giant economic pullback.
      - kmonsen 7y ago
        No, the world is much more interconnected than in the 30s. This can get a lot more ugly if it lasts multiple months. People were also a lot more used to rough conditions in the 30s and the general population is totally unprepared today. This will either pass in 1-2 months at most or we are looking at revolution or military dictatorship.
        dnautics 7y ago
        But at the same time, what percent of the population was in food distress prior to the crash of 1929, what percent had no access to medical facilities whatsoever, or could wind up in a situation where nobody was checking in on them and they couldn't put out an ask for help? So a lot of things have changed, at least in the US, that make the infrastructure of resilience possible in a way that was specifically impossible in 1930.
        barry-cotter 7y ago
        > No, the world is much more interconnected than in the 30s. More, yes, but not much more. Agriculture, commodities, finished manufactured goods and finance were all global markets before WWI. The re-integration of markets only overtook that period in the 90s, after the fall of the Soviet Union and before that the demise of Bretton Woods and managed trade.
fourstar 7y ago
> If the Fed loses this fight, game over. They've already lost it. It's clear they're scrambling. You can't print your way out of this is the lesson we KNEW from '08.
- adventured 7y ago
  > You can't print your way out of this is the lesson we KNEW from '08. Printing our way out of 2008-2010 is exactly what we did that worked, and it's what Europe mostly didn't do and their results were terrible by comparison (leading to another bad recession a few years later, after which the ECB finally learned a lesson; and finally after that, Europe began to properly recover, including countries hardest hit like Spain and Portugal). The Fed's balance sheet makes this exceptionally clear: https://i.imgur.com/QbF5jzJ.png https://i.imgur.com/QbF5jzJ.png It took the Fed a short amount of time to ramp up the programs, including eventually moving on to QE. And it worked just fine. See that epic balance sheet expansion in 2013 and 2014? That's the Fed avoiding what hit Europe. That's the Fed further printing our way out of the mess. It's how the US economy kept expanding for ten years. You can in fact use the Fed to debase USD-based productivity + assets and then redirect those resources in a concentrated manner at a problem, such as the housing market. The Fed can take a trillion dollars from every holder of dollars and dollar assets, and put that trillion dollars toward a problem. This only stops working if the USD has no value (or in more realistic terms, if the USD loses very immense amounts of value, becoming mostly worthless, which makes the dollar debasement & redistribution efforts lose their punch). The Fed bought all the toxic mortgages. They recapitalized the banks, keeping the majors and the real-estate market from collapsing under the weight of trillions in junk mortgages. They largely removed those mortgages from the market, which very rapidly helped the housing market begin to stabilize and turn around. They successfully directly bailed out homeowners to the tune of trillions of dollars and reinflated the housing market and the stock market via low interest rates.
  - postingawayonhn 7y ago
    > Printing our way out of 2008-2010 is exactly what we did that worked It was always just a band-aid. The reason the Fed has had to take interest rates so low now is that they were unable to raise them during the lastest 'boom'.
mcphilip 7y ago
Interesting that S&P futures have fallen 3% as of 5:00pm in Asia. Are markets interpreting this less as the Fed signaling it will do whatever it takes and more as the Fed is panicked and the financial system is under a huge amount of pressure behind the scenes? Edit: S&P futures limit down at 5:15.
- vsareto 7y ago
  The only alternative reason is that the Fed is simply giving in to Trump's demand.
- dcftoapv 7y ago
  The problem is that fed action isn't enough. We need policy changes to keep SMEs above water. The White House and Congress have not taken appropriate action. Trump acted like he was going to take action on Friday, the markets ripped higher, and everything he announced was worthless, but that wasn't clear until markets closed.
- blihp 7y ago
  A significant fraction of the economies of the world are being shut down, which is what needs to happen short term.[1] Interest rate cuts and liquidity injections won't do much of anything about the fact that, other than mostly small ticket essentials, no one is buying, no one is selling and no one is producing much right now. At the very least, this quarter is shot and markets are just trying to price in what stalling out the economy is going to mean. The problem is, no one knows how long this will take or how quickly activity will (hopefully) recover when it's all over. [1] If you disagree, picture this scenario: everyone went about their business as usual, vastly larger numbers of cases are reported with corresponding deaths, healthcare providers are hopelessly overwhelmed, the public starts to panic... and economies are still shutting down but due to fear.
- pdovy 7y ago
  IMO the severity of the situation and the economic fallout has become more clear over the weekend as more states have issued broad orders regarding school/restaurant/bar closures and limits on public gatherings. Ultimately the Fed can give a lot of help here, but can't fix the underlying problem. Easing credit for businesses will help get some through to the other side but it won't replace lost revenue. Things are going to be very volatile for the foreseeable future. Non-Farm Payroll data released in a few weeks time would have had the househould sample conducted last week, so we may not know the full impact on unemployment until May, realistically.
inferiorhuman 7y ago
If the Fed loses this fight, game over. This isn't the Fed's fight. Monetary policy won't fix this.
- onlyrealcuzzo 7y ago
