Fed cuts half point in emergency move amid spreading virus | Hacker News Reader

Fed cuts half point in emergency move amid spreading virus

bloomberg.com

364 pointsa2h481 comments

From what I gather after spending more time than I'm willing to admit listening to every finance talking head out there, the consensus on the street seems to be that this will result in a temporary market recovery followed by the continued deterioration of stock prices given that fiscal or monetary* policy can't really affect the real economy in the near term* i.e. if the supply chain is indeed impacted due to COVID-19, no amount of fiscal or monetary* stimulus can make up for the time / productivity losses in the near term*

On the margin, I'm still slightly bearish on the whole situation due to the combination of the virus' absurdly high infection rate[0] and its long incubation period (I'll let each one of you be the judge of how long that is...)

[0] https://duckduckgo.com/?q=infection+rate+sars+vs+coronavirus...

> if the supply chain is indeed impacted

Is there any question? 80% of the Chinese workforce has been sitting on the sidelines since mid-January. Production is just barely ramping up and I don't think we'll see full capacity until well into April, provided that COVID19 is truly contained/managed.

Edit: not sure about the downvotes. Here's a source about Foxconn production: https://twitter.com/onlyyoontv/status/1234855310428430337

The question at the moment is whether the impact is prolonged enough to affect more than 1-2 quarters worth of business, and how quickly we can recover from this. Can Foxconn plants in China work double time to make enough iPhones for Fall / Winter sales? Your guess is as good as mine...

And, if they try to ramp up the production too quickly, will we see a return of Covid-19 due to people in close proximity again?

Not if a substantial number of them now have antibodies against it.

More realistically, even if enough of them have antibodies to create herd immunity. (Via making it impractical for the virus to transmit to a vulnerable host)

people have already been getting covid twice

No, there is no solid evidence of persistent infections. The few reports of repeat infections are highly likely to be caused by testing artifacts. The imperfect sensitivity and false-positive rate of the tests means you'll always see people who tested negative at one time, and positive at a later time.

As an RNA virus, it would be extremely difficult for SARS-COV-2 to establish persistence. I'm not aware of any known mechanism by which that could happen. It's been proposed that some COV's may have neurotropic capability [1] that might allow them to achieve latency, but it's just that -- a proposal.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6212673/

The fraction of people needed to create herd immunity in a population is 1 - 1 / R0. With R0 at 4-7, that means about 75-86% of people within the population need to have COVID-19 antibodies before transmission naturally dies out through herd immunity. With current case numbers, China doesn't have anywhere close to this many cases - it would imply ~1B infections within the country rather than the ~80K that have been found so far, off by a factor of 10,000.

I think a likely outcome is that the current outbreak dies down, then it either flares up again from some undetected cases or is reintroduced from another country. But then, with the initial media attention elsewhere and COVID-19 symptoms basically looking like the flu, they'll just let the sick die rather than re-introduce draconian quarantine measures.

> fiscal policy can't really affect the real economy

Fiscal policy (e.g. the government buying tanks) absolutely affects the real economy.

The central bank doesn't control fiscal policy. It controls monetary policy. Monetary policy also affects the real economy, just indirectly.

Sorry and thank you – I meant to say fiscal or monetary specifically in the near term, meaning supply chain disruptions take much longer to undo. I've edited my post accordingly.

The near term is precisely what monetary policy affects...

Near term sentiment, but it can't undo the Coronavirus

Right. And from what I understand, even if monetary policy does not directly solve virus or supply chain issues, it can make life easier for corporations loaded with debt (there are many) which might get into trouble as the economy deteriorates.

I mean, it's not like rates were high to begin with. It may make a little bit of a difference for each company, but they are certainly way more concerned about their ability to generate cash to pay their interest if you assume a significant drop in demand.

And I think many would argue, better to let these companies die and be outcompeted

Then again many would counter this by asking “outcompeted by whom in a global recession?”

For example: who is going to outcompete American Airlines/United/Delta if all international flights are grounded or flight restrictions get worse?

So that they can be replaced by companies that are more robust to things like Coronavirus?

Why would we care how robust our businesses are to such a rare event if we can mitigate it in other ways? You think it would be better to lose those businesses just for the chance at something better replacing them, just to avoid resorting to those mitigations?

Monetary policy is about increasing or decreasing the money supply. The argument is that it cannot have long-term real effects because if it did we would all be incredibly rich, since it costs nothing to increase the money supply by whatever amount. Every underdeveloped nation would simply increase their money supply and poverty would be a thing of the past.

Not having a specific behavior at infinity != doesn't having an effect

Like Zimbabwe.

100 Trillion Dollar bill anyone?

In the modern world its also about incentivizing/disincentivizing debt.

There is no argument that cannot or does not have long-term effects, and no we would not all be incredibly rich, as it absolutely costs something to increase to money supply.

When you increase the money supply you devalue each and every current piece of money in existence. Money (fiat) can be infinite but what you buy with it is not.

>Every underdeveloped nation would simply increase their money supply and poverty would end for ever.

No, it wouldn't. Have you heard of hyperinflation? A gallong of milk would simply cost $1000 dollars. Kind of like how milk used to cost 5 cents a gallon 50 years ago. The countries that do try what you are talking about, and there are plenty of examples, amazingly, all end up incredibly poor and economically devastated.

The argument that monetary policy cannot affect the real world economy is more about its limitations, where it cannot really make up for something like a months long interruption to international trade because the world's leading manufacturing nation has quarantined half its population.

The best it could to benefit the long term, I would think, is to make credit more available and cheaper to make it easier for companies and governments to weather the storm with minimal damage.

It has real effects until the economy is at full employment, after which it only causes inflation.

At which point rates are generally raised to cool things down.

Which should have happened along time ago in the current economy but haven’t, you can’t cut rates in bad times if you don’t raise them enough in good.

They started raising rates but then Trump successfully bullied the Fed.

Though inflation had remained low, so it's not clear that it was necessary to raise rates.

Inflation remains low? Seriously, I have no idea how they are computing that rate when asparagus is $4.99/pound these days. It seems like low rates feed the housing bubble nicely, and if housing costs were more adequately represented in the CPI, it would be much higher.

Housing costs are reflected in CPI, as imputed rent. I couldn't find the exact weights with a quick search, but IIRC housing costs are around a quarter of the basket. Asparagus is less than that.

* https://fred.stlouisfed.org/series/FPCPITOTLZGUSA

If you doubt the official numbers, the Billion Prices Project goes out scrapes price data, and it matched pretty well with the CPI:

* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project

I'm an economic idiot, but the interest rates have started concern me. It's seemed like no one wants to cut them as that might put the brakes on "growth". There are also rumorings of a crash being around the corner. So if a crash does come about, what's the Fed going to do seeing as how rates are already bottomed out?

> It's seemed like no one wants to cut them as that might put the brakes on "growth".

I assume you meant “raise” instead of “cut” here.

If so, you are correct, and the question about what the fed does when the market corrects/crashes is why a lot of folks are wringing their hands right now.

> So if a crash does come about, what's the Fed going to do seeing as how rates are already bottomed out?

potentially, negative interest rates, that’s what [1]

[1] https://www.investopedia.com/articles/investing/070915/how-n...

The Fed isn't seeing any inflation, so it's not seeing a reason to raise rates.

But you're right that it doesn't give them much monetary room--I guess if/when the downturn comes resorting to fiscal stimulus be the only answer. Not that the GOP deficit chickenhawks have given any room there: remember when GOP was against deficits? US$ 1T later Pepperidge Farms remembers.

> The argument is that it cannot have long-term real effects because if it did we would all be incredibly rich, since it costs nothing to increase the money supply by whatever amount.

Increasing the money supply is effectively a transfer of wealth from people who own/lend currency to people who owe/borrow it. It doesn't come without cost. It's effectively taxing one group and giving the money to another.

As for stimulating the economy, it works as long as the borrowers are making better use of the money than the lenders would have. In a time when you may need to e.g. build new factories somewhere else because existing ones are unavailable, that becomes more true than it was the day before, because the people who want to build new factories need money to do it and now that money is cheaper to get.

What it does is increase borrowing. All borrowing is really borrowing from the future, because at some point the money has to paid back. (Or have interest paid on it forever, which is effectively the same thing.) So what you get now you have to give back later, but that may be a beneficial transaction if you need it more now when some disruption is occurring than you would years from now after things have calmed down.

> What it does is increase borrowing.

But only in the short term, since lenders will catch on and increase their interest rates to offset the inflation. As you said, you're transferring wealth from lenders to borrowers, which means a larger incentive will be needed to induce anyone (other than the Fed) to lend money. To maintain the effect you would not only need to maintain the inflation but also continually increase the rate of inflation to exceed expectations. That's a quick route to hyperinflation and worthless currency.

The Fed can keep lending at arbitrarily low rates long after every other lender has been driven from the market because they're "lending" newly minted currency at essentially zero cost, and moreover don't particularly care whether they make a profit. However, even they can't sustain ever-increasing rates of inflation without destroying all confidence in their own currency, and it's pretty hard on the other lenders. ("Lenders" including anyone with a savings account, or with a significant fraction of their net worth in currency rather than inflation-proof assets and other investments; the poor are thus hit harder than the rich.)

> ... the people who want to build new factories need money to do it ...

That's an over-simplification. The people who want to build new factories need materials and labor to do it, not money. Giving them more money doesn't increase the amount of material or labor available, though it may allow them to claim a larger share of the available goods provided they do so before the inflation becomes generally known and devaluation takes effect. Naturally, if they're getting a larger share then others are making do with less. It only works out to a net benefit under the assumption that you know how those goods should be put to work better than the people directly involved—despite apparently being unable to persuade people that your plan is better rather than resorting to underhanded tricks.

> But only in the short term, since lenders will catch on and increase their interest rates to offset the inflation.

No, because lowering interest rates by 0.5% generally doesn't cause inflation to increase by 0.5%.

Moreover, most of the inflation from lower interest rates happens immediately. If you lower interest rates people borrow more money which causes some inflation, but to cause even more inflation people would need to borrow even more money, which they wouldn't do unless you lowered interest rates even further.

The level of outstanding debt (i.e. the money supply) goes up and then stays there until interest rates go back down and give people incentive to pay it back.

> As you said, you're transferring wealth from lenders to borrowers, which means a larger incentive will be needed to induce anyone (other than the Fed) to lend money.

Banks can borrow money from the Fed and lend it to other people. Also, when you lower interest rates it lowers the returns on everything else because people borrow money and use it to bid up securities, and then the now-smaller returns from issuing loans remain relatively attractive.

Notice that the US has had near-zero interest rates for over a decade and there isn't anything even resembling hyperinflation. But there is a whole lot more outstanding debt than there was when interest rates were higher.

> Giving them more money doesn't increase the amount of material or labor available

Sure it does, in the sense that available means in productive use rather than merely having physical existence.

If you pay people more they'll spend more time working and less time watching TV. They'll dig minerals out of the ground to make stuff with instead of leaving them in the ground. There is a difference between having something and doing something with it.

> It only works out to a net benefit under the assumption that you know how those goods should be put to work better than the people directly involved—despite apparently being unable to persuade people that your plan is better rather than resorting to underhanded tricks.

The entire premise of lending money is based on this being true. It's the assumption that some people have good ideas but not capital to fund them.

There are plenty of ideas that you can expect to turn $100,000 this year into $105,000 next year. If interest rates are at 4% they're viable, if they're at 6% they're not. Lowering interest rates makes more of those things viable.

It's not a matter of persuasiveness, it's a matter of transaction costs. Alice wants to start a company. She could borrow money and use it to pay salaries -- which is only possible if she can borrow at a sufficiently low interest rate. Or she could pursuade the workers to work all this year and not get paid until next year (when they'll get paid with interest). But then the workers would have to convince their landlords to let them live in their apartments without paying rent for a year, and the landlords would have to convince the government to let them defer paying property tax for a year, and the government would have to persuade the teachers to teach without pay for a year and so on.

Obviously borrowing the money from a bank is a lot more realistic.

> But only in the short term, since lenders will catch on and increase their interest rates to offset the inflation.

No, because the reason you lower interest rate targets are exactly the conditions which provide lower returns on alternative investments besides lending. You can only afford to raise rates for lending if you've got something better to do with the money.

> You can only afford to raise rates for lending if you've got something better to do with the money.

A borrower can only afford to pay higher rates if they have something better to do with the money. Lenders can always afford to raise rates, as doing so increases their profit margin. The limiting factor there is competition from other lenders, but a factor like inflation affects all lenders equally. What they can't afford is lower profits in real, fixed-dollar terms due to inflation. Lower profits on lending => less money available for lending => higher prices (interest rates) for the remaining supply.

> Monetary policy is about increasing or decreasing the money supply. The argument is that it cannot have long-term real effects because if it did we would all be incredibly rich

No, even if the acheivable aggregate real expansionary impact of monetary policy were unbounded (which no one argues it is) we wouldn't all be rich because monetary policy also has a distributional impact. But, more to the point, having bounded real impact isn't the same as zero real impact.

Will it bring back toilet paper at Costco?

I realize this was flippant, but truly, as has been pointed out before, central banking can't help much if factories aren't operating.

Be well, friends.

Fiscal/monetary policy has a real effect on the economy but only on the demand side.

The incubation period is not 25-30 days. The mean incubation period is 5-6 days, range 1-14 days.

Source: Page 12, paragraph 2. https://www.who.int/docs/default-source/coronaviruse/who-chi...

See https://www.medrxiv.org/content/10.1101/2020.02.06.20020974v...

> The median incubation period was 3.0 days (range, 0 to 24.0 days)

Edited my post to include that source

Which makes 24 days an extreme outlier

Sure, edited out. Thanks

Median and range really says fairly little about the distribution.

Well yes. Yet, since there are so many unknown variables it does not seem incorrect to assume the maximum entropy distribution - Gamma.

It's already an outlier event, it's worth considering the worst cases w.r.t. asking where people have been to determine exposure.

The most recent study I could find is here:

https://www.medrxiv.org/content/10.1101/2020.02.28.20028068v...

