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.
Bazooka Moment
“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 Action
Gold liked the announcement, however. Gold rose $74 to $1559.
That’s a massive 5% jump in one day.
Mike “Mish” Shedlock
The trillions they’re printing everyday isn’t about the economy.never about the economy,the economy collapsed over a decade agoFed know that,this is about keeping govt from complete Zimbawian type collapse
The USFed’s latest panic response is socialism. Markets need to clear. Price discovery is required.
I feel badly for the sick, the infected, the newly unemployed.
My biggest fear is that as the faked financialized economy since 2008 continues to spiral downwards, and as our leaders become fearful of getting sacked they start a real shooting war with some “foreign devil’.
From 1872 Great Brittain flooded the Global economy with credit, stopped lending in 1906. Financial crises ensued. (We all more or less know what followed for decades to come).
From ~1983 the Fed did the same until 2007.
Repeat, wash and rinse!
Or just a coincidence?
Personally have doubts that this is the case.
MT “History doesn’t repeat itself but it often rhymes,”
“…in what amounts to four years of bridge financing.” That’s quite a tip of the hand about the severity of the financial system and economy.
My biggest worry now is that the beltway swamp gang, led by Pelosi, is hell-bent to use the Rahm Emanuel approach to government, thinking they are the creators and therefore proper purveyors of wealth in this country.
The only wealth we have flows from the hands of working people, millions of whom are now going home with no jobs, while Nancy holds out for college debt forgiveness and abortion funding for all, forever.
If they’d ever had to meet a Friday payroll without enough money to cover the bill, they’d know that a $1,000 check in the mail is like pissing into a hurricane. It might help a little on one Friday; A solution, it’s not.
Get testing ramped, isolate positives and get people back to work. Don’t wait for politicians and bureaucrats to feel safe saying we can all come out now; We’ll be living in caves again.
People having most of their savings in physical gold now should not wary too much as the Fed apparently work in their favor..
“the Fed agreed to historical measures that would see it for the first time back the purchases of corporate bonds”
…
Yes. Investment Grade. Really? How long will ANY corporate be able to maintain that grade in this environment?
Of course, the precedent has been set. In 2011 when S&P had the temerity to downgrade US debt, Treasury Secretary Geithner went apesh!t and threatened them. Expect unbelievable pressure on Moodys, Fitch, and S&P to maintain credit rating for any corporate bond the SPV has purchased.
S&P have been proved correct. Another downgrade should be on the cards.
NYPost
….Roughly 13% of all infected New Yorkers are hospitalized, Cuomo said.
Hospitals across the state are reporting they’re quickly running out of space and supplies, such as ventilators, masks, gloves and gowns.
Cuomo said the state is sending millions of so-called N95 masks to New York City and Long Island over the next few days.
But he anticipated that those supplies won’t last long and reiterated a call for President Trump to activate the Defense Production Act.
Trump invoked the 1950 law last week, allowing him to order medical companies to ramp up production of masks and other sorely-needed supplies.
However, in a confusing turn of events, Trump has refused to activate the Korean War-era law.
On Sunday, Trump claimed he was holding off because the U.S., unlike Venezuela, is not a country “based on nationalizing our business.”
If the government and big corp.’s were interested in trying to stop or slow this epidemic they would have taken appropriate actions 5-6 weeks ago. They know exactly what they’re doing, they’re not stupid. They know they have the power and they’re going to use this to gain more power. It’s almost not even about money. It’s about power and money.
What other opinion can a reasonable person come too? All these levels of people absolutely failed at the same time randomly? Does that make sense?
Makes about as much sense as the Russians blowing Kennedy’s brains out in broad daylight, in public and on television and getting away with it.
“Never attribute to malice that which is adequately explained by stupidity.”
100 years of Fed, 50 of those without any constraint on the amount stolen whatsoever, has achieved it’s purpose:
The people running every organization of any size in America, both public and private, are all idiots. Morons. 100%. Completely.
Ditto the people who own all of it.
Business leaders: Morons. Politicians Ditto. On the supreme court: Another Moron. Wealthy: Tah-Dah! In charge of anything at all: Guess what?
Facilitating this, is what central banks do. It is ALL central banks do.
Idiotocracy is not just a snide quip nor a punchline. It is as somber, down to earth and accurate a description of America, all of America, in the Fed Age; as one can possibly offer.
Anyone who thinks it’s better to live under Chinese communism than under American capitalism is dillusional or a CCP member.
Coming to your city..
…They are removing respirators from patients over 65 in Spain and giving them to younger patients. Seniors are then given sedatives so they don’t suffer. We need to treat this pandemic like the biggest crisis of our lifetime because it is…..
….People lined up outside hospitals in NYC…
There’s no way that this would not sound callous. But they should try experimental drugs on these older people. If any of it works, they’ll be saved, if not, the end is certain anyways.
I called my coin shop this morning and they wanted $7 over spot for silver eagles and he won’t have them till next week. I shoulda bought last week@$3 over spot and they had them in house.
This isn’t a problem bailouts can fix. The natural course of things requires failure so new opportunities can become available, however painful and inconvenient.