  A lot of people seem to think the Fed's job evolved to include preventing recessions. I guess the Fed isn't accountable to the US public, so their job can be whatever they want it to be?
  - dcftoapv 7y ago
    The feds mandate is to maximize employment, stabilize prices, and moderate long-term interest rates. A big part of that is trying to avoid the 'bust' part of a boom-bust cycle. As evidenced by your post, the fed should not be accountable to the public because the public cannot be expected to spend anytime trying to understand what they do and their methods of action.
    - deleted 7y ago
      [deleted]
    - cle 7y ago
      Any body holding significant power is at some level accountable to the public, regardless of laws or regulations or how little the public may understand. If the Fed can’t make the case to most citizens that it should exist and retain its power, then it is doomed, and no philosophical arguments could change that.
    - cryptica 7y ago
      The Fed should just hire all citizens in the country as employees. That would be a more efficient way to maximize employment.
      - deleted 7y ago
        [deleted]
ajross 7y ago
> whatever it takes to avoid a depression Does the Federal Reserve Bank do vaccines, now? This isn't a financial crisis. Money won't fix it. People aren't transacting in big chunks of the economy because they're immobilized by a plague. Now... certainly once the virus is under control, economic recovery is going to depend on finance and liquidity, so it's not like the Fed has no role to play. But... it's not the Fed's fight to "lose". Until case counts are down and infection risk is negligible, we're looking at a depression regardless.
- kmonsen 7y ago
  The thing is, it will be a financial crisis at some point once people start loosing their jobs and can't afford to pay bills in addition to a medical disaster no-one can pay for.
  - cmurf 7y ago
    Combination government and market failure, where the market dispassionately says "you should all just lose your jobs, no demand for now", and the government doesn't intervene? Most ski resorts in North America are shut down for at least a week, but Jackson Hole closed for the season and others are expected to follow. Hospitality and service industry workers who have seasonal jobs, are making a large chunk of their annual earnings during spring break, which is now. Already people are asking about rent reductions. How does that work? Landlord takes a haircut? Will the bank take a mortgage haircut? Who even owns the actual loan, do they take a hair cut? And if no one does, then that means the renter is effectively taking the full hit. Maybe some of them will qualify for unemployment insurance, but I have no idea how long that lasts or what percent on the dollar it pays.
taiwanboy 7y ago
The government can simply ban shorts, much like 2008, and what other European stock markets have done already. That would kill the shorts dead in its tracks. Then the stock market would stabilize, in time for businesses to stabilize and hopefully by summer everything will be recovery focused.
- AznHisoka 7y ago
  What if stocks dropping was mostly due to people selling their holdings?
  - taiwanboy 7y ago
    With interest rate at near 0 percent and inflation at 2.3%, people will come back to stocks sooner rather than later
    - raincom 7y ago
      You are ignoring bond markets, which is playing a huge factor in getting away from stocks.
      - jjoonathan 7y ago
        > With interest rate at near 0 percent
    - AznHisoka 7y ago
      Why? I would rather hold cash that gives me 0% return (or -2.3%) rather than something that is going to return less than 30% a year.
- deleted 7y ago
  [deleted]
internet_user 7y ago
Why can't they just spin up an LLC that would buy stocks/ETFs and just write loans to it? Why would that need congressional approval? Seems like exactly what they've done with Maiden Lane LLC
- thoughtstheseus 7y ago
  They went through a bank, JPMorgan. The fed can lend to banks so they could execute equity purchases if they found a partner bank to actually do it.
Anon84 7y ago
What does game over mean in this context?
- pishpash 7y ago
  Total financial collapse, asset holders wiped out.
- BenoitEssiambre 7y ago
  Game over happens when, fiat money seems to have, on a risk adjusted, liquidity adjusted basis, a better return and better appeal than holding existing real private assets, therefore a process starts where people, businesses and banks try to hoard government paper all at the same time instead of holding private assets. Demand shifts so far towards government paper and away from private assets that the supply of the later assets go in steep decline (eg. businesses close, people are laid off etc.). Basically fiat's appeal as an asset, its above market return, puts the private asset market in a gridlock. It's normal for private asset returns to go negative in a crisis. Before paper money existed, losses on assets were a common thing. Your land would suffer from drought, your live stock would get an infection. You didn't stop working and shut everything down because you temporarily expected to get a poor return. You still wanted to eat something at the end of the year. The existence of an artificial government asset that has difficulty following the private assets rate of return into the negatives, can sometimes block a large part of the private asset market from existing. Business owners choose to stop any investment, wind down their business and sit on cash. The world moves towards everybody holding pieces of paper and nobody producing anything you could buy with these pieces of paper. Counter intuitively, in order to prevent people from holding too much government paper, you have to print a lot of it very early to make it seem less appealing. For example, if toilet paper companies had been ahead of the curve and kept the shelves stocked, they probably wouldn't have needed to manufacture so much toilet paper because fewer would have hoarded it if it didn't look scarce. The fact that they didn't produce enough early enough, means they ended up having to produce more overall.
  - AnthonyMouse 7y ago
