If the Fed loses this fight, game over.
This isn't the Fed's fight. Monetary policy won't fix this.
This isn't the Fed's fight. Monetary policy won't fix this.
For example, one of the variant of debt cancellation I hear about is the proposal by Sanders and Warren to cancel all student debt. Isn't that extremely unfair to people who chose to not go to college because tuition is costly? Isn't it unfair to people who put financial prudence in front of needless consumerism, by saving more to pay down their student debt?
All finance is done, of course, with pure equality!
The people who didn't take student loans haven't had to live with them. They had more years working, with better pay, and without loan interest - they got nothing for their decision! Certainly not a piece of paper that entitles the holder to work in a job unrelated to their studies and without any useful pay bump.
> They had more years working, with better pay, and without loan interest - they got nothing for their decision! Certainly not a piece of paper that entitles the holder to work in a job unrelated to their studies and without any useful pay bump.
Not sure what you're talking about here. People who gave up on college gave up on in demand skills, higher future income, and got more stressful and demanding jobs.
I heard a good saying awhile ago. You shouldn't look into your neighbor's bowl to see if they have more than you, only if they have enough.
Student debt is not a good thing for our society. It's not a good thing that people made decisions based on having or not having such debt. If we rip the bandaid off we'll help millions of people, at the same time creating massive stimulus at a time when it is most needed. It's no more "fair" to do that then it was fair to bail out the bankers in 2008, the difference is the people getting bailed out will be immensely more in number and productive in their usage of the money.
The state of student loans in the U.S. obviously isn't even remotely as despicable as chattel slavery, but it's still deeply immoral and not far removed from loan sharking + debt slavery. Ignoring the moral aspect, it's just wildly counterproductive and detrimental to society (particularly since the generation who allowed this to happen - the baby boomers - never had to deal with this themselves.
A better solution still would be a one time initial handout to all us citizens over 18 years of age of 100k$, and then every us citizen that turns 18 100k$ of free money they may use however they see fit.
The fed has an important role to play of course, but they’re really a sideshow this time around.
No they are not. Most big European banks are technically bankrupt. Most big American banks are technically bankrupt too. The only reason people in general do not know about this is because they used a lot of financial tricks to make it look like they are healthy.
In fact, Deutsche Bank very likely had to announce that they are bankrupt this very month due to the fact they never learned from the former crisis -- causing a shockwave throughout the entire financial market worldwide, if not for COVID. Now they can just blame COVID when the entire financial system tanks.
Here's a video explaining what has been going on in Europe all these years. It will not be different for the United States (or certain parts of Asia for that matter) -> https://www.youtube.com/watch?v=Cu6Em4a4pG4
> In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.
Interesting time to be waiving reserve requirements of banks.
See: https://www.federalreserve.gov/monetarypolicy/reservereq.htm
If you’re shooting for something like “TARP for Main Street”, this is a suboptimal path based on the incentives and historical behaviors of these regulated entities. Get the money velocity back up to speed ASAP.
Edit: We could’ve had the infra in place to plug into banking, credit, and IRS data for companies, to enable rapid analysis, decisioning, and funding of operating accounts in times of crisis as part of the US Treasury Dept. Perhaps next time.
If you are a bank in fractional reserve banking, who had a 10% capital requirement that is now lifted, you just got 10% more money to use to make money when it is getting increasingly hard for everyone to make money. And you think banks are gonna say, "nah, we wanna stay safe, we'll just sit on our hands"?
I agree with you that monetary policy is not enough, we also need fiscal policy. That said we can't say the Fed isn't trying to do their part.
Banks want (mostly) safe returns. “Borrow at 3, lend at 6, at the golf course by 3”, as the saying goes. You need action by an institution that prioritizes rapid injections of cash to accelerate monetary velocity over conservative lending practices, and where saving the economy (and we are clearly at the precipice as indicated by how fast the Fed is moving) takes precedence over appeasing shareholders.
Disclaimer: My opinions are my own, and in no way, shape, or form that of any employer past, present, or future.
[1] https://www.pnc.com/insights/corporate-institutional/gain-ma...
> Sheila Bair, a top U.S. banking regulator during the 2007-’08 global financial crisis, said the Federal Reserve needs to quickly shift its focus to getting credit flowing to U.S. businesses crippled by the spreading coronavirus and workers losing their jobs.