"The mean incubation was 8.42(95% confidence interval [CI], 6.55-10.29) days... COVID-19 course was approximately 2 weeks."

Fairly small sample size of 55 patients, which means the reliability may be debatable, and giving figures to two decimal places is meaningless. (In fact any decimal places are meaningless, unless someone times the exact moment of exposure.)

That aside - it seems very unlikely that 24 day incubations will be common.

Broadly it seems most people who become symptomatic will show symptoms within 10 days and will recover within two weeks after the symptoms appear. A small percentage - mostly older and unwell - will become seriously ill, and an even smaller percentage will die.

Meanwhile the presence of untraceable infections strongly suggests that a significant number of people - possibly a majority - either don't develop symptoms at all, or don't consider them serious enough to require medical attention.

According to this the range is 0-24 days with a median of 3 days. https://www.medrxiv.org/content/10.1101/2020.02.06.20020974v...

I think there's been news floating around that the virus incubation period could be longer, which is probably where the OP got that number from. See here: https://www.reuters.com/article/us-china-health-incubation/c...

I don't see that supported by the CDC either though

retracted based on feedback

This reply means absolutely nothing, except to drum up alarm.

It's ridiculous nonsense, utterly unsupported by any evidence or mechanism.

> The incubation period is not 25-30 days. The mean incubation period is 5-6 days, range 1-14 days.

There are case reports of it being far longer than 14 days:

https://www.reuters.com/article/us-china-health-incubation/c...

> A 70-year-old man in China’s Hubei Province was infected with coronavirus but did not show symptoms until 27 days later, the local government said on Saturday, meaning the virus’ incubation period could be much longer than the presumed 14 days.

I mean is there a chance they were infected later? E.g. they thought source A caused it but in reality Source B ten days later did?

Maybe, but I just looked the locations in the article, and it looks like his home is in a town in a rural area [1]. Given it's a smaller area, maybe that constrained things enough that they were able to infer that he must have gotten it during his visit to Wuhan. I can imagine several scenarios with an elderly man that might have allowed them to pinpoint his infection to that visit [2]. However, there's just not enough detail in the article to reconstruct how the local Chinese government ruled out everything but his visit as the source of his infection.

[1] Shennongjia, Hubei. Looks like it's a "county" with about 75k people: https://en.wikipedia.org/wiki/Shennongjia

[2] For instance: he visited Wuhan, self-quarantined immediately after returning which limited his contact with others, then 27 days later developed infection. Every contact he did have was tracked and confirmed negative. That's total speculation, though.

Range is between 1-14 days for what percentage? With what level of confidence?

There are several cases where the incubation period has been over 20 days. Maybe 90% of cases incubate for 14 days or less. Maybe 99% for less than 20.

14 days is not some magic limit.

" ... I'm still slightly bearish on the whole situation due to the combination of the virus' absurdly high infection rate[0] and its ridiculous ~25-30 day incubation period ..."

You're right to highlight those aspects of the virus and I find them noteworthy as well.

However, the statistics I am most interested in is mortality rate and rate of asymptomatic infections.

I note with interest that among the 700+ infected on the cruise ship, there were 6 deaths as of yesterday - and this is among a relatively geriatric population. So, perhaps we see a mortality rate of <1% among a greater risk population.

What I'm most interested in is the hospitalisation rate and if we can slow down infections enough for hospitals to be able to cope.

I think the death rate will ultimately depend on whether everyone who needs hospital treatment can get it. And that's why I think the Diamond Princess may not be representative of what happens in the real world.

On the people on the Diamond Princess there are 36 critical cases + 6 dead. So 42/705 infected, so 6% likely needed to be hospitalized.

But, the demographics skewed older than the general population, and there were 3200 people on board in basically a worst case scenario for spread.

So 42/3200 is ~1% of a much older population.

Aren’t the hospitalization rates something like ~20% according to the main study that came out of China? Also, the cruise ship cases aren’t all resolved outcomes yet.

Edit: link to China study summary below, but including it top-level here as well.

http://www.cidrap.umn.edu/news-perspective/2020/02/study-720...

We don't have any idea what the hospitalization rates are. We only know what the hospitalization rates are for people who have a confirmed diagnosis, which skews towards people with severe symptoms.

>Also, the cruise ship cases aren’t all resolved outcomes yet.

No they aren't, but the vast majority have been symptomatic longer than the average time till hospitalization and the number in critical condition hasn't increased in days. It's very unlikely they'll get to anywhere near 20%. And this is in a more geriatric population.

Except we do have data, that’s my point. China’s study is being cited by most experts as this situation unfolds. It doesn’t mean these numbers will hold — it’s possible that what we see out of South Korea over the coming month might be more representative — but it’s what we have, and it’s not nothing:

http://www.cidrap.umn.edu/news-perspective/2020/02/study-720...

Lots of people on the ship that tested positive showed little to no symptoms. It's very likely that there are a large number of infections that have gone undetected. Until we test everyone we won't know the true number.

The data can't support your 20% hospitalization claim though, and no one in public health is using that study to make that claim. The study itself makes no such claims that this study is in any way applicable to the general population.

About 40% of the patients in that study weren't even tested. They were included based on symptoms that include severe pneumonia. The ones who were tested, sought testing because they displayed symptoms severe enough to seek treatment.

This is the very definition of selection bias, and there is absolutely no reason to pretend that a 20% hospitalization rate is a realistic outcome.

>Aren’t the hospitalization rates something like ~20% according to the main study that came out of China?

Yes, but the reason why the Diamond Princess is interesting is that we know exactly how many of them got infected. We don't know that about any other population.

The diamond princess is... interesting, yes, but an unmitigated disaster is how most experts have defined it. It’s unclear we can extract meaningful info applicable to the rest of the world based on the cruise ship.

Also consider my point that many, many of these cases are unresolved. Whereas the China study, which most health experts are relying on currently as our best guess - not the cruise ship — looks at resolved cases.

I said myself that I didn't believe the cruise ship numbers were representative, but the 20% figure you cite isn't a realistic hospitalisation rate either as it only includes diagnosed cases.

The number of undiagnosed cases is the great unknown that experts disagree on. It's also the basis for all the wild speculation out there.

Under normal circumstances I would say let's test a random sample of the population in some affected area. But as test kits are scarce doing that would probably be ill advised.

The same is true for the flu. People get it every year but they don’t go and get swabbed.

I also agree that there’s a wide range of possibility. But I’m responding to the claim there’s no data with a study from China’s CDC that most experts are citing as the best info we have right now. Is it perfect? No. But the Diamond Princess isn’t a scientific study — it’s a mess.

Edit: for a range of possible outcomes, this article is helpful:

https://www.forbes.com/sites/kenrapoza/2020/02/25/coronaviru...

At the low end are South Korea’s (mortality) numbers, at the extreme high Iran, and Italy aligning roughly with China’s study.

The tl;dr is we have a fairly wide range of possible outcomes, but Italy is lining up with China’s findings.

The 20% figure is not an imperfect estimate of the true hospitalisation rate. As far as I know the study didn't even attempt to estimate the true number of infections or (by implication) the true hospitalisation rate.

> The same is true for the flu. People get it every year but they don’t go and get swabbed.

But with the flu we have large population studies, so we can estimate the number of likely infected based on the number seeking treatment. They study you are citing can't be generalized, and no one but you is claiming it should be used to estimate hospitalization rate.

Public health officials who are trying to produce estimates are using that study along with models of how many un-diagnosed cases might be out there to try to predict hospitalization rates. But they aren't naively throwing out your 20% number.

>But I’m responding to the claim there’s no data with a study

There is no data to support your claim of a possible 20% hospitalization rate. None, it doesn't exist. There is data to support a 20% hospitalization rate among people sick enough to seek treatment, and people sick enough to be clinically diagnosed.

>at the extreme high Iran, and Italy aligning roughly with China’s study.

Italy and Iran also likely have far more actual cases than confirmed.

>No. But the Diamond Princess isn’t a scientific study — it’s a mess.

The study you are presenting makes no attempt to predict the actual hospitalization rate among the general population. And the samples aren't random. It's more a mess than the numbers from the Diamond Princess.

Everyone on board the ship was tested, no sampling bias there. But even then, there is selection bias because the ship's population is older than the general population.

I would like to know how many of the 705 have recovered, how many are still ill, and how many were admitted to hospital.

If 42 were critical, that doesn't necessarily mean they were the only ones who needed hospital treatment.

You can look at the counts by date. The majority are past the mean time till hospitalization, and the the number in critical condition hasn't increased in days.

>If 42 were critical, that doesn't necessarily mean they were the only ones who needed hospital treatment.

Percent hospitalized isn't the thing to look at. It's percentage of people who need intensive care or a ventilator that matters.

Many people were hospitalized for observation. Some people received IV fluids. How many of those people were saved by IV fluids vs. just being a nice to have is unknown. But that kind of care can be done in mass tent hospitals or even at home.

>You can look at the counts by date.

Are these numbers still updated now that many (or all?) have left the ship? Where can I see those numbers?

>Many people were hospitalized for observation

Yes, but if fewer people had been under close observation in a hospital more might have died. Admitting only precisely those who turn critical is not realistic in my (lay person's) opinion.

I agree with you about the age distribution on the cruise ship though. This is very important to note.

Still, I have to wonder what share of the population can get hospital/ICU treatment at any given time.

I don't know about other places, but here in the UK hospital bed occupancy rates are dangerously high at the best of times. I don't know how many beds/ICUs can be freed up in an emergency. But I doubt it's anywhere near enough if everyone gets sick at the same time.

I hope someone is doing some modelling to find out how aggressively we have to slow down the rate of infection so that hospitals are not overwhelmed.

The cruse ship had 135 infected on February 10th, jumping to 634 on February 20th. So, most of those 700 are recent infections. The actual long term death total for the cruse ship is unknown, but should include people who died in their home country after returning.

The good news is assuming you trust China’s numbers new infections are down massively from a February 2nd peak. Deaths in China are also down significantly but less so, again assuming you trust their numbers.

I feel like the slowing infection rate in China (if it's actually true) is both very encouraging in the sense that it could show the virus actually is possible to contain, and also pretty scary in that so far the only measures that seem to be working at all are extremely widespread and draconian quarantines.

China was handling it after 2 months of spreading ( hurray censorship). This isn't happening anywhere else in the world.

Hard to tell if this is sarcasm, given that researchers just announced that coronavirus has been spreading undetected for 6 weeks in the Seattle area:

https://www.msn.com/en-us/news/us/coronavirus-may-have-sprea...

Not exactly sarcasm, but we will find out if bullying out high-ranking members of the CDC by the Trump administration was a bad move :)

> So, most of those 700 are recent infections

But the vast majority are less recent than February 20th. Almost all of them have been showing symptoms for longer than the average time to hospitalization.

According to my fancy math based on numbers from Johns Hopkins COVID-19 dashboard[0][1], we're closer to a 7% mortality rate

[0] direct link: https://www.arcgis.com/apps/opsdashboard/index.html#/bda7594...

[1] posted to HN: https://news.ycombinator.com/item?id=22475060

Same data, nicer dashboard and breaking news: https://coronastats.net

First, you are conflating mortality rate with case fatality rate (CFR). Mortality rate is deaths with respect to a total population; CFR is deaths with respect to diagnosed cases.

Second, since this is an ongoing outbreak the CFR is a moving target. Your calculation assumes the ratio of deaths to recoveries remains what it is now for the ~40k active cases. However, the CFR by that calculation has been steadily falling. Additionally, since CFR is only based on diagnosed cases the struggles with testing capacity, particularly in the US, will distort it by biasing diagnoses towards more severe cases.

Thanks for the clarification!

there's still 36 serious/critical. I have a hard time believing all of them will be fine. https://www.worldometers.info/coronavirus/#countries

> among the 700+ infected on the cruise ship, there were 6 deaths

Your death count is incorrect. Several deaths occurred after cruise members returned to their home country, and are currently counted as deaths in their home country instead of the cruise ship.

Take for example: 78-year-old man in Perth - got infected on the cruise ship - but counted as a death in Australia.

So I guess that means the 36 serious/critical I pointed out are not necessarily serious/critical at the moment either. Is there an actual place that counts that?

This seems like a very important point, thanks. Many people are pointing at differences between nations and comparisons with Diamond Princess to derive different fatality rates than are commonly mentioned in the media and to point at an "iceberg" of unsymptomatic (and uncounted) cases. It's good to be aware that some of these discrepancies might just be artifacts from the way the data is registered.

Most deaths occur in week 3 or week 4 if they make it that far.

It reduces volatility due to a unknown and unquantifiable risk in the short term to prevent panic. Obviously if the apocalypse hits the market will still tank, but if catastrophe doesn’t happen then the unneeded loss is prevented.

You should edit that 24 days fact, it's simply incorrect and will spread misinformation.

Wouldn't really call it "simply incorrect" given multiple sources pointing to very long incubation periods, but I've edited it out since people are having knee jerk reactions to it

The actual distribution simply isn't known at this point.

I think they need emergency stimulus.

Cutting rates further isn’t going to protect businesses without footfall from going under - they need propped up on a wide scale until the virus peaks and passes.

Theoretically a cut to zero might help but only if you’re giving guaranteed credit lines to every small business to get them through the worst of it - but how would that even work?

You don't think fiscal policy can affect the economy? Direct spending will result in increased production up to the productive capacity of the economy, won't it?

You can't produce anything if you can't buy parts

What you're talking about is government spending crowding out private spending, which is what happens when the economy is already at full capacity. In this situation, all the spending does is cause inflation, since money alone does not cause goods to spring into existence. It's like pushing on a string.

But are we close to full capacity?

Capacity dropped because China shut down. That's temporary (we trust), but it's a drop in global capacity.

That's a different question from whether capacity is available. You could have less than before and still have plenty.

There is also a question of short term vs. long term. In the short term if some things are made only in China they may become temporarily scarce. In the longer term either China will come back online or capacity will be created somewhere else (or both).

True.