    > Game over happens when, fiat money seems to have, on a risk adjusted, liquidity adjusted basis, a better return and better appeal than holding existing real private assets, therefore a process starts where people, businesses and banks try to hoard government paper all at the same time instead of holding private assets. This is what happened in the 1930s. But as you say, counteracting it is as easy as printing money. Which normally has the disadvantage of causing inflation (this is what they were excessively afraid of in the 1930s), but when there are existing deflationary forces in effect, all it does is even things out. The real question is, what happens to the money they print? Buying treasuries with it is the usual option, which isn't a total disaster (it pushes investment back into stocks by lowering the yield on bonds), but a better option right now might be paying out the new money as a UBI. That would serve two purposes at once. One, you fight the deflationary effect, and two, you help people out whose businesses are suffering, both by giving the proprietors a UBI and by giving their customers one as well so they then have some more money to patronize businesses with. So instead of propping up stock prices artificially, you maintain their value organically by strengthening consumer demand. This also provides a nice answer to the question, what do we do once interest rates are already zero? At that point we can use any additional new money to fund a UBI instead of driving interest rates negative.
csense 7y ago
Does anyone here understand how negative interest rates would work? Why would anyone buy a negative-rate treasury bond instead of just hanging on to their cash?
- dcftoapv 7y ago
  We used to think that rates couldn't go negative for exactly the reason you just described. Turns out that assumption was wrong for a few reasons a) holding onto money is expensive b) in many cases banks have incentive to hold government securities c) sometimes they are outright required to hold government securities d) this is related to (a), but there is risk in holding onto cash where government debt is in many cases perceived as risk-free. The thought today is that rates can go only slightly negative for short periods of time, which we will continue to believe until some government tries to push the lower bound again.
  - csense 7y ago
    So people are willing to accept small negative rates if it would be less than the operational costs of shipping enormous truckloads of bills around, storing them, securing them, and insuring them against theft / fire? Is that's what's going on here?
    - dcftoapv 7y ago
      That's kind of the thought, yes. Negative rates should not be sustainable for any significant period of time and most interest rate models are built on that assumption.
      - dcftoapv 7y ago
        Sorry, I want to clarify quickly that appleiigs is right that it isn't cost of insuring cash so much as depository risk. When I say cash, I mean currency as opposed to debt/equity, not physical bills.
    - xiphias2 7y ago
cryptica 7y ago
The more new fiat money is injected into the economy, the more valuable cryptocurrencies become. It doesn't really matter where that fiat money enters the market. So long as there are millionaires and billionaires at the top of the food chain who keep amassing big money without having to lift a finger, cryptocurrencies will have increasing value. The Fed's policies have created a large and growing class of people who simply don't know what to do with their money - And these people just keep dumping their money straight into cryptocurrencies and corporate stocks. It doesn't matter where they dump their money in fact. So long as what they're buying is more scarce than their fiat money, it will go up in price - And to many rich people today, pretty much everything which exists is more scarce than fiat money so the bar for what makes a good investment is very low.
dntbnmpls 7y ago
> The signal here should be read as "whatever it takes to avoid a depression." Should it? > If the Fed loses this fight, game over. It might be game over for the Fed, but not the country. For most of america's history, the Fed didn't exist and the US did very well without the Fed. It's the same silly fearmongering rhetoric by the abusive powerful to the masses. Without us, it'll be chaos. The same argument was made to justify the existence of monarchies. Without monarchies, it would be anarchy. The same to justify the existence of the pope and catholicism. Without catholicism, it would be depravity. Abusive spouses say that their to abused spouses, without me you are nothing. Just maybe, the cause of our financial woes are the Fed itself? Maybe if we got rid of kings, religion, abusive spouses or the Fed we might be better off. After all, the Fed is just a private institution ( an international banking cartel ) used to parasitically leech off the american people. More aptly, the Fed is like an anarchist who sets your house on fire and then comes to your house to "help" you put out the fire.
- mannanj 7y ago
  I actually like this. I would upvote, but I dont see the option.
SubiculumCode 7y ago
Helicopter drops are needed, imo
vkou 7y ago
> If the Fed loses this fight, game over. The fed is pushing on a rope. Any upcoming depression will be driven by collapse in demand, not supply. Slashing interest rates won't do anything to prop spending when consumers are sitting at home, not working, and not buying anything. All this is, is an attempt to boost asset prices, to bailout investors.
- triangleman 7y ago
  The "pushing on a rope" analogy is usually used to describe how monetary policy stimulates demand but not supply. I do agree with you about asset prices.
shreyshrey 7y ago
Let us say hypothetically the congress approves FED to buy stocks and ETF. Just curious what will they buy: s&p index, total market index or something else. Let us say if they buy one index, will it be fair for companies who are not in the index?
- webninja 7y ago
  They’d sooner shift from buying treasury bonds to other bonds before they’d go into equities. But what do I know. It’s be better if they went into the student loan market.

