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We have a virus problem, not a credit problem. The Fed is whipping out all the financial tools and it's totally ineffectual at best, and disastrous at worst as

by wycy 7y ago

We have a virus problem, not a credit problem. The Fed is whipping out all the financial tools and it's totally ineffectual at best, and disastrous at worst as now those tools are used up (as it were). Trying to address this pandemic with financial tools geared towards the market feels like trying to address a house fire by rebuilding parts that are still on fire without actually putting out the fire. With no one at the wheel addressing the actual problem, the outlook feels grim. RIP my retirement account.

moneywoes 7y ago
What else can they do? Watch people's portfolios burn down tot he ground? Will that make the situation better?
- mertd 7y ago
  Fix the outbreak then fix the financial system. The first one isn't the Fed's job.
- wycy 7y ago
  If the Fed had done nothing at all, it's conceivable that the markets would still be in exactly the same shape they are now (or even possibly better), except we'd still have those tools at our disposal. To an extent, that the Fed took such drastic action probably helped to spook investors even more, since (1) now those tools are gone, (2) it implied that the Fed is panicked and doesn't know what to do, (3) it implied that the Fed thinks the market will sink dramatically. As to what I think they should do: address the needs of the people who will be hardest hit. Interest-free moratorium on mortgages, rents, debts, and/or full FMLA. This will actually help with the underlying virus problem more quickly, and consequently should help fix the underlying market problem (lack of demand) more quickly.
- enraged_camel 7y ago
  Sometimes the right thing to do is to do nothing.
- fuzzfactor 7y ago
  That may be the least of your worries. Those without portfolios will have been totally devastated much earlier and might become incentivized to burn all kinds of other things to the ground.
- TrueDuality 7y ago
  Funding and effective virus response and admitting the severity of the problem would be a start. Our country needs to be seen taking this seriously from the top which it most certainly isn't. I don't think there are any measures that will prevent this drop right now though. Supply and demand are both heavily impacted. We should be looking further down the line to the financial consequences we can prevent. Layoffs have already started, part time workers are making significantly less, and imports aren't as stable. This is going to have serious knock on effects preventing a quick recovery once the pandemic is under control.
rv-de 7y ago
I like that metaphore, quite apt.
tekkk 7y ago
I agree. It's not that people wouldn't purchase stuff or go abroad, it's just they can't or won't. But as I yesterday understood, the lower interest rate should weaken the deflationary effect and make money less desirable asset than stocks. So in theory less people would pull out their money from the stock market. Don't know about that. Nothing can survive if people just stop spending money. But hopefully this won't last long, otherwise the wave of bankruptcies will be a one devastating tsunami.
smdz 7y ago
The Fed cannot fix the virus problem. It is not in their control. They are only delaying and mitigating the risks that occur as a result of the virus related slowdown. That is in their control (at least for a while) This slowdown because of bans and quarantines will hit the cash strapped businesses a lot, especially small businesses. They will have to layoff. People will lose their jobs. When businesses actually start to shut down, you are looking into a deeper economic pain that will most likely lead to a recession. By reducing rates, they are giving small businesses and people a little breather. And they are assuming the virus impact will be clearer in the next couple of months.
- wycy 7y ago
  Increasing the access to credit really only helps if there's a belief that businesses will take out credit in order to continue operations despite the lack of business, but it's hard to imagine they would do that. The problem is that there is no demand for their businesses, so why take out credit just to not be able to actually leverage it?
  - tracer4201 7y ago
    Your post is sitting at negative points as of when I’m writing this comment. My understanding is the same of yours. If someone here has expertise in this field, please enlighten us and explain what’s wrong with this conclusion instead of just downvoting. Thanks!
  - gizmo686 7y ago
    There are 3 main ways this crisis can go for a bussiness: 1) Keep operating throughout the crisis while remaing solvent. 2) Cut losses by suspending or reducing bussiness during the crisis. Service debt and other non suspendable bills through credit or savings. Reopen after the crisis and return to bussiness as usual. 3) Attempt to do 1 or 2, but become insolvent. Don't reopen after the crisis passes, because your bussiness failed and is now closed for good. Providing credit can move companies from 3 to 2, which will greatly improve our ability to recover.
turk73 7y ago
We are quickly reaching the point of no return because of the fear overshoot. We don't JUST have a virus problem, global financial markets are seizing up. They should not have closed bars, restaurants, Vegas, etc. It was a panic move that just puts tens of thousands of people out of work. I'm not even concerned with my losses now, I'm now concerned with the dollar itself. We need people going to work and doing the important things they do and that requires they get paid with dollars that have some kind of intrinsic value/buying power. If we hyper-inflate, people will just say "fuck it" and not go to work. You can't pay bills with worthless money. We're headed into "worthless money" really fast here, though.