This is my opinion, not backed by hard data or numbers or anything else - just my opinion. I think that the world (or at least the west) became dependent on China's capacity. We outsourced and off-shored, and a bunch of factories closed and companies shut down. China didn't add capacity, it replaced capacity. So in the short term, if China shuts down, there's an actual shortage of capacity, because much of the other capacity is gone.

In the long term, as you say, sure, we can start back up here. It will take a while, but we can get there. The buildings didn't die, and the people who knew how to do it didn't all get lobotomies. In the medium to long term, we'll be fine, whether China comes back or not.

Note again: This is my guess. Anyone with real data, feel free to supply it.

If that were really the consensus among traders, it would be priced in, by definition.

The Fed's job is supposed to be to keep inflation stable. Inflation is as stable as it's ever been. If stock prices go down, that means nothing to inflation. Somehow, since Greenspan, the Fed's job evolved to include pumping up asset prices to benefit asset owners (the top 5% own 80% of assets).

The fed's target is 2% inflation, not stability of the inflation rate. You could say the relative stability of the value of money is a goal

I think you have it backwards. Stability is the overall target, and the 2% target was chosen as a way to achieve that. See for example https://www.federalreserve.gov/faqs/money_12848.htm.

> The objectives as mandated by the Congress in the Federal Reserve Act are promoting (1) maximum employment, which means all Americans that want to work are gainfully employed, and (2) stable prices for the goods and services we all purchase.

> Following its meeting in January 2012, the FOMC issued a statement regarding its longer-run goals and monetary policy strategy. The FOMC noted in its statement that the Committee judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's statutory mandate.

Wrong. The Fed has a dual mandate, they have to keep inflation and unemployment stable. Recessions are bad for employment, it turns out.

So is the Fed's job to make sure everyone is employed? Unemployment is at an all time low. With a normal spike an unemployment from a normal recession, we would be at normal levels of unemployment.

You could have a stock market crash while hitting full employment, for any number of reasons e.g. non-listed companies expand while listed contract; families scale down and take earners off the market; war mobilization that involves long-term high taxes; and probably all kinds of scenarios I'm not thinking of. "Stopping recessions" is not an automatic justification for propping up asset prices.

I see 3 things driving the market now. An overdue market correction, reasonable reaction to supply chain issues and an irrational reaction to the virus.

A temporary boost to the market gives more time for the true long term impact to the supply chain to play out. It may turn out that the boost only gave a short respite but it may also turn out that it saved the market unneeded turmoil.

A short term boost also gives people a chance to take a breath, step back and take a more rational approach.

What's irrational about the reaction to the virus?

A short term boost does not do much for the overdue market correction, though, other than delay it a bit longer.

Eh, it probably buffers against overreaction, especially when a correction in fundamentals is being mixed with a reaction to new pressure.

But this is still a good point: if the market really is overheated then short-term monetary policy won't change that, and we can expect a lasting hit regardless of how disease issues play out. And it's not necessarily going to be obvious what's market movement and what's disease-related; I wouldn't be surprised if some over-hyped companies seize this as a chance to lower guidance faster than they normally could without spooking investors.

People keep saying that responses are irrational but we know next to nothing about this virus. We don’t have a firm understanding of how deadly it is, how long it takes to incubate, how easily it can be spread, or what long term damage it could do to people who recover.

There are reports of kidney damage and damage to fertility among men who have recovered. Are those true? We don’t know. We have no idea.

The rational response to a deadly virus with so many unknown factors is to hunker down, avoid mass gatherings, and exercise other precautionary measures. These precautionary measures mean fewer people traveling, going to the movies, going out to dinner, attending conferences, etc. There is nothing the Fed can do to blunt this reaction besides pour money into Coronavirus research and hope they find a vaccine or remedy before it drags the economy into a recession.

No, we know quite a bit about it at this point. The incubation period can range from 1-14 days but is 5 days on average[1][2]. The virus spreads through physical contact with commonly touched surfaces and through the air via droplets of saliva or mucus[2]. The deadliness of the disease is also becoming clear as time progresses. The current fatality rate is ~3% (likely overestimated) and most (almost all) deaths are either elderly or people with pre-existing heart or lung conditions[2][3].

Please refrain from fearmongering. Yes, COVID-19 is serious, but dishonestly inducing a public panic only makes matters worse.

[1]: https://www.who.int/news-room/q-a-detail/q-a-coronaviruses

[2]: https://www.health.harvard.edu/blog/as-coronavirus-spreads-m...

[3]: https://www.worldometers.info/coronavirus/coronavirus-age-se...

What do people get out of fear mongering? It seriously baffles me how many smart, technical people just lose their shit with this stuff.

Referring to the extreme uncertainty is not fear mongering. Read the links that were posted. They don't say what the individual confidently claims they do. We know little and what we do know are guesses with wide ranges.

Saying that this is a big deal isn't fearmongering -- all of our elected officials are downplaying this as hard as they can, and most people don't seem concerned about it.

People need the truth, and they need time to be able to react to it before we're already in the midst of a bad situation.

A Harvard scientist predicted that 40-70% of the world could get this, and the death rate could be 1%. That rate is much higher among the elderly and the unwell.

A lot of people are going to die amidst the backdrop of a completely overloaded and mostly unprepared healthcare system. We need to acknowledge that.

I do not believe anything I've written is exaggerated or written from a place of fear.

Your links don't say what you think they say. Did you even read them? It's mostly ambiguous language and uncertainty. We think this, it's not certain that. It changes day to day.

Case in point the incubation period from your own link. "Most estimates of the incubation period range from 1-14 days, most commonly around five days. These estimates are updated as more information becomes available."

How long does it remain on the surface. "It is not certain how long the virus survices on surfaces."

Can asymptomatic people spread coronavirus? "How often asymptomatic transmission is occurring is unclear."

How deadly is the coronavirus? "We don’t yet know."

Can I catch the virus by eating food prepared by others? "It's not clear if this is possible."

TLDR: We have decent guesses in some categories and in others we don't know at all. People acting like they know for sure the details of this virus are lying at worst and merely uninformed at best.

After a month there are still fewer US COVID-19 deaths than Tennessee tornado deaths from one day.

Yeah, but Tennessee tornadoes don't go on day after day, increasing their scope of effect to injure/kill more each day.

Well now you are just being willfully misleading.

> Case in point the incubation period from your own link. "Most estimates of the incubation period range from 1-14 days, most commonly around five days. These estimates are updated as more information becomes available."

Yes, it continues to become more accurate. Initial reports thought the incubation period could be up to 20-30 days. Continued study of the virus has refined the numbers and will continue to do so.

> How long does it remain on the surface. "It is not certain how long the virus survices on surfaces."

Interesting that you purposefully leave out the rest of the quote:

"It is not certain how long the virus that causes COVID-19 survives on surfaces, but it seems to behave like other coronaviruses. Studies suggest that coronaviruses (including preliminary information on the COVID-19 virus) may persist on surfaces for a few hours or up to several days. This may vary under different conditions (e.g. type of surface, temperature or humidity of the environment).

If you think a surface may be infected, clean it with simple disinfectant to kill the virus and protect yourself and others. Clean your hands with an alcohol-based hand rub or wash them with soap and water. Avoid touching your eyes, mouth, or nose."

> How deadly is the coronavirus? "We don’t yet know."

Again, you leave out the rest of the quote and this one has hard numbers behind it as the infection, recovery, and mortality rates are being tracked internationally.

"As of February 25, 2020, the reported confirmed cases and deaths in China suggest the mortality rate is roughly 3%. It is important to remember that early on in an epidemic there is a “tip of the iceberg” phenomenon where we overestimate more severe cases and mild or asymptomatic cases go unrecognized, so the mortality seems higher than the reality. That may be happening when we speak of up to 3% mortality. By contrast, SARS had a mortality rate of around 10%; the MERS mortality rate is closer to 30% to 40%. There appear to be many more COVID-19 cases confirmed than there were with SARS and MERS."

> Can I catch the virus by eating food prepared by others? "It's not clear if this is possible."

Yet another misleading partial quote.

"It’s not clear if this is possible, but if so it would be more likely to be the exception than the rule. That said, COVID-19 and other coronaviruses have been detected in the stool of certain patients, so we currently cannot rule out the possibility of occasional transmission from infected food handlers. The virus would likely be killed by cooking the food."

None of these are "guesses". They are scientific observations backed by evidence. Stop spreading misinformation. You claimed that we "know next to nothing about this virus" which is simply not true.

Where you see certainty I see ambiguity. None of what you are reading in those links confirms your forceful statement of facts where no such facts exist.

Nothing about any of the posted information is ambiguous. On the other hand, you decided to extract partial quotes that fit your narrative in a way to be purposefully deceptive.

Researchers saying "we are not completely certain but the evidence appears to indicate X" is not logically equivalent to "we have no idea why X happens"

The 4th is a need to prop up the economy as much as possible through November.

There’s one thing the virus cannot beat: social distancing.

Unclear. Can't find a link, but I recall reading that if you were within 50m (?) of a norovirus patient when they vomited, you had a noticeable chance of catching the bug yourself.

social distancing is the cancelation of conferences (google canceled theirs), not having sporting events (italy), not sending kids to school, etc, etc.

I see this phrase used to describe maintaining a larger personal space, like one or two meters, which is what I had in mind.

Check out the economist cover article for this week. Goes over it in detail.

Thanks. Another link: https://en.wikipedia.org/wiki/Social_distancing

The Roaring Twenties came after the Spanish Flu... (& WW1)

I jest, but I wonder about the difference between "natural" complex-systems-behavior recessions, and those that come from acute stimulus like war and pandemic.

Something like: is there a difference between people wanting to produce and consume but being "artificially" held back, versus an average lack of confidence in the markets causing slow-down?

I was bearish yesterday, but looking at the raw data seems more reasonable ( spent a lot of time reading and analyzing).

The statistic influencers currently are China, South Korea and Iran.

Then it seems to help that people are more aware and numbers seem to be dropping. I'm short-term bearish, although it could change with an extreme outlier within the EU.

It also helps that I can see what a big corporation ( where I work) is doing and I don't see any panic. Rather creating awareness.

I'm also aware of the most vulnerable companies ( travel + flight) where a friend works and it seems to be okay, as in: "not as bad as the news seems to suggest", but nonetheless carefull.

I don't know, Italy is doing pretty poorly with 79 dead on 160 recovered (2502 total cases). Only the numbers in China really seem to be dropping, and I wonder how that will hold up when people get back to work.

This is not going to be the end of the world as we know it but I think it will take quite some more time before it's behind us.

I think it's all okay. China has the biggest cities of the world and they censored it for 2 months, while the virus was spreading.

This isn't happening in the rest of the world. ( Except some dictatorships)

Some minor outliers like you mentioned, eg. Italy. But these are getting handled. It will not spread anymore like it did in China.

It's possible that some parts will need extra handling, but sharing information is the key for handling this.

I like your optimism and I hope you're right. I don't think Italy, South Korea, Iran are outliers in the sense that there is something fundamentally different going on there though - I think they are just ahead in terms of time. Overall the spread in different countries seems to follow very similar patterns but with different starting dates.

Yes, China did some weird stuff with information in the beginning, but it seems there is not really much reason to suspect they're hiding information anymore [1,2]. The responses by free-er nations have been much milder with more reliance on self-quarantine. Let's hope that that works. And let's hope there will be sufficient testing to stay on top of things.

[1] https://www.vox.com/2020/1/27/21082354/coronavirus-outbreak-...

[2] https://www.vox.com/2020/3/2/21161067/coronavirus-covid19-ch...

While the rest of the world is following, we already had the example of quarantine.

We will see what the best strategy will be, the hardest work is now for China, South Korea, Iran and Italy.

The rest will learn from them.

Italy has an extremely old population compared to most of the rest of the world, and the initial outbreak was detected in a hospital which didn't help. Apparently all the deaths there so far have been people over 60 with existing serious health conditions: https://www.theguardian.com/world/2020/mar/03/italy-elderly-...

You also must consider that we're in the dark because of poor testing right now. A coworker pointed out that infection levels may be "leveling off" simply because the testing is rate limited.

I hate to say I'm 'bullish' about a situation where people will die, but the fact that 80% of cases are mild or asymptomatic bodes well for the working economy. conferences, travel, and tourism will take a huge hit, but I don't see other industries being significantly hurt.

if this was more like SARS with a 10% IFR, with equally high mortality rates among young people, then I would be very worried. But this virus seems to be the opposite. most factory workers fit in that cohort of people in that the virus effects the least so I don't see supply chains suffering.

"most factory workers fit in that cohort of people in that the virus effects the least so I don't see supply chains suffering."

I think supply chains are more affected by government attempts to contain the virus (quarantines/social distancing/restrictions on travel and trade) than by the virus itself, no?

I don’t see why when Apple claimed their supply chain ops in China resumed as normal as of last week. And that’s probably the most authoritarian quarantine we’ve seen up to this point.

> this will result in a temporary market recovery followed by the continued deterioration of stock prices

that's what zerohedge calls "the dead cat bounce" right?

For those saying the Fed is running out of ammunition, study what the Bank of Japan has done.

It owns close to 80% of the Japanese ETF market currently, with no end to the expansion of balance sheet in sight.

After buying long treasuries, it's not unreasonable to imagine the Fed buying stocks, either individual issues or ETFs. The President would be for it, and it would be hard to drum up any opposition to it in congress.

Not only that, but rates on long treasuries have stayed negative for long periods of time in other countries. It's an open question how negative long treasuries can go, but the evidence suggests we're not even close to the limit.

Recessions are politically unacceptable in today's world. Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.

What would be the endgame here?

A long-lived Nikkei-style "bull run."

I suspect it will nurture a massive structural problem few today would understand or care much about. It will be allowed to grow unabated because, frankly, there will be bigger fish to fry.

Maybe a little like subprime leading up to 2008. The problem was written off by just about everyone who bothered to look, until something snapped and it was the only thing that mattered.

We may be seeing the start of this in the repo market, which once again had a convulsion today. I doubt many care about it or really understand it, and that goes double for policy makers.

What's the term for when the government owns all the industries?