by aazaa 7y ago

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?
  - dcftoapv 7y ago
    Look, I don't want to be alarmist, but the worst outcome here is not '08. It's the 1930s. This has caused material demand and supply side shocks that we haven't seen in my lifetime or my parents' lifetime. I'm likely on the younger side of the hacker news demographic and I still believe that this is the right action to take at this moment. We might be stuck paying it off for awhile, but I would rather deal with an inflated fed balance sheet than an entire generation of Americans coming of age during a giant economic pullback.
    - kmonsen 7y ago
      No, the world is much more interconnected than in the 30s. This can get a lot more ugly if it lasts multiple months. People were also a lot more used to rough conditions in the 30s and the general population is totally unprepared today. This will either pass in 1-2 months at most or we are looking at revolution or military dictatorship.
      - dnautics 7y ago
        But at the same time, what percent of the population was in food distress prior to the crash of 1929, what percent had no access to medical facilities whatsoever, or could wind up in a situation where nobody was checking in on them and they couldn't put out an ask for help? So a lot of things have changed, at least in the US, that make the infrastructure of resilience possible in a way that was specifically impossible in 1930.
      - barry-cotter 7y ago
        > No, the world is much more interconnected than in the 30s. More, yes, but not much more. Agriculture, commodities, finished manufactured goods and finance were all global markets before WWI. The re-integration of markets only overtook that period in the 90s, after the fall of the Soviet Union and before that the demise of Bretton Woods and managed trade.

fourstar 7y ago

> If the Fed loses this fight, game over. They've already lost it. It's clear they're scrambling. You can't print your way out of this is the lesson we KNEW from '08.