by wycy 7y ago

moneywoes 7y ago

What else can they do? Watch people's portfolios burn down tot he ground? Will that make the situation better?

mertd 7y ago
Fix the outbreak then fix the financial system. The first one isn't the Fed's job.
wycy 7y ago
If the Fed had done nothing at all, it's conceivable that the markets would still be in exactly the same shape they are now (or even possibly better), except we'd still have those tools at our disposal. To an extent, that the Fed took such drastic action probably helped to spook investors even more, since (1) now those tools are gone, (2) it implied that the Fed is panicked and doesn't know what to do, (3) it implied that the Fed thinks the market will sink dramatically. As to what I think they should do: address the needs of the people who will be hardest hit. Interest-free moratorium on mortgages, rents, debts, and/or full FMLA. This will actually help with the underlying virus problem more quickly, and consequently should help fix the underlying market problem (lack of demand) more quickly.
enraged_camel 7y ago
Sometimes the right thing to do is to do nothing.
fuzzfactor 7y ago
That may be the least of your worries. Those without portfolios will have been totally devastated much earlier and might become incentivized to burn all kinds of other things to the ground.
TrueDuality 7y ago
Funding and effective virus response and admitting the severity of the problem would be a start. Our country needs to be seen taking this seriously from the top which it most certainly isn't. I don't think there are any measures that will prevent this drop right now though. Supply and demand are both heavily impacted. We should be looking further down the line to the financial consequences we can prevent. Layoffs have already started, part time workers are making significantly less, and imports aren't as stable. This is going to have serious knock on effects preventing a quick recovery once the pandemic is under control.

rv-de 7y ago

I like that metaphore, quite apt.

tekkk 7y ago

I agree. It's not that people wouldn't purchase stuff or go abroad, it's just they can't or won't. But as I yesterday understood, the lower interest rate should weaken the deflationary effect and make money less desirable asset than stocks. So in theory less people would pull out their money from the stock market. Don't know about that. Nothing can survive if people just stop spending money. But hopefully this won't last long, otherwise the wave of bankruptcies will be a one devastating tsunami.

smdz 7y ago

The Fed cannot fix the virus problem. It is not in their control. They are only delaying and mitigating the risks that occur as a result of the virus related slowdown. That is in their control (at least for a while) This slowdown because of bans and quarantines will hit the cash strapped businesses a lot, especially small businesses. They will have to layoff. People will lose their jobs. When businesses actually start to shut down, you are looking into a deeper economic pain that will most likely lead to a recession. By reducing rates, they are giving small businesses and people a little breather. And they are assuming the virus impact will be clearer in the next couple of months.

wycy 7y ago
Increasing the access to credit really only helps if there's a belief that businesses will take out credit in order to continue operations despite the lack of business, but it's hard to imagine they would do that. The problem is that there is no demand for their businesses, so why take out credit just to not be able to actually leverage it?
- tracer4201 7y ago
  Your post is sitting at negative points as of when I’m writing this comment. My understanding is the same of yours. If someone here has expertise in this field, please enlighten us and explain what’s wrong with this conclusion instead of just downvoting. Thanks!
- gizmo686 7y ago
  There are 3 main ways this crisis can go for a bussiness: 1) Keep operating throughout the crisis while remaing solvent. 2) Cut losses by suspending or reducing bussiness during the crisis. Service debt and other non suspendable bills through credit or savings. Reopen after the crisis and return to bussiness as usual. 3) Attempt to do 1 or 2, but become insolvent. Don't reopen after the crisis passes, because your bussiness failed and is now closed for good. Providing credit can move companies from 3 to 2, which will greatly improve our ability to recover.

turk73 7y ago

We are quickly reaching the point of no return because of the fear overshoot. We don't JUST have a virus problem, global financial markets are seizing up. They should not have closed bars, restaurants, Vegas, etc. It was a panic move that just puts tens of thousands of people out of work. I'm not even concerned with my losses now, I'm now concerned with the dollar itself. We need people going to work and doing the important things they do and that requires they get paid with dollars that have some kind of intrinsic value/buying power. If we hyper-inflate, people will just say "fuck it" and not go to work. You can't pay bills with worthless money. We're headed into "worthless money" really fast here, though.