This is crony capitalism and it seems we are getting close to the end of this ride. Hopefully true capitalism and democracy survive on the other side of this sh#tstorm.
As can be expected in an economy built on mountain of debt.
MM, once one accepts that the US dollar itself is a debt instrument we see that all dollars basically belong to the Fed, and it manages that supply via the banks, who in turn manage them for the top 10% but really the top 1%.
All efforts at salvaging the economy will be aimed at those corporations and persons in the top 10%, PERIOD!
Debt levels really do not matter at all as long as the vast majority of people are cut out of that pie, all we will ever see are a few crumbs left over when the pigs have gorged.
Of course we could all turn into Bernie Sanders, an angry old man plotting to overthrow this system in a communist coup, or one of his borg with zero capacity to reason beyond what Bernie “Locutus” Sanders tell them to think, or we can try to get through this as calmly as we can and try to enjoy what little is left to us. I know it is not much, but then in relative terms pretty much nothing has changed has it? I mean we all COULD have gotten sick six months ago (E coli, cancer, Hodgkin’s), died on any given day, hit by a bus even, and we always were – in relative terms – poor as church mice when you compared it to the vast dynastic fortunes the 1% has enjoyed, so, time to move on, the shock is wearing off.
These are some philosophical points. Is it easier to die alone when everybody else is living it out, oblivious to the dying or dying together due to/for a cause? This resembles wartime in many respect.
That’s an excellent rant Herkie, that gets a heart from me, even though my family is in the 1%. I would question the phrase “dynastic fortunes” however, as history has shown “shirtsleeves -to-shirtsleeves in three generations” which seems to be a universal rule (I doubt I’ll escape, I’m second generation and already I can see the wall writing). There are no millionaires even in the powerful Vanderbilt clan for example, about 150 years after their heyday. Even the Rockefeller clan is a mere shadow of their former self.
When I say dynastic wealth I am really taking a pot shot at the right which has fought so hard to eliminate the inheritance tax. I say that not taxing inheritance is wrong because it is the cumulative wealth that was UNDER taxed (usually through loopholes only the rich can take advantage of) and once it is passed on untaxed the goverment/people can never get another shot at it. The effect is dynastic and for every example you can give of dynasties failing I can give two of them retaining and growing their wealth with effective tax rates lower than the average worker. It used to be more common for them to fail by the way, until so many laws have been passed to protect the rich and even insure them against loss via bailouts, thus the phrase socialism for the wealthy. Where risk is spread out among all the people of the country and return is limited to the 1%.
Example, my great, great grandfather built up a retail mini empire in the Puget Sound region with lumber and general stores, my grandfather was as Mom used to say raised in the lap of luxury. But, in 1930 weeks into the great depression my Great Grandmother was visited by bankers and given an hour to pack one of the cars and leave with her son who was a teen at the time. They drove south as far as what little money they had left would take them, landed in Medford Oregon where my mother was born.
That kind of story is pretty rare these days. FDIC SIPC and other laws passed; the wealthy rarely lose it all in a major disruption like the GFC, or this pandemic, the Waltons are not as rich as they once were but not because a dime was lost, but because they split it up voluntarily between heirs. Now you have the Fed itself GUARANTEEING the assets of the rich, and they make it sound like they are protecting the wider economy so that workers can continue to be employed (at ruthlessly low wages) when in fact 80% or more of all equities are owned by 10% of us. Looks an awful lot like welfare for the rich from where I sit.
Well, the death tax (inheritance tax) only raises a very small percentage of tax, and these countries have abandoned it: Australia; Austria; Canada; New Zealand; Israel; Italy; Mexico. So I think it only punishes folk who want to pass their wealth onto their kids. As a dual national, if the USA did a huge wealth tax I’d simply liquidate our US holdings and move it to the EU, where I also have a passport, and other than minor reporting requirements, which are trivial, over time I’d invest in non-US real estate and avoid the death tax that way.
I’m against corporate bailouts. But in this case, arguably, airlines are not to blame and deserve a bailout since they did not ask for a lockdown. In fact, if you look at Florida residents as an example, most people, if it wasn’t for a mandatory lockdown, would be doing “business as usual” (sad but true how stupid some people are, but it’s a fact).
How about throwing money at a solution to the virus?
Lending $Trillions more into a collapsing economy/financial system only ensures that we will be stuck with zero (or below) interest rates for good.
I just don’t see how we can have a functioning economy with zero interest rates forever. Zero interest rates = zero savings = zero investment = zero productivity growth = zero increase in average living standard.
I believe we have arrived at the “end of the road” as far as our current Post-Bretton Woods financial/monetary system is concerned.
I agree it is very different this time and I think we have indeed reached the end of this road.
Brother you may be right. Things are happening today with our financial system that just two weeks ago I would have said would/could never happen in this country. And here we are.
“Lending $Trillions more into a collapsing economy/financial system only ensures that we will be stuck with zero (or below) interest rates for good.”
…
Well, of course … “everyone” knows that the solution to too much (bad) debt is even MOAR debt.
Gold can’t go bust. There’s no credit risk. There will always be a bid.
Sure would be nice if there were some adults in charge.