adventured 7y ago
> You can't print your way out of this is the lesson we KNEW from '08. Printing our way out of 2008-2010 is exactly what we did that worked, and it's what Europe mostly didn't do and their results were terrible by comparison (leading to another bad recession a few years later, after which the ECB finally learned a lesson; and finally after that, Europe began to properly recover, including countries hardest hit like Spain and Portugal). The Fed's balance sheet makes this exceptionally clear: https://i.imgur.com/QbF5jzJ.png https://i.imgur.com/QbF5jzJ.png It took the Fed a short amount of time to ramp up the programs, including eventually moving on to QE. And it worked just fine. See that epic balance sheet expansion in 2013 and 2014? That's the Fed avoiding what hit Europe. That's the Fed further printing our way out of the mess. It's how the US economy kept expanding for ten years. You can in fact use the Fed to debase USD-based productivity + assets and then redirect those resources in a concentrated manner at a problem, such as the housing market. The Fed can take a trillion dollars from every holder of dollars and dollar assets, and put that trillion dollars toward a problem. This only stops working if the USD has no value (or in more realistic terms, if the USD loses very immense amounts of value, becoming mostly worthless, which makes the dollar debasement & redistribution efforts lose their punch). The Fed bought all the toxic mortgages. They recapitalized the banks, keeping the majors and the real-estate market from collapsing under the weight of trillions in junk mortgages. They largely removed those mortgages from the market, which very rapidly helped the housing market begin to stabilize and turn around. They successfully directly bailed out homeowners to the tune of trillions of dollars and reinflated the housing market and the stock market via low interest rates.
- postingawayonhn 7y ago
  > Printing our way out of 2008-2010 is exactly what we did that worked It was always just a band-aid. The reason the Fed has had to take interest rates so low now is that they were unable to raise them during the lastest 'boom'.

mcphilip 7y ago

Interesting that S&P futures have fallen 3% as of 5:00pm in Asia. Are markets interpreting this less as the Fed signaling it will do whatever it takes and more as the Fed is panicked and the financial system is under a huge amount of pressure behind the scenes? Edit: S&P futures limit down at 5:15.

vsareto 7y ago
The only alternative reason is that the Fed is simply giving in to Trump's demand.
dcftoapv 7y ago
The problem is that fed action isn't enough. We need policy changes to keep SMEs above water. The White House and Congress have not taken appropriate action. Trump acted like he was going to take action on Friday, the markets ripped higher, and everything he announced was worthless, but that wasn't clear until markets closed.
blihp 7y ago
A significant fraction of the economies of the world are being shut down, which is what needs to happen short term.[1] Interest rate cuts and liquidity injections won't do much of anything about the fact that, other than mostly small ticket essentials, no one is buying, no one is selling and no one is producing much right now. At the very least, this quarter is shot and markets are just trying to price in what stalling out the economy is going to mean. The problem is, no one knows how long this will take or how quickly activity will (hopefully) recover when it's all over. [1] If you disagree, picture this scenario: everyone went about their business as usual, vastly larger numbers of cases are reported with corresponding deaths, healthcare providers are hopelessly overwhelmed, the public starts to panic... and economies are still shutting down but due to fear.
pdovy 7y ago
IMO the severity of the situation and the economic fallout has become more clear over the weekend as more states have issued broad orders regarding school/restaurant/bar closures and limits on public gatherings. Ultimately the Fed can give a lot of help here, but can't fix the underlying problem. Easing credit for businesses will help get some through to the other side but it won't replace lost revenue. Things are going to be very volatile for the foreseeable future. Non-Farm Payroll data released in a few weeks time would have had the househould sample conducted last week, so we may not know the full impact on unemployment until May, realistically.

inferiorhuman 7y ago

If the Fed loses this fight, game over. This isn't the Fed's fight. Monetary policy won't fix this.

onlyrealcuzzo 7y ago
A lot of people seem to think the Fed's job evolved to include preventing recessions. I guess the Fed isn't accountable to the US public, so their job can be whatever they want it to be?
- dcftoapv 7y ago
  The feds mandate is to maximize employment, stabilize prices, and moderate long-term interest rates. A big part of that is trying to avoid the 'bust' part of a boom-bust cycle. As evidenced by your post, the fed should not be accountable to the public because the public cannot be expected to spend anytime trying to understand what they do and their methods of action.
  - deleted 7y ago
    [deleted]
  - cle 7y ago
    Any body holding significant power is at some level accountable to the public, regardless of laws or regulations or how little the public may understand. If the Fed can’t make the case to most citizens that it should exist and retain its power, then it is doomed, and no philosophical arguments could change that.
  - cryptica 7y ago
    The Fed should just hire all citizens in the country as employees. That would be a more efficient way to maximize employment.
    - deleted 7y ago
      [deleted]

ajross 7y ago

> whatever it takes to avoid a depression Does the Federal Reserve Bank do vaccines, now? This isn't a financial crisis. Money won't fix it. People aren't transacting in big chunks of the economy because they're immobilized by a plague. Now... certainly once the virus is under control, economic recovery is going to depend on finance and liquidity, so it's not like the Fed has no role to play. But... it's not the Fed's fight to "lose". Until case counts are down and infection risk is negligible, we're looking at a depression regardless.

