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It will be used to monetise government debt. You will see targeted fiscal action announced tomorrow, to the tune of perhaps a hundred billion or more, aiming to

It will be used to monetise government debt. You will see targeted fiscal action announced tomorrow, to the tune of perhaps a hundred billion or more, aiming to help the businesses (and employees of those businesses) that are (and will be) decimated by the freeze in economic activity, and the crash in demand. From the announcement on Friday it sounded like the financial aid to companies that need it will be distributed through IRS as tax credits, or directly as cash to those companies with cash flow issues. I don't know how they aim to decide which companies qualify for the aid. There will be several similar fiscal stimulus measures announced over the coming weeks, perhaps even bailouts.

AnthonyMouse 7y ago
"Monetize government debt" is just another way of saying buy treasuries. Which makes some sense as long as the interest rate on treasures is positive -- the people who sell them to the Fed will then have cash and want something else to invest it in, and the Fed (and therefore the US treasury) effectively gets to collect the interest on those bonds. But how much sense does it really make to have the Fed buy treasuries at a negative interest rate? They'd be paying someone else for the treasuries which they'd then have to pay interest on (instead of collecting interest), for the sole purpose of getting new money out into the economy. Obviously at that point it's time to consider alternate ways of getting the new money out there -- like just giving it out to everybody in the country as a UBI. Or if you want to do something equivalent with slightly different accounting, have Congress pass a UBI funded entirely with debt, but then the Fed monetizes the debt (and the new debt causes treasury rates to be zero instead of negative against the monetization). Doing some kind of "targeted tax cuts" along the same lines might also work, but probably not as well, because governments suck hard at detail-oriented master plans like that and usually just end up creating a lot of harmful economic distortions. Across-the-board even distribution reduces the incentive for people to change their behavior in order to get the money while still getting the money out there, and not putting it disproportionately in the hands of the rich.

AnthonyMouse 7y ago

"Monetize government debt" is just another way of saying buy treasuries. Which makes some sense as long as the interest rate on treasures is positive -- the people who sell them to the Fed will then have cash and want something else to invest it in, and the Fed (and therefore the US treasury) effectively gets to collect the interest on those bonds. But how much sense does it really make to have the Fed buy treasuries at a negative interest rate? They'd be paying someone else for the treasuries which they'd then have to pay interest on (instead of collecting interest), for the sole purpose of getting new money out into the economy. Obviously at that point it's time to consider alternate ways of getting the new money out there -- like just giving it out to everybody in the country as a UBI. Or if you want to do something equivalent with slightly different accounting, have Congress pass a UBI funded entirely with debt, but then the Fed monetizes the debt (and the new debt causes treasury rates to be zero instead of negative against the monetization). Doing some kind of "targeted tax cuts" along the same lines might also work, but probably not as well, because governments suck hard at detail-oriented master plans like that and usually just end up creating a lot of harmful economic distortions. Across-the-board even distribution reduces the incentive for people to change their behavior in order to get the money while still getting the money out there, and not putting it disproportionately in the hands of the rich.