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As someone who have a very basic understanding of economy and the Fed's role in managing it, does this mean the federal government is owning more and more share

As someone who have a very basic understanding of economy and the Fed's role in managing it, does this mean the federal government is owning more and more share of private companies (at least their debt portion)? Does that mean, the US, which is supposed to be a very capitalistic nation, is now trending toward the economy operated by quasi-government-owned companies? Is it imaginable that eventually, the US government owns the majority stake in these quasi-government-backed companies, moving the US economy further away from market-based capitalism?

deleted 6y ago
[deleted]
cik 6y ago
Not really. It means that federal government is backstopping certain types of debt. This ensures that market liquidity happens such that mid-tier companies without ease of access to capital can access capital at lower interest rates. With the fed backstopping debt, they're effectively the debtholder for these smaller companies - so yet it's a bailout. However, unlike when the fed took actual stakes in GM and Chrysler they don't hold shares. They merely receive the interest payments and coupons on the associated debt. It's pretty hard to argue that there's EVER been market based capitalism. Much like communism, it's a bogey that has never actually existing - instead we have systems similar to them.
- redis_mlc 6y ago
  The above is a very good answer. > the US, which is supposed to be a very capitalistic nation 1) large corporations write laws and engage in monopolies to prevent competition. They have no desire for any sort of capitalism as the average person would think of. This is crony capitalism. 2) corona is destroying the capital that smaller companies had to engage in authentic competition. This is the problem we really need to address in May, 2020 before we flush 200 years of progress down the toilet. (When you see articles about billionaire investors crying in public this month, this is why. They look at the economic numbers and know what our country is throwing away over the flu.)
- OrangeMango 6y ago
  > It's pretty hard to argue that there's EVER been market based capitalism In the United States? No, Article 1 of the Constitution makes it clear that we don't do pure capitalism here.
MattGaiser 6y ago
> does this mean the federal government is owning more and more share of private companies (at least their debt portion)? Of their debt portion, yes. > is now trending toward the economy operated by quasi-government-owned companies? No, as debt is not usually ownership (there are structures that allow it to become that). Companies just increasingly owe the government money, but that would happen under any traditional bailout scheme anyway. > Is it imaginable that eventually, the US government owns the majority stake in these quasi-government-backed companies, moving the US economy further away from market-based capitalism? Majority? That is a long long ways away. Top shareholder? It is true in Japan, so it is plausible. The Fed is not buying stocks at the moment. https://asia.nikkei.com/Business/Markets/Bank-of-Japan-to-be-top-shareholder-of-Japan-stocks https://asia.nikkei.com/Business/Markets/Bank-of-Japan-to-be... The more concerning issue is that ETFs change management fees. Why is the Fed supporting management fees instead of buying the debt directly?
- programmertote 6y ago
  Thanks for answering my questions! I can't agree more with your last sentence. Why Blackrock? I really want to read their reasoning of using Blackrock as a broker other than it being the biggest fund manager. The Fed is big enough and why can't it buy the bonds directly. Maybe their weak excuse is that they can execute it via Blackrock ETFs quickly. But still...then why not spread it evenly over other institutions like Vanguard, Fidelity, etc.?
  - kube-system 6y ago
    FWIW, the US Government also tapped Blackrock to help with the 2008 crisis. This article talks a little bit about that choice then: https://www.vanityfair.com/news/2010/04/fink-201004 https://www.vanityfair.com/news/2010/04/fink-201004
- kitotik 6y ago
  > traditional bailout scheme It’s amazing how this is an accurate term now. How do the Capitalism-is-king advocates reconcile corporate welfare?
danharaj 6y ago
You've been duped into thinking capitalism is something that it isn't by people who don't want you to know what capitalism has always been.
- AnimalMuppet 6y ago
  You could state a position, instead of just opaquely hinting. It would be a more useful conversation if you did.
  - danharaj 6y ago
    https://www.marxists.org/archive/marx/works/1867-c1/ https://www.marxists.org/archive/marx/works/1867-c1/
    - AnimalMuppet 6y ago
      Ah. You've been duped into thinking that capitalism is something that it's not by someone who wants you to believe his propaganda.
      - danharaj 6y ago
        Broke: Describing capitalism as it historically developed through a materialist theory that seeks to uncover the mechanisms of its reproduction, like a fucking moron. Woke: Describing capitalism as an ideal concept that does not refer to its material basis so any time anyone wants to describe how it works in reality they have to resort to qualifying it with adjectives like so many Ptolemaic epicycles.
marnett 6y ago
The Fed is not the US government.