kmonsen 7y ago
The thing is, it will be a financial crisis at some point once people start loosing their jobs and can't afford to pay bills in addition to a medical disaster no-one can pay for.
- cmurf 7y ago
  Combination government and market failure, where the market dispassionately says "you should all just lose your jobs, no demand for now", and the government doesn't intervene? Most ski resorts in North America are shut down for at least a week, but Jackson Hole closed for the season and others are expected to follow. Hospitality and service industry workers who have seasonal jobs, are making a large chunk of their annual earnings during spring break, which is now. Already people are asking about rent reductions. How does that work? Landlord takes a haircut? Will the bank take a mortgage haircut? Who even owns the actual loan, do they take a hair cut? And if no one does, then that means the renter is effectively taking the full hit. Maybe some of them will qualify for unemployment insurance, but I have no idea how long that lasts or what percent on the dollar it pays.

taiwanboy 7y ago

The government can simply ban shorts, much like 2008, and what other European stock markets have done already. That would kill the shorts dead in its tracks. Then the stock market would stabilize, in time for businesses to stabilize and hopefully by summer everything will be recovery focused.

AznHisoka 7y ago
What if stocks dropping was mostly due to people selling their holdings?
- taiwanboy 7y ago
  With interest rate at near 0 percent and inflation at 2.3%, people will come back to stocks sooner rather than later
  - raincom 7y ago
    You are ignoring bond markets, which is playing a huge factor in getting away from stocks.
    - jjoonathan 7y ago
      > With interest rate at near 0 percent
  - AznHisoka 7y ago
    Why? I would rather hold cash that gives me 0% return (or -2.3%) rather than something that is going to return less than 30% a year.
deleted 7y ago
[deleted]

internet_user 7y ago

Why can't they just spin up an LLC that would buy stocks/ETFs and just write loans to it? Why would that need congressional approval? Seems like exactly what they've done with Maiden Lane LLC

thoughtstheseus 7y ago
They went through a bank, JPMorgan. The fed can lend to banks so they could execute equity purchases if they found a partner bank to actually do it.

Anon84 7y ago

What does game over mean in this context?

pishpash 7y ago
Total financial collapse, asset holders wiped out.
BenoitEssiambre 7y ago
Game over happens when, fiat money seems to have, on a risk adjusted, liquidity adjusted basis, a better return and better appeal than holding existing real private assets, therefore a process starts where people, businesses and banks try to hoard government paper all at the same time instead of holding private assets. Demand shifts so far towards government paper and away from private assets that the supply of the later assets go in steep decline (eg. businesses close, people are laid off etc.). Basically fiat's appeal as an asset, its above market return, puts the private asset market in a gridlock. It's normal for private asset returns to go negative in a crisis. Before paper money existed, losses on assets were a common thing. Your land would suffer from drought, your live stock would get an infection. You didn't stop working and shut everything down because you temporarily expected to get a poor return. You still wanted to eat something at the end of the year. The existence of an artificial government asset that has difficulty following the private assets rate of return into the negatives, can sometimes block a large part of the private asset market from existing. Business owners choose to stop any investment, wind down their business and sit on cash. The world moves towards everybody holding pieces of paper and nobody producing anything you could buy with these pieces of paper. Counter intuitively, in order to prevent people from holding too much government paper, you have to print a lot of it very early to make it seem less appealing. For example, if toilet paper companies had been ahead of the curve and kept the shelves stocked, they probably wouldn't have needed to manufacture so much toilet paper because fewer would have hoarded it if it didn't look scarce. The fact that they didn't produce enough early enough, means they ended up having to produce more overall.
- AnthonyMouse 7y ago
  > Game over happens when, fiat money seems to have, on a risk adjusted, liquidity adjusted basis, a better return and better appeal than holding existing real private assets, therefore a process starts where people, businesses and banks try to hoard government paper all at the same time instead of holding private assets. This is what happened in the 1930s. But as you say, counteracting it is as easy as printing money. Which normally has the disadvantage of causing inflation (this is what they were excessively afraid of in the 1930s), but when there are existing deflationary forces in effect, all it does is even things out. The real question is, what happens to the money they print? Buying treasuries with it is the usual option, which isn't a total disaster (it pushes investment back into stocks by lowering the yield on bonds), but a better option right now might be paying out the new money as a UBI. That would serve two purposes at once. One, you fight the deflationary effect, and two, you help people out whose businesses are suffering, both by giving the proprietors a UBI and by giving their customers one as well so they then have some more money to patronize businesses with. So instead of propping up stock prices artificially, you maintain their value organically by strengthening consumer demand. This also provides a nice answer to the question, what do we do once interest rates are already zero? At that point we can use any additional new money to fund a UBI instead of driving interest rates negative.

