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This is a pretty naive take. You are suggesting that all these trillions are somehow ending up in the hands of people when the primary effect has been to prop u
by tempsy 7y ago
This is a pretty naive take. You are suggesting that all these trillions are somehow ending up in the hands of people when the primary effect has been to prop up asset prices e.g. the stock, mortgage, and corporate bond markets.
The second order consequences of a massive balance sheet will be felt not in the immediate future but at some point down the line when the Fed attempts to shrink the balance sheet.
We have a very recent example of the Fed trying to do exactly that in late 2018, and the market immediately crashed on rate increases and assets rolling off at maturity.
- enraged_camel 7y agoAnother way of putting it is that it took the Fed 10 years to even think about trying to extricate themselves, and they realized they couldn't. Now they have gotten their hands much deeper in.
- tempsy 7y agoYes. The next recession will just be worse since Fed cannot lower rates any more and if they signal any sign of pulling back on propping up corporate bonds or mortgages those markets will just crash.
- legolas2412 7y agoOne thing i dont understand is why is federal reserve so involved with stock markets, first propping them up and then panicking if it crashes. The federal reserve should only be concerned about the economy right?
- tempsy 7y agoThe wealth owners care about the stock market more than the “economy”
- j15t 7y agoThe Fed is not focused on the stock market. When they improve the status of the economy through monetary policy, they indirectly improve the value of publically listed companies. This makes sense, because companies are the central entities in the economy. I don't know how the Fed could improve the state of the economy without affecting the prices of shares.
- tempsy 7y agoThey shouldn’t be but this is not true now. What they’ve done has directly propped up asset prices. No question. This isn’t a second order effect. They know what they are doing.
- jazzyk 7y agoTake a look at December 2018. There was no pandemic. The Fed tried to very slowly reduce its balance sheet. The stock market threw a major tantrum (by dropping 20% or so) and voila, the Fed reversed its course. The same in 2016, and other times How can you say they are not focused on the stock market? They are primarily focused on propping up the markets.
- perl4ever 7y agoIf you think they are propping up the stock market, then it doesn't make sense to be worried about inflation. Inflation would devastate the stock market.