deleted 6y ago

[deleted]

cik 6y ago

Not really. It means that federal government is backstopping certain types of debt. This ensures that market liquidity happens such that mid-tier companies without ease of access to capital can access capital at lower interest rates. With the fed backstopping debt, they're effectively the debtholder for these smaller companies - so yet it's a bailout. However, unlike when the fed took actual stakes in GM and Chrysler they don't hold shares. They merely receive the interest payments and coupons on the associated debt. It's pretty hard to argue that there's EVER been market based capitalism. Much like communism, it's a bogey that has never actually existing - instead we have systems similar to them.

redis_mlc 6y ago
The above is a very good answer. > the US, which is supposed to be a very capitalistic nation 1) large corporations write laws and engage in monopolies to prevent competition. They have no desire for any sort of capitalism as the average person would think of. This is crony capitalism. 2) corona is destroying the capital that smaller companies had to engage in authentic competition. This is the problem we really need to address in May, 2020 before we flush 200 years of progress down the toilet. (When you see articles about billionaire investors crying in public this month, this is why. They look at the economic numbers and know what our country is throwing away over the flu.)
OrangeMango 6y ago
> It's pretty hard to argue that there's EVER been market based capitalism In the United States? No, Article 1 of the Constitution makes it clear that we don't do pure capitalism here.

MattGaiser 6y ago

> does this mean the federal government is owning more and more share of private companies (at least their debt portion)? Of their debt portion, yes. > is now trending toward the economy operated by quasi-government-owned companies? No, as debt is not usually ownership (there are structures that allow it to become that). Companies just increasingly owe the government money, but that would happen under any traditional bailout scheme anyway. > Is it imaginable that eventually, the US government owns the majority stake in these quasi-government-backed companies, moving the US economy further away from market-based capitalism? Majority? That is a long long ways away. Top shareholder? It is true in Japan, so it is plausible. The Fed is not buying stocks at the moment. https://asia.nikkei.com/Business/Markets/Bank-of-Japan-to-be-top-shareholder-of-Japan-stocks https://asia.nikkei.com/Business/Markets/Bank-of-Japan-to-be... The more concerning issue is that ETFs change management fees. Why is the Fed supporting management fees instead of buying the debt directly?

programmertote 6y ago
Thanks for answering my questions! I can't agree more with your last sentence. Why Blackrock? I really want to read their reasoning of using Blackrock as a broker other than it being the biggest fund manager. The Fed is big enough and why can't it buy the bonds directly. Maybe their weak excuse is that they can execute it via Blackrock ETFs quickly. But still...then why not spread it evenly over other institutions like Vanguard, Fidelity, etc.?
- kube-system 6y ago
  FWIW, the US Government also tapped Blackrock to help with the 2008 crisis. This article talks a little bit about that choice then: https://www.vanityfair.com/news/2010/04/fink-201004 https://www.vanityfair.com/news/2010/04/fink-201004
kitotik 6y ago
> traditional bailout scheme It’s amazing how this is an accurate term now. How do the Capitalism-is-king advocates reconcile corporate welfare?

danharaj 6y ago

You've been duped into thinking capitalism is something that it isn't by people who don't want you to know what capitalism has always been.

AnimalMuppet 6y ago
You could state a position, instead of just opaquely hinting. It would be a more useful conversation if you did.
- danharaj 6y ago
  https://www.marxists.org/archive/marx/works/1867-c1/ https://www.marxists.org/archive/marx/works/1867-c1/
  - AnimalMuppet 6y ago
    Ah. You've been duped into thinking that capitalism is something that it's not by someone who wants you to believe his propaganda.
    - danharaj 6y ago
      Broke: Describing capitalism as it historically developed through a materialist theory that seeks to uncover the mechanisms of its reproduction, like a fucking moron. Woke: Describing capitalism as an ideal concept that does not refer to its material basis so any time anyone wants to describe how it works in reality they have to resort to qualifying it with adjectives like so many Ptolemaic epicycles.

marnett 6y ago

The Fed is not the US government.