Also, what is it when everyone owns them (in varying ownership percentages of course) via index ETFs?

Marx was wrong not about if, but about how the workers would take control of the means of production!

That's the beauty of it, since the workers still don't control the means of production. But they do depend on the valuation of their "portfolios", so they're invested in the continued existence of the system, and they're pitted against each other as they are both labor and owners. But not enough owners to matter.

FED is not the government

Stock bubble -> Stock crash -> More QE -> QE fails -> Bond crash & Govt crisis -> Currency crash -> Commodities skyrocket -> Civil chaos

Just default on the debt far far down the line. Seing as how USD is still the reserve currency and they can still print, very far down the line. Keep borrowing from the future like there is no tomorrow until then, hopelly making sure the music doesn't stop playing during your political mandate period so you can get blamed for it.

I think there are multiple useful lenses for thinking about this:

- Signaling that the Fed is willing to get involved to stabilize market prices (by making capital cheaper) is meant to calm markets and give participants comfort about making decisions today that they could optionally wait to decide. If everyone goes into a holding pattern, liquidity is impacted, which can cause all sorts of unpredictable price movement.

- it is a wealth transfer from one group to another. The beneficiaries are existing debtors (mostly firms) and firms who benefit most from cheaper capital.

- it gives the Fed slightly more influence over the outcome of the 2020 election, since reversal of the Covid-19 rate decrease can be timed to create desirable optics as the election approaches. Much research has been done about the most critical time period prior to the election when "it's the economy, stupid" is most true.

> For those saying the Fed is running out of ammunition, study what the Bank of Japan has done.

Oh you mean the economy that has been stagnate for 20 years?

If I were a Japanese retail investor in 1990 in his 30s, what would have been the best strategy? Just stay out of domestic markets and focus on areas with potential for growth?

> what would have been the best strategy?

Put your money into the USA.

Buy as many levered Japanese Government Bonds (JGBS) as possible!

0.67 Sharpe Ratio from government bonds in local currency from 1990 to 2000.

Bingo. We have a winner.

That's just how it is with democracy. You can either be the politician who didn't really do anything for the economy, or you can be the politician who plunged the country into a recession.

Nobody wants to rip off the band-aid, even if it's infected underneath.

Better than the hyper growth and subsequent pop they went through in the 80s and 90s

That's probably much more to do with their population pyramid than their monetary policy...they are a rapidly aging, insular society. If your working age population is decreasing, it's going to be nearly impossible to grow your economic output, especially when you turn away all immigrants.

Stagnant or not the real question is what would have happened if the bank wasn't holding all those stocks? That is did buying all those stocks/ETFs successfully prop up the economy that would have otherwise gone into a recession or worse or did it cause the stagnation?

The argument could (and should more often) be made that recessions are sometimes healthy and that propping up failed or stagnant businesses or industries usually only prolongs the suffering. It also locks up resources that could be invested elsewhere in less entrenched but more promising new growth areas. So I would argue that it is likely to cause the stagnation

To use an analogy from botany, its like how certain types of plants need periods of dormancy, but its actually possible to create or install a given plant into specific environmental conditions where the inducement of dormancy is prevented, for a time... But overtime, without the time to rest and regenerate, the plant will become incredibly weak. It will stop flowering or producing delicious fruit. It will grow frail and live to only a fraction of its potential age limit. Similar to this are how efforts to reduce the spread of wildfires only ends up with a far more dangerous and uncontrollable situation down the road and the 'debt' of uncleared deadwood piles up.

Just a thought.

This is a very good and thought-out comment - I don't understand why it was marked as dead.

From a purely macroeconomic sense you're probably right but if we zoom in there's huge amounts of pain that don't go away when the economy turns around. People get worse educations because they can't afford to go to college/university or get sick and can't get treatment and wind up with long term health problems. [0] It's a problem that shows up everywhere in trying to discuss and measure how well the economy is doing, the top level numbers keep going up but it doesn't translate to the kind of generational improvements in wages or standards of living we used to see.

[0] Admittedly this is more of a problem in places without a national health service like the US.

GDP per capita doesn't look stagnant: https://tradingeconomics.com/japan/gdp-per-capita

Looks like the population of Japan is falling faster than the GDP of Japan. So "per capita" is kinda misleading here.

I think GDP is pretty much meaningless and GDP per capita is a much more useful statistic.

These things are coupled, if GDP/capita is going up it means individuals are producing more. If this were just declining populations then per capita measures would be flat.

Capita is decreasing thanks to demographic trends, and gdp had flat lined

The US is also moving into a demographic downturn, thanks to republican policies.

> The US is also moving into a demographic downturn, thanks to republican policies.

Please don't post partisan political comments without a source.

Edit: I appreciate the downvotes for kindly asking people to follow HackerNews' guidelines

Since when are sources required for basic observations on reality? Thanks to Republican opposition to providing first-world amenities to U.S. citizens (universal health care access, education access, childcare access, etc.) new generations of Americans are finding it increasingly difficult to start families. The evidence for this is multitudinous and moments away via any search engine...

Fertility rates are equally low in other developed countries that offer universal healthcare, subsidized childcare, etc.

https://ourworldindata.org/fertility-rate

I plugged in Denmark and Portugal, and both show lower fertility rates than the US.

The unstated conclusion of your response seems to be that the absence of basic social service rights has no impact on rate of demographic change in developed countries; however, your comment appears to be focused on current measurements, and not rate of change. Keep in mind that the average American's economic position has been degrading for decades now, while the same cannot be said (to the same extent) for the citizens of the European countries you mentioned. Your source only has data through the year 2015, so I have supplemented it with projection data for the year 2020 from the CIA World Factbook [1] to more clearly illustrate the trend; the earlier date for each example I cite below is sourced from your link [2]. I've also included data for several other major countries (and the EU as a whole) that offer basic social safety rights to their citizens.

The USA fertility rate in 1990 was 1.98; in 2020 it is projected to be 1.84 (a delta of -.14).

The fertility rate in Denmark in 1990 was 1.65; in 2020 it is projected to be 1.78 (a delta of +.13).

The fertility rate in Portugal in 1990 was 1.52; in 2020 it is projected to be 1.41 (a delta of -.11).

The fertility rate in Germany in 1990 was 1.36; in 2020 it is projected to be 1.47 (a delta of +.11).

The fertility rate in Canada in 1990 was 1.66; in 2020 it is projected to be 1.57 (a delta of -.09).

The fertility rate in France in 1990 was 1.75; in 2020 it is projected to be 2.06 (a delta of +.31).

The fertility rate in Norway in 1990 was 1.85; in 2020 it is projected to be 1.84 (a delta of -.01).

The fertility rate for Europe in total in 1990 was 1.70; in 2020 it is projected to be 1.62 (a delta of -.08).

This is obviously not a thorough (or even statistical) analysis of the situation, but a cursory look at the data from the perspective of multi-decade trends does not lend credence to the notion that the availability of social safety nets has no impact on demographic rate of change in a developed country.

[1] https://www.cia.gov/library/publications/the-world-factbook/...

[2] https://ourworldindata.org/fertility-rate#the-global-decline...

Data shows [1] educated, empowered women with access to contraceptives have less children overall, and defer having children until later in life, full stop.

I also argue it is a net positive, regardless of the underlying mechanism(s), that the fertility rate is declining across the world considering the unsustainable consumption rate per capita of the first world.

[1] https://ourworldindata.org/fertility-rate#empowerment-of-wom...

I agree with those points but I have not seen evidence for the idea that the availability of social safety nets is not also a significant factor in fertility rate trend, which I took to be the thrust of your original post.

Conversely, I haven't seen evidence that the availability of social safety nets is a significant factor. More data is required, but I still believe my theory is on sound footing based on existing fertility data.

You didn't state a theory; to the extent that you implied a theory similar to the one I described the available data does not support it at all...

This is a good point. A lower fertility rate will probably result in a better quality of life for people in the long run since there is less competition for resources

Well, for starters it is against this site's guidelines

> Please don't use Hacker News for political or ideological battle. That destroys the curiosity this site exists for.

Not really. The entire first world is suffering a demographic crisis but the US is doing slightly better than Europe and Japan with population set to keep increasing for the foreseeable future.

The population is only increasing due to an immigration flow that the Trump administration is busily shutting off or disincentivising in every way possible.

I am fine with this. Bernie Sanders once said mass immigration was a "koch brothers scheme." I agree with this sentiment. Increases in GDP don't seem to help the lower class. As GDP has risen, inflation adjusted income has flatlined. As population has increased, and as housing investment gone higher, housing prices have skyrocketed.

I think you are confusing Sanders position against fully open borders vs an allowed, but controlled immigration process.

Allowed but controlled immigration is what I believe the result of Republican efforts has been. Sure, they probably want to decrease immigration even further, but they haven't gotten policy that far yet.

This is about 1.2% annual growth fro 2010 to 2018.

Over that time, the population has also shrunk from 128 million to 126.3 million [1], so the per capita isn't as relevant. Japan's total GDP has pretty stagnant since 1995 [2].

[1] https://tradingeconomics.com/japan/population [2] https://tradingeconomics.com/japan/gdp

Bank of Japan had been achieving new heights of monetary policy year after year for the last 30 years with little impact on real economy.

BoJ is the biggest proof that the traditional notion that creating money generates inflation is incorrect. The issue is that inflation is narrowly defined, and will only happen when people buy daily commodities. Inflation in stocks is not considered to be inflation, although prices will go up the same way.

Or proof that asset inflation doesn’t trickle down. I bet if they spent the same amount of money giving cash directly to everybody there would be inflation

Housing costs in big cities keep increasing at very high rates though. Clearly this affects everyone. Food and services (ie: electricity, internet) are also rising in price much faster than the claimed 2-3% a year. Many people (myself included) believe that official inflation rate calculations are fudged (the metrics keep changing). It's in the government's interest to pretend that inflation is low.

To quote this Forbes article[1] : "the way that inflation is measured over the decades has changed numerous times. If it was still measured the same way as it was in 1990, it would be closer to 6%. Which seems a lot more accurate. If inflation was calculated as it was in 1980, it would be closer to 10%."

[1] https://forbeswealthblog.ca/2018/06/are-the-posted-inflation...

It is weird for me to read this. On the surface, it is factually correct, but I am not absolutely certain the conclusions drawn are valid.

Your initial paragraph seeks to address point raised by others that FED is running out of ammunition and you list of Japan as an example with other pointing out the price Japan paid for that pollicy.

I suppose FED could buy all US equities on national credit card ( and if you think about it, something similar to it happened only few months ago ), but do you think it is a prudent move?

Prudent move? It's the only move. If it's either that or a recession, then they will do it, consequences be damned.

I disagree. You can maybe delay the inevitable correction, but it is going to come. And after the sugar rush of easy credit ends, the headache will be that much worse.

Would it not be better to face some of that pain now?

Not in an election year.

Trump will not let the recession occur, because he's so afraid of losing.

Maybe that is part of the problem. We imbue our leaders with a belief that their will alone is sufficient to stem the tide forgetting that they are only human.

This is the point of the Fed being independent - so that they can ignore Trump's tweets and do what they think the economy actually needs.

Now, they have recently done basically what Trump asks. Are they succumbing to Trump's pressure, or is Trump asking them to do what actually is the right thing?

They are independent, but not imune to pressure from a powerful person who doesn't recognize any boundaries to achieve his personal goals.

Sure, but it's also a matter of when. If you can delay it for a few decades, that's going to be enough for a lot of people to retire.

The US could just cut interest rates whenever the stock market goes down. There's no real limit to how low they can go, and as long as the investors understand that the Fed is backstopping them they'll contribute in pumping it up.

This is a problem that the Fed created for itself. In the 20th century, a recession was a normal thing to be expected, even textbooks said this. It seems now that we have a whole generation that is afraid of going through a recession and apparently will do almost anything to avoid one. The Fed created this problem by manipulating the markets to avoid recessions when they should be occurring. Now it seems that the only thing guaranteed is that the country will burst when the next inevitable one happens.

Recessions are not caused by stocks going down in value. Stocks going down in value is an indicator or symptom of a recession. In the same manner, a Coronavirus infection is not caused by a fever.

What would buying stocks do for the economy?

Artificially propping up pension funds and the like, basically an indirect cash donation from the FED to the middle-class people who are over 40. We’ll see how it goes, because we didn’t really experience capitalism without creative destruction until now (which looks like the path we’re headed on).

“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them (around the banks), will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” ~ Someone, supposedly Thomas Jefferson

Edit: ~ "Thomas Jefferson" changed to "~ Someone, supposedly Thomas Jefferson"

"Spurious"

* No documentation ties it to its putative originator.

* Its earliest known reference did not appear until long after the death of its supposed originator.

* Multiple sources are claimed for its origins.

* Contextual information indicates the words are of more recent origin than claimed. (deflation/inflation)

1. https://www.monticello.org/site/research-and-collections/pri...

2. https://www.snopes.com/fact-check/bank-shot-2/

One of the “Rules of Misquotation” outlined by Ralph Keyes in his 1992 book on that subject is that axiom that “Famous dead people make excellent commentators on current events.” Given the fear and uncertainty engendered by the current economic situation, and the disgruntlement expressed by many Americans at the thought of providing taxpayer-funded government bailouts to financial institutions and other large corporate entities (such as the auto industry), it was only a matter of time until someone trotted out a quotation (apocryphal or otherwise) from a respected, long-dead figure demonstrating that this whole economic mess was both predictable and inevitable. And one could hardly find a more hallowed figure in U.S. history than Thomas Jefferson to deliver this message, warning us from across the centuries that predatory banks and corporations would eventually impoverish us all. [snopes]

To be fair, within the Constitution there is a clause where the Gold standard is required for all debts and tender (https://en.m.wikipedia.org/wiki/Contract_Clause), of which Thomas Jefferson wrote the majority. Even if he didn't say it himself, the sentiment was strong enough between all parties that it was included in the beginning.

It's worth noting here that The Wealth of Nations was published in 1776.

