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Comment by pbourke | Hacker News Reader

Yeah. Fed was able to intervene in 2008 because it was a financial crisis. This is a physical event that will affect the real economy. You can print all the money in the world, it won't make people go to the restaurant or buy a car.

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From what I've been reading, it's looking like the most obvious immediate impact is a supply-side crunch, not demand-side.

Things are not getting made/made at normal rates, and that's starting to ripple up through supply chains.

Can't buy the car stuck on an assembly line because the widget plant for some key piece is only fulfilling 1/3rd of orders.

https://www.nytimes.com/2020/02/29/upshot/coronavirus-recess...

And for that, you're still right that there's no financial intervention to fix it.

Exactly. I had to buy a new washer and dryer today, and any brands from that side of the world are weeks away from delivery right now.

My hypothesis has been a supply crunch simultaneous with a demand crunch. We are seeing substantially altered consumer behavior in China. If they are drastic, these events can make lasting changes in people’s willingness to spend money.

If you spend months inside, avoiding gatherings, worrying about your health and that of loved ones, not going to restaurants, postponing discretionary purchases do you immediately snap back to pre crisis levels once it’s over?

What’s the economic activity in locked down areas of Italy right now?

What is the possibility that US escapes unscathed given clown car response at the federal level?

There will be substantial demand side effects as well. People that live in times of uncertainty stay liquid as much as they can. So if they can put off some major purchase that is more likely to happen now than before.

In 2008+ when they “printed money” via “Quantitative Easing”, they would buy bonds off the market. This puts printed money in the hands of bond holders. Presumably bond holders are very rich. Presumably very rich people already have a good enough car and already frequent restaurants. Now if the Fed printed money and put it in the hands of the middle class, not just the hands of the upper class, I’d bet you new cars would be bought and restaurants would be dined.

What you're describing is called "helicopter money". It was just tried in Hong Kong, with unimpressive results.

https://www.zerohedge.com/economics/hong-kong-embraces-helic...

https://ftalphaville.ft.com/2020/02/26/1582705518000/Helicop...

The article is dated Feb 25, and mentions that the disbursement has yet to occur, so we don't have any data on the success of the measure, or do I have this wrong?

Australia had a similar thing during the gfc and they managed to dodge a recession.

> Presumably bond holders are very rich.

I'm not sure that's a safe assumption. These bonds could be held by pension funds etc...

If I am a blue-collar worker nearing retirement, and I find out my pension plan just imploded, it's definitely going to impact my spending negatively.

87% of Americans do not have pensions. [1]

The median savings for American families whose wage earners are between 56 and 61, is $17,000. [1]

34% of American adults have zero savings (retirement + non-retirement). [1]

Anecdotally, I had a Grandpa with a $60k/yr pension and he was definitely upper class.

[1] https://www.cnbc.com/2017/06/13/heres-how-many-americans-hav...

Those statistics are crazy. I'm not sure how the world still functions.

> 87% of Americans do not have pensions.

By “pensions” do you mean defined benefit plans only?

See above citation around where it says 13% of Americans have a pension. Feel free to counter with a separate citation.

If you follow the link in the (misleading, in my opinion) “Given that less than 13 percent of Americans have pensions” quote, it says that

“In 1980, more than 148,000 DB plans covered 30 million active workers (38% of the workforce), but by 2008 just over 48,000 DB plans covered 18.9 million American active workers (13% of the workforce). Over the same period, the number of DC plans increased from 340,850 to 669,156 with an increase in active workers covered from 14 million (14% of the workforce) in 1980 to more than 67 million (46% of the workforce) in 2008.”

“[...] restaurants would be dined.”

Kind of ignoring the root cause of this market sell-off.

Years ago in Canada, one province decided to mail $500 cheques to every adult in the province as an economic stimulus after they had an oil and gas surplus. Apparently it helped a lot

And it wasn’t just middle class, but lower too...

Australia did this in 2008, part of the reason we avoided a recession. Parts of China have started doing the same for coronavirus.

Alaska's been doing this since the 1980s.

https://en.wikipedia.org/wiki/Alaska_Permanent_Fund

I prefer Norway's approach of saving (to the tune of nearly $200k per citizen!) for a rainy day.

https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...

I think you're misrepresenting QE. The Bonds the fed bought eventually expire, the money they used to buy the bonds gets repaid to the fed. It's not like they gave the value of the bonds to "very rich people" and said "here buy another yacht on us".

Yes, the original bonds expired, but the Fed has actually resumed buying short-term treasury bonds since Sept 2019. This has offset long-term maturities (e.g., 10Y) rolling off and actually has resulted a net expansion in their balance sheet: https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

Printing money is just as vital. A financial crisis is when suddenly money isn't accessible, so the economy needs more to keep up with normal demand. A non-financial crisis in the "real" world needs corresponding action in the real world, which means we need to borrow from the future - people need to be assured they will be paid back for what they are doing now. So more money is needed to correspond to the increased activity. It's not the same, but similar.

If you had any sort of disruption in your personal life, you didn't have income coming in or whatever, wouldn't a large loan be really helpful if you didn't have enough savings? It doesn't matter if it's a "real" problem, or just some senseless legal thing.

The Fed also has substantially less wiggle room now. Interest rates are already very low, especially for boom times.

Last time they dropped it from 5.25% to 0, and still had to print ~$3.7T. With only 1.5% to cut and GDP 50% larger than it was back then, how much QE will they attempt this round?

Agreed. I've also appreciated the quote of "Last time I checked the fed can't print a vaccine"

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