csense 7y ago

Does anyone here understand how negative interest rates would work? Why would anyone buy a negative-rate treasury bond instead of just hanging on to their cash?

dcftoapv 7y ago
We used to think that rates couldn't go negative for exactly the reason you just described. Turns out that assumption was wrong for a few reasons a) holding onto money is expensive b) in many cases banks have incentive to hold government securities c) sometimes they are outright required to hold government securities d) this is related to (a), but there is risk in holding onto cash where government debt is in many cases perceived as risk-free. The thought today is that rates can go only slightly negative for short periods of time, which we will continue to believe until some government tries to push the lower bound again.
- csense 7y ago
  So people are willing to accept small negative rates if it would be less than the operational costs of shipping enormous truckloads of bills around, storing them, securing them, and insuring them against theft / fire? Is that's what's going on here?
  - dcftoapv 7y ago
    That's kind of the thought, yes. Negative rates should not be sustainable for any significant period of time and most interest rate models are built on that assumption.
    - dcftoapv 7y ago
      Sorry, I want to clarify quickly that appleiigs is right that it isn't cost of insuring cash so much as depository risk. When I say cash, I mean currency as opposed to debt/equity, not physical bills.
  - xiphias2 7y ago

cryptica 7y ago

The more new fiat money is injected into the economy, the more valuable cryptocurrencies become. It doesn't really matter where that fiat money enters the market. So long as there are millionaires and billionaires at the top of the food chain who keep amassing big money without having to lift a finger, cryptocurrencies will have increasing value. The Fed's policies have created a large and growing class of people who simply don't know what to do with their money - And these people just keep dumping their money straight into cryptocurrencies and corporate stocks. It doesn't matter where they dump their money in fact. So long as what they're buying is more scarce than their fiat money, it will go up in price - And to many rich people today, pretty much everything which exists is more scarce than fiat money so the bar for what makes a good investment is very low.

dntbnmpls 7y ago

> The signal here should be read as "whatever it takes to avoid a depression." Should it? > If the Fed loses this fight, game over. It might be game over for the Fed, but not the country. For most of america's history, the Fed didn't exist and the US did very well without the Fed. It's the same silly fearmongering rhetoric by the abusive powerful to the masses. Without us, it'll be chaos. The same argument was made to justify the existence of monarchies. Without monarchies, it would be anarchy. The same to justify the existence of the pope and catholicism. Without catholicism, it would be depravity. Abusive spouses say that their to abused spouses, without me you are nothing. Just maybe, the cause of our financial woes are the Fed itself? Maybe if we got rid of kings, religion, abusive spouses or the Fed we might be better off. After all, the Fed is just a private institution ( an international banking cartel ) used to parasitically leech off the american people. More aptly, the Fed is like an anarchist who sets your house on fire and then comes to your house to "help" you put out the fire.

mannanj 7y ago
I actually like this. I would upvote, but I dont see the option.

SubiculumCode 7y ago

Helicopter drops are needed, imo

vkou 7y ago

> If the Fed loses this fight, game over. The fed is pushing on a rope. Any upcoming depression will be driven by collapse in demand, not supply. Slashing interest rates won't do anything to prop spending when consumers are sitting at home, not working, and not buying anything. All this is, is an attempt to boost asset prices, to bailout investors.

triangleman 7y ago
The "pushing on a rope" analogy is usually used to describe how monetary policy stimulates demand but not supply. I do agree with you about asset prices.

shreyshrey 7y ago

Let us say hypothetically the congress approves FED to buy stocks and ETF. Just curious what will they buy: s&p index, total market index or something else. Let us say if they buy one index, will it be fair for companies who are not in the index?

webninja 7y ago
They’d sooner shift from buying treasury bonds to other bonds before they’d go into equities. But what do I know. It’s be better if they went into the student loan market.