Perhaps the people who drafted the US Constitution would have had a chance to read Smith by 1787, but I can't imagine they would have really had a chance to fully digest and internalize the ideas being presented. They were almost certainly working from a firmly mercantilist mindset.

Benjamin Franklin knew Smith personally, and was present at the drafting of the Constitution, so there is at most one degree of separation. I haven't actually read Wealth of Nations myself, but its worth noting that a lot of compromises had to be made on all sides to encourage states to actually join (IIRC the income tax was originally illegal because the initial wording implicitly said that slavery couldn't be taxed out of existence, and this was intentionally worded to encourage southern states to join).

It's more like they were familiar with the Theory of Moral Sentiments^. This work lays out the foundation of the Wealth of Nations and lays out an explanation of The Invisible Hand. From the Section 'Sixth Sense':

"Hutcheson had abandoned the psychological view of moral philosophy, claiming that motives were too fickle to be used as a basis for a philosophical system. Instead, he hypothesised a dedicated "sixth sense" to explain morality. This idea, to be taken up by David Hume (see Hume's A Treatise of Human Nature), claimed that man is pleased by utility. "

I think this is one of the first places to move away from a labor theory of value to a utility theory of value. I'm a dummy though so who knows.

Edit: Publication on or before 12 April 1759 should have had plenty of time to be read and discussed before the Contract Clause?*

^https://en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments

That is an amazing quote. It seems that the attribution to Thomas Jefferson is a little off though.

https://www.snopes.com/fact-check/bank-shot-2/

The trouble is that the nominally risky thing -- allowing banks to create a lot of money -- has already happened. Consumer debt is very high. Most of the borrowed cash is now in the coffers of corporations that never spend it, which keeps inflation low, but also keeps anyone from using that money to pay back what they borrowed. So they just pay the interest. Which they can do as long as rates are low.

The only way out of this is to get enough cash into the hands of regular people that they can use it to pay down their debts at the same time as interest rates increase to provide the incentive to do that. Either that means the money corporations are warehousing has to somehow get paid out as wages (which would require some kind of major e.g. tax policy change), or some other new money has to be created by the government and not banks (by fiat rather than as debt) and then transferred to regular people via a UBI or similar.

In the meantime we can pretty much keep kicking the can down the road by keeping interest rates low for an arbitrarily long period of time. We could even go further into it, because the lower interest rates are the more debt load people can carry. But that keeps increasing the amount of idle cash in the corporate coffers. Something something wealth inequality.

> Buy stocks. Buy treasuries. Do so with wild abandon, because the Fed has your back. Just watch out for the moment when the whole thing jumps into reverse and no amount of market manipulation will stop the bleeding.

In other words, buy low sell high. Got it. ;)

God help us all if our central bank starts taking cues from the Bank of Japan or the ECB and their zombie economies.

Our inability to suffer short-term consequences for long-term prosperity is a real issue that we as a country need to figure out how to solve. (Can you solve for human nature?) The fed shouldn't have made cuts in 2019 at the height of the market, we should have let failing banks fail, we need to start spending responsibly if we want to remain a reserve currency, and we need to learn that forest fires clear out the undergrowth for new growth.

Yes, but God has been helping us all already and it has been going on for decades, through QE and interest rates and bailouts, and a lot of top economists seem to be set on milking this as long as they can and keeping the cow on life support and drugs for a very very long time. And why shouldn't they? Nobody knows how long we can keep the cow alive, there is no real precedent. It can go belly up tomorrow or in 50 years. It works really well right up until the point where it doesn't at all anymore.

Man, amen. This is the worst one yet because it was clearly political. If this wasnt an election year, theres no way we get a .5% cut

I think a good start would be if average people were confident that they would take part in the long-term prosperity. Right now, that doesn't seem like such a good bet.

The idea that we should bear short-term consequences for long-term prosperity is the human nature we need to solve for.

The Fed has been much more aggressive than the ECB, and it's why the US recovered faster than Europe.

You can solve for human nature. 3200 years ago we were all in a Prisoners Dilemma stuck at backstab backstab (literally killing each other). And then Moses came down from Mt Sinai and said Thou Shalt Not Kill, and lo, the solution to the dilemma was coordinated by shared principles. I think the solution to today-era social problems will probably look something like that.

this is a good point. there is something deeply disturbing when the Fed manipulates on a scale that controls the pricing of the entire stock market

Print money to then outbid people on price - what could go wrong?

As he said, here's a chart that shows what's going on: https://seekingalpha.com/article/4253231-japans-stock-market...

This is devastating.

Boj doesn't have the world's reserve currency. Japanese culture allows it as the citizens buy the debt along with large institutions. The whole world owns us debt and base their notion of wealth on it. The us is not a nation of savers The two are not the same

I believe Ray Dalio when he says it's the end of the long term debt cycle and like 1937 again.

I actually think the Fed is kind of happy to have a virus as cover for this move.

We're basically running out of tools to combat an actual financial crisis. https://www.investopedia.com/terms/l/liquiditytrap.asp

Hey look on the bright side, we have another 100bps left in rates and then QE4.

After that, yeah then it gets tough, but then again, maybe we get some actual fiscal stimulus which maybe buys the US some China style infrastructure!

We will likely see negative interest rates before the Fed decides to raise

We could always just end the practice of paying interest on excess reserves which the Fed started when they thought banks were collapsing but there wasn't any economic downturn back in 2008, so they needed to get the banks not to lend out the money they were pumping into them somehow. The Fed's inflation models have been predicting higher inflation than we've seen ever since. Currently the interest on required reserves (IORR) and interested on excess reserves (IOER) are both 1.6%, well above the Fed lending rate of 1.25%.

A fiscal stimulus? Yes, let's go even more into debt than we already are.

It doesn't matter how much debt we are in provided the rate of return for the investment is greater than the interest on the new debt.

And that's without considering that inflation is very low, so we can print our way out of some of it.

I find it ironic that the people who say "the government should just spend tons of money because the debt doesn't matter" and don't care about punting the problem to the next generation are the same ones who say how irresponsible the Baby Boomers are for punting the environment problem to the next generation.

And you managed to both completely avoid my point and bring up generational politics.

You don't have a point, you have an opinion. You don't provide any facts or resources that prove the money spent in a fiscal stimulus returns a greater rate than the interest on it. You don't address the fact that the debt has gone up 300% over the last 20 years while the GDP is up only an average of 2.5% a year.

Printing your way out of debt is not a solution, ask Argentina. Eventually your investors will lose faith in the value of the money they're getting back in return and the currency will collapse.

> You don't provide any facts or resources that prove the money spent in a fiscal stimulus returns a greater rate than the interest on it.

1. I never said fiscal stimulus was guaranteed to return more than the interest to service the debt needed to pay for it. I said if it does that. My point is deficit spending == bad is not always true.

2. You didn't provide any facts or resources to prove that there exists no possible fiscal stimulus that could generate a greater return than the interest on the debt needed to pay for it.

If you want resources, Google it. You'll find plenty of information backing up the claim that it is possible for deficit spending to pay for fiscal stimulus to be a net benefit.

>You don't address the fact that the debt has gone up 300% over the last 20 years while the GDP is up only an average of 2.5% a year.

Why are you quoting a 20 year value for the debt, but a yearly value for GDP?

>Printing your way out of debt is not a solution, ask Argentina.

Instead of looking at Argentina, why don't you look to the US? We've been effectively printing money since 2008 and inflation hasn't come close to going out of control.

The US isn't Argentina, and saying look to Argentina is no better than people saying look to Somalia for an example of why small hands off government doesn't work.

Inflation is not as bad in the US as it is in Argentina because the demand of US dollars is still high. When that changes you can say good bye to a nice, stable inflation rate.

I think Argentina problems come from borrowing in dollars, not from "printing" his own currency.

Inflation is their favorite tool to steal from the people. It's even illegal to purchase a high amount of US dollars now.

I'm not talking about the people purchasing dollars, I'm talking about the country borrowing in dollars. That's the real problem with its debt.

Us GDP to debt ratio is not dramatically worse compared to where it was 30-50 years ago if you just look at how other countries were during this period

Boomers are the ones who tell you to be scared of the debt. Same boomers tell me that gold is the best investment

Well, Boomers remember the 70s, and gold has done extremely well vs USD since then.

But not well vs stocks. Gold still hasn't recovered to it's all time high from ~10 years ago.

It's done ok, it's at about 45x its 1970 price in nominal terms, something like 5x in real. More importantly, as an uncorrelated asset to help buffer against crises in a portfolio strategy, it's actually done very well. I'm certainly not advocating that anyone go 100% gold, but it gets hated on more than it deserves.

No, learc83 has a point, in the abstract. If you borrow to spend the money, and the rate of return on what you spend it on is higher than the interest rate, then it's a good idea to go ahead and do it. That's true... in the abstract.

In the real world, though, Congress decides where to spend the money - not based on any kind of return on investment calculation, but based on political calculations. So in reality, a positive return, if it happens at all, will only happen by coincidence.

The "passing the problem to the next generation" thing doesn't make any sense.

There are two possibilities: If in 25 years there wil be enough real resources (machines, infrastructure, knowledge..) for covering all the needs of the people, the accumulate debt is not going to be a problem. If in 25 years there will not be enough real resources, the government finances are going to be irrelevant.

So, what is the best way to make sure there are going to be enough resources? investing in infrastructure and education or "saving" money?

Anything but cutting spending, huh?

Would you like to see the public debt payed? when that happened the last time?

> If in 25 years there wil be enough real resources (machines, infrastructure, knowledge..) for covering all the needs of the people, the accumulate debt is not going to be a problem.

Unless, you know, there are enough goods to support a lifestyle similar to that of the current generation but our kids can't buy them because all their productivity is going to pay the interest on our generation's (foreign-owned) debt. Or there would have been enough goods but we took that money we borrowed and used it to shift production toward things we want now, compromising the capital investment and maintenance which were needed to stay productive so that everyone's needs could be covered in the future.

Profitable investment is good, and it isn't necessarily wrong to go in debt to fund a good investment, but there is such a thing as malinvestment—investing in the wrong things, resulting in a net loss—and the more debt you take on the more your productivity is continually drained away and unavailable for either investment or consumption. Profitable investments will take place without subsidies, and if it isn't clear which kinds of investment will end up being profitable then it's better to save the funds until the situation becomes clearer rather than waste scarce goods and labor on a bad investment.

It can go negative, or Fed can do another round of QE, there are plenty of tools. The real question is whether the deficit can grow indefinitely without consequences, and if this is a moral hazard (e.g. no risk priced in borrowing).

The European experience has shown that negative rates aren't really working, other than killing the local banking system.

Well that's not what the former ECB chairman Mario Draghi thought about it. According to him they were a success .. See e.g. http://www.ekathimerini.com/245837/article/ekathimerini/busi...

But even mr. Draghi might agree that right now the ECB is pretty powerless, given that it's rates are already below zero.

That's because it's not a monetary policy problem, but a fiscal policy problem.

If you insist in fixing your home with your car jack, don't complain about the results.

Worthwhile read:

https://www.business-standard.com/article/finance/can-banks-...

When we design policy around increasing the value of the stock market, we effectively give stock-holders power. Good policy should create efficient markets, not "high value" ones.

It can grow larger than people realize.

As long as other countries do business in USD and keep buying US debt, the party keeps going.

With fiat, you can spend as much as the combined purchasing power of all your citizens through money printing.

When you’re the reserve currency, that pool is extended to the purchasing power of many many countries.

That’s probably why, from a strategic POV, the US must remain the largest military force and continue to police the world.

With dollar hegemony, the US might even introduce new ways (like MMT) of sipping purchasing power of participants.

Yeah the party keeps going, but the crash will be worse. Worse crashes means more time to recover, more americans lose their jobs, and so on.

100%

What does the deficit have to do with the Fed? QE doesn't grow the deficit.

Deficit is funded through debt (treasury notes). Fed buys treasury notes (through QE) and sets the interest rate on these debt. Lower interest rate in short-term reduces deficit (smaller coupon payment), but in longer-term encourages borrowing.

> We're basically running out of tools to combat an actual financial crisis

Not really. This was extensively explored following the Great Depression, in part by Ben Bernanke, which is how we got QE. In summary, the Fed can buy more than just short-dated government bonds.

Moreover, "liquidity trap" doesn't refer to the central bank running out of tools per se. It refers to investors calling a central bank's bluff.

A classic example is a stagflation-facing central bank cutting rates. The cut spurs inflation. Investors figure that will force the central bank's hand into a rate hike shortly. As a result, they hold.

The cut thus fails to have an impact because the bank is perceived to be constrained. That doesn't apply here.

> That doesn't apply here.

So long as the appearance of inflation never occurs.

I'm pretty worried about this. I don't think this rate cut makes any sense. You can't stimulus away a virus.

There seem to be economic ways to help curtail it though.

- sick pay for hourly employees for next year

- backstop airlines, event planning and travel businesses in some capacity

- offer Netflix rewards for vaccines, testing methods or other applicable things

- cover cost of insurance for massive testing

> cover cost of insurance for massive testing

how about just massive testing. no insurance necessary

If done well, that would prove that Medicare4All works. Cannot have that happen.

Yes but it could avoid some bad effects.

If a company temporarily can't manufacture something due to supply chain disruption, they could lose a lot of money and might need to borrow some. Getting by until things recover just got cheaper.

I'd guess there are probably similar issues for restaurants, the tourist industry, maybe construction?

But that assumes they're credit-worthy. It wouldn't help a company that can't borrow.

Somehow I don’t think the ability to borrow money 0.5% cheaper than yesterday is going to make a material difference to a lot of firms.

Trump isn't trying to stimulus away a virus. He couldn't possibly care less about COVID-19 unless he personally were to get infected.

He's just trying to stimulus himself a re-election.

We are in/at the start of an actual financial crisis, people just haven't internalized that yet.

Who could have known that using debt to purchase back stock for the purposes of artificially increasing company value without building value would cause a crisis?

It would be bad if they needed cash and couldn't borrow, but on the other hand borrowing just got cheaper.

What evidence is there that companies who previously bought stock and issued debt are low on cash?

