The Fed hopes to unclog corporate and municipal debt markets with its New Bazooka of Unlimited Interventions.
The U.S. Federal Reserve on Monday rolled out an extraordinary new array of programs aimed at blunting the “severe disruptions” to the economy caused by the coronarvirus outbreak, backstopping an unprecedented range of credit for households, small businesses and major employers.
In a series of actions the Fed agreed to historical measures that would see it for the first time back the purchases of corporate bonds and direct loans to companies, expand its asset holding by as much as needed to stabilize financial markets, and roll out “soon” a program to get credit to small and medium-sized business.
Under the new programs, the Fed will lend against student loans, credit card loans, and U.S. government backed-loans to small businesses, and buy bonds of larger employers and make loans to them in what amounts to four years of bridge financing.
“It’s their bazooka moment,” said Russell Price, chief economist at Ameriprise Financial Services in Troy, Michigan. “It’s their ‘we’ll do whatever it takes’ moment which should be a sign to financial markets and investors that the Fed will provide any and all liquidity necessary to support the economy through this period.”
So What Moment
The market responded with a surge then a "so what?"
The Nasdaq is back in the green however, as if technology is going to be the big winner somehow.
Three Part Problem
- The problem isn't liquidity. It's solvency.
- People out of work don't need a loan, they need a job.
- Small businesses don't need a loan, they need customers.
Asset prices are still too high.
Lending against student loans doesn't do a damn thing for the students.
Bailing out failed businesses is the same mistake the Fed made in 2008. That too did nothing for consumers.
Gold liked the announcement, however. Gold rose $74 to $1559.
That's a massive 5% jump in one day.
Mike "Mish" Shedlock