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If the alternative is the Fed lending that money to banks who would then cut a profit on it, lending it again to private companies while assuming very little ri
by axlee 6y ago
If the alternative is the Fed lending that money to banks who would then cut a profit on it, lending it again to private companies while assuming very little risk, I'd rather have the Fed buy the bonds directly without a middleman.
Of course, that's not the only alternative. But as far as injecting liquidity into the economy, I'd rather see the government having agency into deciding where to inject it rather than letting for-profit companies who don't have the best interests of the economy at heart do it on its behalf. Same should have happened for the covid helicopter money: letting banks allocate public funds was a mistake. Public funds, public decisions.
- mindslight 6y agoThe obvious alternative is to let bond yields go up, making them an attractive investment relative to stocks - as they should be in a recession.
- rmah 6y agoLetting the yields go up means that it becomes more difficult for companies to borrow money during a period of economic stress. This would mean those companies are at greater financial risk. Which is the exact opposite of the Fed's goal.
- mindslight 6y agoNot more "difficult" - more expensive. A possibility that every company should have foreseen with financial modeling, and so avoided taking on more debt than they could handle during a recession.
- rlucas 6y agoPut another way, in an information-theoretic view of markets and money: stopping the yields from going up would make it more difficult for investors reliably to gauge how safe it is to lend money during a time of economic stress. It's also not a scaling function (reduce everyone's cost of borrowing by 10%, say). There's a floor so you get a clipping effect. The Fed's intervention is like the CD mastering Loudness Wars.
- DevKoala 6y agoExactly. The disinformation campaign is staggering.
- deleuze 6y agoHow about direct cash payments to consumers instead of involving any private enterprise.
- rmah 6y agoDirect payments to consumers is a 100% loss on those funds. Buying Walmart (or other corporate debt) means the Fed gets the money back when those firms pay down that debt. So very very different.
- deleuze 6y agoNo, that's incorrect. It's not 100% loss on those funds unless they take the money and bury it in a pit. The money will just return to the treasury, not the fed. The fed's balance sheet is imaginary anyway.
- rmah 6y agoWe were discussing the fed handing out money to consumers, not the US Treasury. Tax dollars (which is what I assume you meant by "the money will just return to the treasury") do not go to pay for fed operations. And the fed's balance sheet is distinct and separate from the US federal government's balance sheet. My point stands, a handout to consumers would be a 100% loss for the Fed.
- slg 6y agoA loss for whom? It is all taxpayer money. Does it matter if the Fed makes a profit or if the money is refunded back to the public? It is the equivalent of a stock dividend.