I'll bite. How can you tell?

The entire world is about to have a supply chain disruption that you can't stoke into recovery using central bank policy. The Fed rarely lowers interest rates without notice. They're spooked.

What if this supply chain disruption is short term, and the world returns to business as usual soon?

That is a possible scenario, but not what market participant behavior is predicting. So, you either believe governments, or you believe the flow of trillions of dollars through the capital markets. The truth likely lies somewhere in the middle, waiting to be discovered.

Then you drop rates only for the short term, and return the rates to their previous value soon.

> The Fed rarely lowers interest rates without notice.

Just to play devil's advocate, the world also rarely has an epidemic of this magnitude...

Only because the toolset is artificially restricted for ideological reasons.

Fiscal responses (having the government spend actual money, either on things like infrastructure it by just handing it out to the population, which will then largely spend that money as they see fit) rather than monetary policy responses (reduce rates and hope that people will borrow more) are known to work well in most cases.

The Corona virus situation is slightly different than the financial mess of 2008 because it involves actual potential supply constraints. This means that a higher rate of inflation may have to be accepted temporarily. But inflation has arguably been far too low for far too long anyway...

Keynes famously said you could hire people to dig ditches and it would stimulate the economy.

However, if we were to take aggressive action on Climate Change, there’s a lot of potential jobs there. A massive potential stimulus. Also, you know, public funding of basic research which could explore, I don’t know, pandemic response, new therapeutics, etc.

Like you said, ideological barriers are what’s keeping us stuck. But before we went all in on finance we had a pretty epic run last century of productivity fueled by public investment (think 1940-1970).

I mean half of the economy is digging ditches basically. A few small portions of the economy produce the necessities of life while nearly everyone else just circulates money around through entertainment, advertisement, etc.

Climate Change is doing just fine with us doing no work, notice the recent news about the satellite-detectable pollution levels in China being at lows not seen in a long while. Of course, that means us not being as product- and services-rich as we are right now (farewell to cheap airplane rides, disposable clothes and easily replaceable electronics) but at the end of the day something will have to give.

That won't last. China will feel a need to dig itself out of a hole and ramp production beyond normal levels to make up for it.

The problem is most governments are already highly in debt. It is not that a fiscal stimulus is a bad idea per se, but it has to start during the expansion cycle by reducing the debt, otherwise at some point so much debt becomes unmanageable.

Keynes's ideas also fail all over the globe. Saving and investing is what grows an economy.

In what universe does saving stimulate the economy? It's literally the opposite of consumption.

Saving allows the banks to lend the money to entrepreneurs who increase productive capacity and hence grow the economy.

Saving doesn't grow the economy, pretty much by definition as was already pointed out.

(Real) investment, in the sense of building up new productive capacity, is an important part of growing the economy. However, investment at least by the private sector cannot thrive in a vacuum. It needs a context of either existing or plausible demand. If the demand is missing, you'd be a fool to spend money on increasing productive capacity, i.e. you'd be a fool to invest.

Note the important emphasis on what kind of investment we're talking about. Unfortunately, the act of buying existing productive capacity (e.g. by buying stocks) is also called investing, and you have to be careful not to confuse the different meanings of the word.

Indeed, real investment requires market interest, something the government is pretty bad at discerning

Saving goes hand in hand with investment since by putting money in the bank it can be borrowed by entrepreneurs and they can hopefully do something productive with it. Merely spending it doesn't have that effect.

I feel like you are not replying to the core of the argument:

Spending is crucial because that's what signals where investment is needed / desirable. Furthermore, spending is what gives companies profits that can then be reinvested for sustained development. If there is no spending, then investment is simply pointless.

If investment happens in a vacuum, without regard for where the demand (which is nearly a synonym for spending) is, the investment will likely go to inefficient or useless projects.

Furthermore, the stated causality from saving to investment doesn't exist in our modern financial system. Banks create money out of nothing whenever they find a suitable borrower. Of course, a borrower is more likely to be suitable if they can demonstrate demand for their product - again, the importance of spending.

Sidenote: There is an equality of savings and investment in the national accounts (if you ignore the external sector), but that's just an after-the-fact accounting identity without any causal content. There's good reason to believe that, if anything, the causality goes from investment to savings. Either way, it's not an interesting causality. The real economic decisions, certainly the ones that lead to good allocation of capital, follow where the demand is.

Sidenote #2: Your stab at the government misses the point as well. Nobody is asking for the government to start investing in productive capacity for things that the private sector usually provides.

However, government could ensure that people have more disposable income. This leads to more spending, which encourages (and finances, via reinvested profits!) investment in order to satisfy the added demand. At the same time, it improves the quality of the demand signal, which helps achieve a better overall allocation of capital.

There are other useful things that governments could do, but this is an important and useful thing. The economy generally works well when people can just vote with their wallets. But one precondition is that there is money in those wallets.

The government would be creating a market distortion by not allowing companies to spend their money how they see fit and instead redistributing to another sector (the general public).

There would be no growth because the money the people would be spending is the same the government took from the companies in the first place. It's like taking the fat out of a man and feeding it back to him.

I'd point out that nobody (except for you) said anything about preventing companies from spending their money as they see fit. I don't understand where you even get that from.

The discussion was about fiscal stimulus.

How does the government acquire the money for that stimulus? By taking it from the companies through taxation. Government spending is always less efficient than by private entities.

Also, the result, cheaper and more abundant energy, would stimulate the economy.

Who do you hire when you're at full employment?

(The answer is you have to increase immigration, and hire those people)

Well for starters you stop reducing the participating rate to make things appear better.

The participation rate isn't set, it's measured.

> inflation has arguably been far too low for far too long anyway...

Do you not need a roof over your head, health insurance, a car, college education, etc? Inflation has been rampant, it's just not apparent in manufactured goods because the actual cost of production dropped rapidly with offshoring and technological progress. Without significant inflation, we would have seen a steady march down of consumer prices, as happened in computing.

lewis turning point: https://en.wikipedia.org/wiki/Lewis_turning_point

The inflation has been offshored. China's rural population has been lifted out of poverty. What happens to the world economy when china runs out of cheap labor?

Some countries will always have cheaper labor than others.

There are still many other countries with cheap labor (Bangladesh, Pakistan, lots of Africa etc). It will still take a few more decades for the majority of the whole world to get out of poverty (assuming we don’t go off the rails).

Yes the not-so-hidden inflation has been rampant, but universal health care, basic income, and direct infrastructure investment would help, not hurt those.

Let's go over Housing, healthcare, and education in turn:

- Housing, overpriced because the jobs are concentrated, stupid zoning, etc. We deserve dense cities but UBI means no job, no stave, which in the short term takes away the demand to move. Let's not rest on that and continue to stupid-suburb, but do take some refuge in that short term benefit of decreasing the necessity of people moving.

- Education, overpriced because of a shortage of work and a credentialist rat race. I'm all for people being educated---say a liberal arts that includes engineering not because it pays well but because one has to understand the machines that surround us to understand the modern human and social condition. But it's stupid to expect people to stuggle to acquire credentials that won't get them hired and won't actually help with the stupid jobs that get if they are hired.

UBI helps eliminate unproductive by removing the desperation that forces people to take them. The decreased demand for employment hopefully will end the credentialism rat race, lowering the cost of education. And the decreased drudgery of the education that remains should make the education better, and push employers to shoulder more of the remaining cost.

- Healthcare. Unlike the others this probably is less overvalued; avoiding being sick or getting well when sick is incredibly valuable to the individual, and thus I view the price gouging as inevitable. I don't think there is a market based solution to this one, but that's OK. Just do the universal thing and remove this from the market, and now its not subject to inflation in the same way. [The power of the state commands the supply to exist.]

Housing is overpriced because anyone can go to a bank and get as much cash as the house is appraised for, which is circular. So the actual constraint is just the inverse of interest rates. The same goes for education. There are underlying supply problems with each of these that need to be directly addressed, but they're exacerbated by the current economic policy of giving out as much rope needed to hang one's self.

I think much of healthcare could be solved if providers had to publish uniform prices and couldn't post-facto bill, you know, like every other business. Imagine going to the grocery store, paying at the register, and then two months later receiving a bill in the mail for the cashier's time!

Still, I am not opposed to single payer as a way forward - assuming it doesn't get transmuted into mandatory patronage of the same corrupt system. It's not like Medicare currently solves the underlying issues, it just absorbs the cost disease.

Basic income is a natural extension of quantitative easing. It will help people in rural areas, but do nothing for in-demand areas (being swallowed up by housing). I do agree it's much better than just giving the money to the banks though!

Direct infrastructure improvement - party on! Government "public works" is currently focused on the military, producing a surplus of chaos and misery abroad, while our infrastructure crumbles. I don't know that subsidizing suburban infrastructure fully makes sense, but I do know it's better than squandering the resources elsewhere.

> Housing is overpriced because anyone can go to a bank and get as much cash as the house is appraised for, which is circular.

The appraised value is just a signal how much collateral a bank can rely on for the loan, which is why most loans with good interest rates have a maximum loan to value ratio. Banks don't want to own houses, they want to own a piece of the borrower's future productivity, manifested as interest payments.

The limited housing/transit supply (due to zoning restrictions) coupled with concentrated job growth are what drives up housing costs.

I did go on to acknowledge the "underlying supply problem". But this thread is about financials, and without the endless supply of money, asset valuations would be much lower.

If housing prices are too high, it's because there are too many dollars chasing too few houses. Fix one or the other. The easiest and most humane option is to just let people build more housing and stop with the stasis-producing process you see in places like San Francisco

Housing prices are not too high. They are too high in some places.

So what you're really seeing is that physical infrastructure cannot keep up with the massive change in the US from a manufacturing and agricultural economy to a service and information economy.

> toolset is artificially restricted for ideological reasons

Not in Hong-Kong. [1]

[1] https://edition.cnn.com/2020/02/26/economy/hong-kong-budget-...

We are 100,000 years overdue for a major upgrade to the information technology known as money.

Because they've already been expended to keep the "growth" party going indefinitely, rather than ever letting things cool off. This includes 2008 - a short hiccup and then full speed ahead, culminating in VC's filling sidewalks and gullies with a glut of consumer goods, hoping for some kind of eventual profit. Eventually the bubble has to pop - when it's not allowed to do so relatively casually, it will do so catastrophically. When it's not allowed to do so at it's own time, it will do so at the worst time.

The best tool is to let the virus shake things out in the economy. Well managed companies will survive those that are not go by the wayside.

Interest rates have been on a secular decline over the course of the last century. Different economists have described this via various terms- "savings glut" is the one I like the most (even though I don't like Krugman). Right now there is so much saved cash out there looking to be lent out that any project looking for financing can find it for cheap.

The Fed does not keep interest rates low in a vacuum. There is an auction system that determines real rates. If the Fed is not able to sell all their bonds at the target rate, they have to adjust.

In the long run, I think we will see:

1. (at risk of calling this bull market a "new normal") P/E ratios for stock will continue to climb in a secular fashion. Low returns from the alternative investment of bonds will dictate high P/E ratios.

2. Debt financing will remain cheap. Low interest rates signal cash that is desperate to find a place to park it.

3. Government debt will remain popular and affordable. This is a win for Keynesians.

4. Secular low interest rates are an indicator of a stable and mature economy, which is good. The bad part is that they signal a world where obvious available capital investment projects are missing- we seem to have picked the low hanging fruit.

5. Next recession the U.S. will hit the zero lower bound, and we will see lots of QE and/or nominal negative interest rates through some institutional mechanism.

6. Increasing government deficits look better when interest rates are low.

7. Speculative: Deficit spending can increase indefinitely if real interest rates are below 0 (aka nominal rates are below inflation). To put it in other terms: Any deficit spending is free money up until the point that it causes inflation to rise about the nominal interest rate.

What does "secular" mean to you?

'Secular' has multiple definitions; this one refers to a non-cyclical trend:

https://www.lexico.com/en/definition/secular

From context, the OP is using it to mean, over a period of time.

In Economics, secular essentially refers to long-term trends regardless of boom-and-bust business cycles. The focus is on the long term. In the context of economics it has nothing to do with religiousness.

A secular trend is a variable that evidences a consistent pattern within a given period of time. It is a statistical tendency that can be easily identified and it is not subject to seasonal or cyclical effects. (https://www.myaccountingcourse.com/accounting-dictionary/sec...)

> The Fed does not keep interest rates low in a vacuum. There is an auction system that determines real rates. If the Fed is not able to sell all their bonds at the target rate, they have to adjust.

To my understanding, there is a real public market, however the Fed essentially manipulates by participating to the degree necessary to achieve the target interest rate. When the overnight repo rate went up, the Fed hopped in to 'fix' the rate. You will never have enough assets to compete with the Fed's goals. They have limitless capacity to participate in the market.

Pardon my cynicism, but it seems like many of the actions the administration is pushing are simply things they were pushing already and are using this health crisis as cudgel to help get what they want.

What we need are lower interest rates! What we need is to limit immigration from Mexico (even though the US has a higher infection rate and there isn't any talk of limiting flights from, say, England). What we need to do is silence domain experts and have communications controlled by politicians at the White House.

Maybe this rate cut is actually the right thing to do, what do I know? But I have little reason to believe it was made for the right reasons.

Agreed, I think many people in the administration and at the Fed were itching to cut rates for a while, and this is the perfect excuse to do what they were already planning to do.

The administration doesn't direct interest rate policy, the FED does, within the context of the FED's mandate a rate drop isn't unexpected during an event like this.

> The administration doesn't direct interest rate policy, the FED does,

Given that the administration choose exactly who leads the FED, they're not exactly independent either.

To be fair, Trump has been pushing the Fed around non-stop. They basically follow his indirect orders. All for political gain at the expense of the future. It's pretty pathetic.

That is how it is supposed to work. Over the past couple of years we have seen the President break with tradition and uses his megaphone to berate and belittle the fed to try and get what he wants. Of course we cannot know if the fed has ignored all that, but by appearances, the president seems to be having an influence.

"Never let a good crisis go to waste." -- Rahm Emmanuel

New gov, same as the old gov?

Rahm Emmanual was indeed initially in Obama's cabinet, but he didn't last a year. Perhaps his politics didn't fit with the tenor of that administration.

To use that quote to set up an equivalence between the two administrations is beyond the pale. I think neither Democrats nor Republicans would say the two administrations are alike.

The way things looking it is an attempt of propping things up until November, and it will be harder now.

When our economy was doing well, the rates supposed to be increased, now we have very little room to use that to help with recovery.

We are burning all of our fuel to ensure we are running at record levels and when a real problem rears its head, we are going to be dry.

The fallout will either fall on a second term or during someone else's first term. Either way the administration doesn't care.

Exactly this.

November is still more than six months away. Given how quickly COVID-19 spreads I think our economy will likely be feeling the pain long before the election.

You are not wrong, and I do think that on the individual level, company employees will feel it. Unemployment may go up. This administration though uses the stock market as their barometer so if they are able claim that the S&P and DJIA are up they can claim victory. There are a lot of things they can do to keep stocks artificially inflated such as more rate cuts, corp. tax cuts, removing regulations, reducing the capital banks are required to keep on hand, etc. All of these can work towards keeping stocks high for a limited time but do essentially nothing for the normal person. At that point then its just a race between when the election occurs and when the market no longer responds to the artificial scaffolding.

I have no doubt this administration will hesitate for even a second if they are able to implement a feature that results in short term (through November) gains at the cost of long term ruin.

This is not accurate. See: https://www.themoneyillusion.com/the-actual-ammunition-issue...

Bringing a fire truck to a bank robbery

Eh... maybe more like bringing a SWAT team to a brush fire.

what part of the prior analogy made you think this one was better, and so much better to actually post?

cynical, but genuinely curious

I like the imagery of fire hydrants spraying water on an issue that is ongoing and unresolved while the vaults become hollow and worth nothing.

Less syllables, rolls of the tongue better.

Accurate assessment

How does a half-point help us if Costco is out of toilet paper?

You can afford to install a bidet

I just installed a Tushy and let me tell you, it takes some getting used to. Especially when the water is very cold.

Did you get the one with the water heater though?

Should of gone for the heated BioBidet...

Try cold showers for a week or so. Not lukewarm, cold. You won't care about the cold bidet anymore, I promise.

Should have gone with a Toto Washlet with water warmer. Cold water sounds like a bad idea for this purpose.

The Coronavirus is going to harm the economy no matter what. But if the Fed acts correctly it can prevent compounding effects like an increase in unemployment that leads to a further decrease in production.

More like using one bucket of water when you have a massive bush fire.

China started with single digit cases, which then spread countrywide with tens of thousands of cases and many deaths. They quarantined cities, built 1000 bed hospitals in 10 days. And now after about 2 months they are seeing a slowdown.

Why would this exact scenario regarding growth in the number of cases not play out in the US? The only difference is smaller population, but cities are dense here too.

However, unlike China, I don't think US and other countries will be able to quarantine entire cities.

They only hope IMHO is that the virus becomes less virulent with as summer approaches.

Apparently China will have a massive economic cost to this.

"New data on China that has trickled in over the last few days suggests the damage coronavirus has wrought on the world’s second-largest economy could be worse and more prolonged than previously expected, despite a decline this week in the number of new infections in the country."

[0] https://business.financialpost.com/news/economy/five-signs-t...

The cost of doing nothing may have been far higher, though.

I think the thing that no one is looking at here is that nursing homes and elderly care centers are going to be hot beds for the the virus. From my understanding China and most of these Asian countries is that don't have nursing homes so the house can be isolated. Here in the US we concentrate the elderly in these nursing homes and hope for the best. Most CNAs don't have enough vacation or sick time to miss work so they will continue to come to work if they're feeling a little bad or have a slight fever and they will spread it despite everyone's vigilance.

Perhaps CNAs should start wearing masks not only to prevent getting sick but to prevent spreading the virus.

> I don't think US and other countries will be able to quarantine entire cities.

Italy quarantined entire towns.

Small towns. Can US quarantine entire Bay Area, or entire Santa Clara county? Maybe, but the cost to economy would be huge..

This is not solving the problem which is 1) the US is drastically behind in testing the population 2) it will not fix disrupted international supply chains 3) it will not fix liquidity crises at health insurers, hospitals, and life insurers and 4) it will not fix demand if people do not want to go shopping at any price because of non-financial concerns.

I presume the Fed knows this, and what worse is this seems to be due to political pressure.

Finally, when this does not work, it will reduce peoples' faith in the Fed.

Hey now! SPY is up 0.01% at the news!

People have faith in the Fed? You are right though, this is political to slow a market correction to where it actually should be. We just keep spinning more plates. What we really need if fiscal policy plans, not monetary. We have so many zombie companies that are on life support and we need to let them die but it won't happen with 0% rates.

The US federal reserve are the best in the world at what they do IMO.

It won't fix any of those, but it will smooth the impact of 1, 2, and 4 over a longer period, which has value. And it absolutely does treat 3 directly, though obviously there is a balance sheet problem with insurers (not the same thing as a liquidity problem!) that will need to be treated by some kind of a bailout eventually.

People are being too rigid here: this isn't a perfect policy but it's not an inherently bad idea. You use monentary policy to buffer shocks to the economy, and in that regime it's best used early and with agility. I think the Fed is fine here, though I agree that this is a very minor side plot in a much larger story.

Yeah, I didn't want to seem alarmist and talk about solvency crises in the insurance market. But I would be interested what impact this might have on life/health/related reinsurers. I feel like targeted intervention in that sector similar to the auto manufacturers is a better thing to plan for and I'm not sure that a 50 basis point cut is going to help as much as you do in 1/2/4 and will be insufficient in 3.

One thing that bothers me and I don't see discussed here is how much the market moved ahead of the announcement. It is very alarming that this sort of information leaked ahead of the announcement as much as it did. I would be interested to know how that reached the market.

I agree with 1,2 and 4. However why shouldn't this help with liquidity problems for insurers?

I like how you guys are pouring free money into the financial system while still asking $3000 if an uninsured person needs to be tested.

This isn't free money.

Keeping the party going by drinking rubbing alcohol.

What would be hilarious/terrible is if this attempt to juice the markets doesn't prevent a sea of red at EOD.

Most of the risks to the economy posed by COVID19 are supply side. How is a rate cute going to help? It seems like the main consequence of this in the near term is an increase in inflation.

50 bps cut, initial rally, faded super fast and now down for the day. Would be interested to see if Fed cuts further.

The first order effects weren't so large to stem the selloff (first order meaning the PV effect of lowering discount rate).

As for second order effects (rate cuts to spur economic activity), I'm not even bullish about the mechanism to transmit rate cuts to the real economy normally, but I think in a quarantine situation, those mechanisms are even more diminished as there's less economic activity. Thinking out loud, demand will probably just hit a wall--there's no elasticity here when people are worried about their lives.

The only mechanism that sounds plausible to flow through to the real economy is fiscal. Government buys Pampers, burns them, buys them again. Or keep lowering rates to raise asset prices by a purely mechanical lowering of discount factor.

It's well-understand how low interest rates boost the economy in the medium- and long-term. Companies deploy cheap capital to build new factories, and consumers buy more appliances, cars, and houses.

What short term behavior changes do emergency rate cuts cause to boost the economy? Are there capital projects that can get started in weeks, that were previously shelved because the rates were 0.5% too high, but are now viable? What sort of projects would these be?

> Companies deploy cheap capital to build new factories

Have we actually seen investment though? Or have we seen mostly stock buybacks?

Does this mean the meeting on march 18th (where there was almost a 100% chance of a rate cut going through) is not happening anymore? [0]

I can't tell if they've just not yet updated that page.

[0] https://www.cmegroup.com/trading/interest-rates/countdown-to...

The market is pricing in an additional rate cut at that meeting

I don't want to sound overly negative but at least hedging with puts (and not gambling but sane expiry dates) against index funds isn't a bad idea. Cutting rates by a half point is panic football and won't fix the supply chain hiccups which will affect production and therefore consumption.

This is a supply shock. Cutting interest rates won't make widgets appear if the widget factory is idle...

I'm not sure why I was downvoted.

https://www.marketplace.org/2020/02/18/coronavirus-warnings-...

everyone is equally as confused as its the same user experience for everyone that comments but protip, talking about downvotes just opens a spiral of more downvotes until you criticize the site rules and get shadowbanned. taking one for the team!

The Dow finished up 1,294 points yesterday, making it its best one-day point gain on record.

It's best to follow the SP500 rather than the Dow. The former is much more representative of the whole market. And it's best to follow market movement in percentage rather than points. Points inflate over time as the nominal value of the market indexes climb.

I can't wait for the SP500 to replace the Dow in news reporting.

"point gains" is a vanity metrics. Percentage matters

and what's the 3 day / 5 day trend?

giant gains are not so important after giant losses, this is just celebrating volatility.

The DJIA is not as good a metric compared to say, S&P500. It considers a 1$ move in any of the constituents in the same manner, so a stock worth 200$ moving up by 1$ is given the same importance in terms of points change in the index value as a stock worth 2$ moving up by 1$ (whereas fundamentally speaking, the second movement is far more interesting than the first).

I had some call options on Robinhood that I wanted to sell after the spike caused by this rate hike. Now I'm watching my gains slowly go away since Robinhood is down again. Two days in a row.

and what lesson have you learned?

I am wondering: what if this happened when the interest rates were zero?

This abrupt move by the Fed betrays lack of knowledge of stock market psychology. Looking at how stocks are doing today you would not think that anything of interest has happened (no pun intended).

The stock market psychology works on "buy on rumor, sell on news" principle. This is the reason there was a significant rally yesterday, and stocks are in negative territory today.

What the Fed should have done is give signals that they are about to cut interest rates, then give stronger signals, then even stronger signals, then cut interest rate by 0.25% then repeat for the next 0.25%. Markets would have rallied multiple times for each good news signal.

This is assuming that the fundamental trust in the market is still there though the global pandemic. It's hard to heal a deeper pessimism when it settles in, and the coronavirus has caused this, especially in the elderly.

I think the Fed understands stock market psychology pretty well.

I think they just didn't have a choice here.

> "buy on rumor, sell on news"

Let me stop you right there - stock market is a multi-agent system with autonomous algorithms making micro decisions, cap managers doing strategic decisions, and everything in the middle. Add a bit of chaos theory. "Buy on rumor, sell on news" is an extremely simplified and naive rational for explaining how a stock market works.

Most theories of how a stock market works have a built-in fallacy. If someone figured out how the stock market fluctuates, it would be ironed out by massive hedges.

There may not be one, precise and predictable way the stock market works, but buying on rumor, and selling on news is a very common, herd mentality that is easily observable, as seen yesterday (rumor) and today (news).

This will further increase housing prices, no? How much more unobtainable for the average American could they possibly get?

I suppose negative interest rates will let us know shortly!

Don’t worry, literally every single one of the presidential candidates in the democratic primary wants to “build wealth” by making housing ever more expensive. It’s practically state policy to make it impossible for a first-time buyer.

The entire point of housing policy at the local level, where it matters, is to make housing more expensive because people's wealth is in their homes and they're relying on housing prices to rise steadily. Renters have less political power.

Local policy is broken but I’m not convinced that it dominates. The Feds have the mortgage interest deduction and Fanny, which both stimulate the demand side very greatly.

Aren't significantly fewer (tens of millions?) people taking the mortgage interest deduction due to tax reform that doubled the standard deduction? Doesn't seem to have driven a collapse in housing costs.

We need more density in low-density areas of cities. Allow people to have multi-family homes if they choose it.

at the risk of getting into a political debate on the internet: I hadn't heard this. Do you have any sources backing up this claim?

Have your seen any of them open their mouths at the debate?

Moderator: solve black poverty Candidate: we’ve got to get them into houses so they can build wealth.

that....doesn't necessarily correlate with making housing more expensive, though. There are government-funded housing programs in other countries that they may be referencing as a model, for example.

If it “builds wealth” faster than any other means then it necessarily becomes more expensive for new entrants. This is an inescapable outcome.

Mortgage rates track more closely to 10 year Treasury notes and not by the Fed's discount rate based on my findings of late and tracking mortgages over the past few years.

The Fed funds rate doesn't really do much to near-term mortgage rates (at least it hasn't to me, as a consumer). The market dip in Treasuries (openly traded) depressed yields which drove mortgage rates much lower before the fed acted at all. Lower rates allows buyers to purchase a lot more home than they otherwise would have which has a good chance of being higher than any rise in the market price - especially for less frothy areas.

If you're talking about prices going up as institutional investors buy up property obviously disregard the above as it's a different dynamic.

This reduces the interest on your mortgage

If you already own a home. Otherwise housing is just more expensive. Lower interest rates mean houses can be sold at higher prices for exactly the reason you gave.

Sure, price and yield are inversely related, but I would imagine there would be less demand for new housing in a worse economy bringing prices down

It comes down to what people that want to live in a particular area can afford to pay monthly for housing and taxes. As interest rates go down, bidding will increase on homes as people consider the monthly cost which is generally mortgage + interest + taxes.

The only real effect it has on first time buyers is coming up with a percentage based down payment. But 20% isn't a real requirement nowadays, but you will incur a PMI payment until you get to 20% equity.

But housing isn't more expensive, unless you want to pay cash for the home. Then yes, low interest rates aren't nice. But when interest rates are low, what's the point in paying cash? Someone offering you money below what you could make on that money in the open market is something you should take. Put enough down to give you a comfortable monthly payment (or get to 20% to avoid PMI) and diversify the rest of your money.

So should I wait a week and then refinance my houses?

The effects to the mortgage market aren't immediate, but should follow on soon. I'd keep an eye on current rates and observe the fall before signing any paperwork.

This seems like a bad move.

It isn't going to help, because it doesn't address the actual cause at all -- but it will help heighten the panic

>The Fed also said in the statement that the “fundamentals of the U.S. economy remain strong.”

So why cut the rate? Doesn't make any sense.

Because you can have a fundamentally strong economy, but nonetheless having up to 1/5th of you workforce off simultaneously (UK govt worse case) could cause business difficulties?)

Because someone at the top with a limited grasp of economics but a great understanding of campaigning insisted on it.

The Fed is independent of the Executive except at appointment time.

Theoretically yes, but all except one are Trump appointees and the main thing he looks for is loyalty. In addition, the threat of getting publicly hammered and humiliated by the president is often enough to make someone think twice before not doing what he asks.

Like the Judiciary is independent of the Executive and provides a check and balance to its power?

Actually, yes. The judiciary does provide a check to executive power - just not as often as the press tells you it should.

I didn't buy that in grade school civics and I buy it even less today.

No enforcement authority = no authority. It's really that simple. Strongly worded letters are pointless in a world where someone can hold them up, shout "Complete Exoneration!", and have their media apparatus repeat it until their followers believe it.

Sounds like the Federal Reserve needs a backbone if they're so willing to change a major component of fiscal policy due to a few words.

Political optics. Current POTUS's claim to success rests, in part, on a high performing financial sector. If the market tanks or stagnates, he no longer has that as a talking point.

I agree with the political optics part, and that the POTUS current claim to success is finances, but I 100% disagree that if the market stagnates or tanks completely that he no longer has that talking point.

If the market tanks, all the talking heads will just blame the upcoming election, and claim that markets and market makers are scared of a Democrat being elected. It doesn't change the talking points for the President at all, I imagine. He still claims the moral victory, if only he hadn't been undercut by those thieves on the other side.

That sort of thing is standard now. Claim success until you can't, then deny any involvement and blame someone else. That's politics, baby.

“The market being in the red is a hoax perpetrated by the Democrats...”

The Fed is not under the President's authority and is probably not filled with Trump fans. The system for better or worse is designed to resist political motivations. (For better because "political," for worse because "political" is the low-valence word for "democratic.")

Bowing to pressure from King Trump.

Edit: Trump has loudly and consistently attacked the Federal Reserve for scheming against him and trying to sabotage the economy, something completely unprecedented considering the Fed is famously intended to be independent. He ratcheted up these complaints even further since the outbreak of Convid-19. Then, the Fed takes the unusual step of cutting rates between sessions (for the first time since the start of the Great recession) despite a strong economy.

Edit #2: Now Trump has lashed out again, calling the Fed's move insufficient.

So has it been all but confirmed that the Fed is no longer an independent office?

Trump attacks all sorts of things. If people do things it's not always a result of him.

They said the exact same thing in 2008, only a few months before the collapse.

It's fair to say, that the FED has no clue.

That's a glib assessment of the Fed. In hindsight, every prediction will have cases that, in your view, would fit "They have no clue.".

This is a big mistake. There is nothing the Fed can do revive the economy from the Corona virus, because this is not a demand problem, it is a supply problem. The economy WILL slow down because the major parts of the economic chain have been considerably affected by this virus. You cannot use more money when there is less to buy and sell. This will happen simply because whatever solution to the virus disruption will take time to be implemented.

I am always surprised when software engineers have such strong opinions on monetary policy. Black and white statements like "There is nothing the Fed can do revive the economy from the Corona virus" aren't the best for macroeconomics discussions that rely on imperfect information and multiple related variables. Your wording makes it sound like you know more about macro than the best minds in monetary policy.

It's more than Software Engineers that perform armchair economic analysis. I wouldn't single them out. Anybody who's well-to-do and participates in markets has a direct interest in paying attention to the Fed and markets. Anybody in top 10% likely has good reason to pay attention.

Software engineers are uniquely qualified to analyze supply chains and supply chain problems. In this case, technical analysis looks a whole lot different than the chicken bone divination stuff you see with thinkorswim or other trading platforms...

> Software engineers are uniquely qualified to analyze supply chains and supply chain problems.

Care to substantiate it? Why? At the very least businesspeople should be more qualified because that's what they deal with? Just because software engineers have to think for a living and do some math sometimes doesn't mean they are experts in every field where that is used...

Software engineers are uniquely qualified to analyze supply chains and supply chain problems.

You’re going to have to qualify that. I’ve been doing this shit for thirty years, including writing logistics and other supply chain software. Do not prioritize my opinion just because I write software; prioritize the opinions of, oh I don’t know, maybe COOs? The buyer for electronic parts at my employer? Anyone, anyone but software engineers so arrogant that they think they have an opinion worthy of listening simply because... hell, I can’t even guess why a software engineer would think that.

Agreed. The worst thing about software engineers is how smug and arrogant we can be. I think it's just an astounding ignorance of other fields and how they're no less complicated or filled with smart people than ours is.

What does anyone expect a Fed interest rate cut to do to spur people to go back to business as usual? The city of Austin is about to cancel SXSW. Do people think they might change their mind now that the Fed has cut borrowing rates?

No. People are reacting to this virus by actively choosing to avoid conferences, travel, restaurants, movies, shops, and sporting events. They aren’t doing it because they’ve run out of money or are trying to save. They’re doing it because they don’t want to get sick. The Fed can’t will people back out into normal life by cutting interest rates.

And that’s why the market is basically flat today after this announcement. The market has nearly universally reacted to this rate cut with ambivalence.

I hate to say it, but I believe your confidence is severely misplaced. The indoctrinated airheads running the Fed are hardly the "best minds in monetary policy." This is the same central bank that stuck its head in the sand despite clear warnings approaching the 2008 financial crisis, then proceeded to overreact to appear as if they were doing something(1).

When is the last time the Fed's spastic behavior had a sure and long-term positive impact on the economy from the average person's perspective? I specify this perspective because the macro measures used by central banks are not always accurate indicators of the general welfare. Central banks are good for primarily one purpose, and that is ensuring the economic dominance of the groups controlling them. This has been their purpose throughout history(2), and I don't see that changing now. This most recent move is at best a platitude.

All that said, I agree with your sentiment that blanket statements, especially in the highly dynamic field of economics, tend not to be accurate or helpful.

(1) Danielle DiMartino Booth, Fed Up

(2) Look into the history of the Banque Royale of France 1716-1720 and the history of the Bank of England up into the 18th century. The long and short of it is these banks were used as mechanisms by the elite to retain control over currency systems which would otherwise have given too much power to the public for their liking.

https://archive.md/MusGO

Imagine facing a global pandemic, and your first concern is how to profit from it.

I'm retired and mostly not in the market. I won't invest in the market while it is overpriced. With such low interest rates, what is a safe investment?

Defensive, boring, high-dividend stocks?

There is no interest without risk.

I suggest Iranian, Argentinian bonds if you really want to get that blood flowing.

I wonder if syrian bonds are available?

invest in a new innovation that cures or mitigates covid-19, or cash and take your lumps. Money is a shared delusion; you can't force it to grow or retain value. Enjoy the net win factoring in the last 10years.

BTC.

If you believe the market is overpriced you could consider investing in long term put options.

BTC and ETH is worth a few % of your portfolio depending on your risk tolerance. :)

The business cycle has been on the down turn for a few months now (though folks are just now beginning to notice it). Historically, Treasuries, long-term GOV'T bonds, and gold perform well during this part of the cycle. If you must have equities, utilities and REITs perform well but only in relation to other S&P stocks.

Structured products!

More or less, this is a deal with an investment bank where they take your money and hold onto it for a fixed term, while watching the level of a stock market index. If the index ever gets above a pre-determined "trigger level", they give you your money back early, with interest calculated at a fixed rate. If it never gets above the trigger level, then at the end of the term, they give you back your money, without interest. Unless the index has fallen below a "barrier level", in which case you don't get all your money back - you lose it in proportion to the fall in the index.

So, it's a bit like investing in the stock market - if the market goes up, you make money, if it goes down, you lose money - but rounded to fixed levels.

Here's an example:

http://www.marianainvestments.com/adviser/contact/view-plan/...

The term is 10 years, the index is the FTSE 100, the barrier level is 70%; there are three options for interest rates and trigger levels, and the safest, option 1, pays 8.55%, and has trigger levels like this:

  Year   Level
     2  102.5%
     3  100.0%
     4   97.5%
     5   95.0%
     6   92.5%
     7   90.0%
     8   87.5%
     9   85.0%
    10   82.5%

So basically, if you think the FTSE 100 will hold its current level over ten years, or even decline slightly, you get a 8.55% per annum payout.

Or, if you think that it will make it to 105% of its current level, you could go for the full-blooded option 3, which pays out 14% per annum.

And bear in mind that a fall in the index only matters at the end of the term. If there's a crash, and the index has fallen to 50% of the current level by year 3, the product keeps running. If the index recovers to 87.5% of the current level five years after that, the product pays out! It literally cannot go tits up.

I'm looking to refinance. If my lender says the rate hasn't changed from 3.25% since last week, that's bullshit Right?

How long should I wait for the rates to move?

It looks like the rates actually went slightly up from a few days ago (though these depends on many variables, but I'm comparing to my local rate that I've been checking for weeks). Might change tomorrow based on today's news.

How do you check your local rate?

I use a website from a local private lender. It requires info about the kind of mortgage you want, the value of the property, your credit score, the zip code, etc. If you don't know where to look, you can start with Zillow's tool: https://www.zillow.com/mortgage-rates/

Rates are pretty quick on responding.

Here's where they stand today based on a survey of lenders, down to about 3.13%: http://www.mortgagenewsdaily.com/mortgage_rates/

Mortgage rates do not move in lockstep with the fed overnight rate.

I wonder if economic indicators will temporary blip up because of stockpiling. I recently bought $1000 of food and supplies and books and toys for my kids if they get stuck indoors which would have normally taken me six months to buy.

What if the reaction to the coronavirus is worse than the virus itself?

I agree to an extent. From a utilitarian standpoint, the economic damage caused by the virus is not outweighed by a mortality rate of 0.2%. That being said, coronavirus has the potential to become worse (more infections -> more mutation -> potential to mutate more aggressively or more resistant to our research) so minimizing infections is probably a good idea. Not to mention, people tend to get angry when you start assigning objective tangible value to human life.

3-2-1, bull market returns. (I hope)

Why? Are you retired? Because if you aren't, if you're working and putting money into a retirement plan, you are much better off with a bear market, especially one like this that is practically guaranteed not to run for years. When you're a buyer you want prices to be low.

Not all people buy stocks just for retirement.

Perhaps this person bought stocks outside of their 401k when it was low and is excited about another run of high returns.

Except people lose their jobs in a bear market.

This assumes a return to trend, right? If stocks are temporarily depressed you can get them at a discount.

If stock prices are permanently lower as a result, though, it's certainly not good for you. And, believe it or not, this is probably the more accepted idea -- that price movements are memoryless, that we shouldn't subscribe to the gamblers fallacy (that down today means up tomorrow), and that being happy for a price drop is a form of timing the market, which is frowned upon.

I don't fully buy it, but it's worth thinking about.

> If stock prices are permanently lower

The only way that can happen is if the economy is permanently less productive. There are things that can make that happen (climate change, for example) but the corona virus is not among them. Fear of the virus is causing vastly more damage than the virus itself. The virus itself is mainly killing old, unproductive people. I don't want to minimize the severity of the problem or the emotional pain of people who have lost loved ones, but in terms of long-term economic impact the corona virus is really not a problem.

I mostly agree. Some nits, though:

> permanently less productive

A short-term reduction in profits reduces the discounted sum of future returns. Not as much as if interest rates were lower, though.

Also, the example of the virus could indicate that these infections are on average more common and more severe than we figured, and that could reduce expected long-term growth.

Finally, a "pause" on activity could delay productivity increases. Probably a small effect, but this could represent investment not happening in the short term.

I sent some lumpy buy orders yesterday, but I'm not sure I was right to.

This is the reason why more than a 10% drop or so (assuming this doesn't chain-cause a recession) isn't justified. That doesn't mean stock prices aren't permanently lower.

Disagree; you are best off if the economy is growing and doing well. Stocks being cheap is only secondary.

Rate cut was already priced in yesterday. CME's FedWatch already had really high odds for this exact cut.

Wish the coronavirus czar had the same urgency...

So every safety in our country and economy is now disabled, air and water regulations food regulations,taxes cut to flatline levels for industry, all in the name of profit. Now the monetary system is being tampered with further.

All reserves are gone. Imagine trying to climb out of this ditch if something really bad happened (like say a million people die).

This is the start of the next Global Financial Crisis folks. It's not hard to see the pieces in motion now:

1 - The Q1 supply shock is going to be a temporary thing. They'll recover alright after causing some companies to miss their Q1 earnings. If this was the only effect, we would recover just fine here later this year, but...

2 - Coronavirus is just getting started in the US and Europe. If it spreads widely, and unabated, then the those countries will be forced to enact school closures, business closures, etc, which will cause a massive demand shock.

3 - Demand shock will tank airlines, cruises, restaurants, malls, etc. Basically anything that requires groups of people to make money.

4 - Eventually, demand shock will hit corporate balance sheets in a big way. Many corporations (especially in the energy industry) are overloaded with debt [1]. If this goes on long enough, then those companies will go bankrupt.

5 - If enough companies default on their debt simultaneously, then derivatives on corporate debt (defaults) will cause a systemic crisis again [2].

There's no guarantee that this will happen, but if it does it's going to make 2008 look like a joke by comparison.

If it does, we need to do the right thing this time: wind down the banks and let them fail.

For the downvoters:

[1] https://www.nytimes.com/2018/09/01/opinion/the-next-financia...

[2] https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...

Please don't spread FUD. Please do provide references for your claims.

This isn't FUD:

https://www.wsj.com/articles/in-a-blast-from-a-financial-cri...

At some point between steps 4 and 5, shouldn't the government say, "maybe y'all shouldn't have leveraged yourselves so much; debt is inherently bad, and we won't bail you out this time; figure this out; and don't rack up so much debt next time"?

This addiction to debt has got to stop, and unfortunately it sometimes takes cold, hard pain for some to learn a lesson.

It should, but the system is not designed to handle the bankruptcies of many companies simultaneously.

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