> “They are throwing money in the wrong place,” Bair said of an unprecedented move by the Fed on Sunday to slash benchmark rates to zero and start a $700 billion Treasury- and mortgage-bond buying program.
> “This isn’t a financial crisis — at least not yet,” she told MarketWatch on Sunday evening following the Fed’s announcement, which drops the target U.S. benchmark rate to zero and aims to shore up liquidity for banks and investors in the $15.6 trillion Treasury and $8.5 trillion agency mortgage bonds markets.
> “Lowering interest rates to zero doesn’t help if businesses can’t pay their loans back and they don’t have cash flow,” she said. “We need to get help out there, especially to small businesses and people already losing their jobs.”
https://www.marketwatch.com/story/exclusive-fed-is-throwing-...
https://www.linkedin.com/pulse/implications-hitting-hard-0-i...
You're quite correct that this is a fiscal and not monetary crisis, as I commented up-thread, but that doesn't mean it won't have monetary impact and implications. For example as I pointed out the primary problem is cash flow for companies and households, but that also means they may not be able to pay back bank loans when they otherwise would and that will impact bank balance sheets. It's a secondary issue, but still a real issue that banks need to have the flexibility to absorb.
pulled numbers absolutely out of thin air.
I thought the issue was money sloshing around at the bottom, a couple hundred bucks can be a big deal when you're out of work.
Ah well, I'm sure the experts have it well in hand.
I think American finance would rather we end the world right now than give money directly to those who need it without Wall Street getting a cut.
https://www.newsweek.com/tulsi-gabbard-alexandria-ocasio-cor...
But again, this is just Sunday afternoon armchair quarterbacking.
[1] https://en.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008#...
https://en.m.wikipedia.org/wiki/Helicopter_money
It is very last measure as in that point you are basically admitting that capitalism has failed.
1. it might be better to prevent a situation of people unable to pay rents and mortgages and have the entire banking system collapse on this enormous liquidity trap. That could mean end of capitalism for sure
2. from capitalist point of ciew, you can look at helicopter money as a dividend. Companies 'give out' money to shareholders and Alaska and Saudi Arabia give out oil money to citizens too.
The current government is considering doing it again too as you say. Though of course, since they were in opposition last time they've spent the last decade saying how it was such a terrible idea last time.
https://www.theguardian.com/business/commentisfree/2020/mar/...
Helicopter money seems reasonable to me. Depending on how it's delivered, it could act like a temporary UBI.
All the quantitative easing has just brought us a giant bubble via asset price inflation. All I know, the bigger the bubble, the louder the blob. If central banks should do something, than finance entrepreneurship and start-ups, bring money to the people.
"It is very last measure as in that point you are basically admitting that capitalism has failed."
No, it has not. The boom-bust cycle is a feature of capitalism. Capitalism, call it a ponzi driven debt scheme, will only fail, if no further economic growth is possible anymore. This may be caused by energy limitations (wealth and growth are linked to Energy available) or other limiting things. Trust me, you don't want to go there. Some people call it seneca cliff.
Capitalism fails all the time. I use the market for lemons as my default example [1]. It's ok. It the market works pretty well, and it's a good starting point for lots of situations. The problem is sometimes it doesn't. We know about a bunch of situations where it doesn't work so well, so we have regulations and such.
It's an extraordinary situation. I find it odd they're not implementing extraordinary responses. I guess, locally, we are taking extraordinary action with closing non-essential events and locations.
I guess I don't see much value in interest free loans for most people. I guess maybe personal loans? I don't quite see how I can get my hands on 10k interest free. We'll see.
I guess the Fed isn't accountable to the US public, so their job can be whatever they want it to be?
A big part of that is trying to avoid the 'bust' part of a boom-bust cycle.
As evidenced by your post, the fed should not be accountable to the public because the public cannot be expected to spend anytime trying to understand what they do and their methods of action.
The thing is you can't avoid the bust part, you can only soften it in a way it is not harmful for (some) people.
When they pumped the price to astonishing heights till 2015, what they did in 2018 was too late.
Yes, inequality is a massive economic problem. Yes, we need to find a way to fix it. Spouting poorly formed conspiracy theories about financial markets is not the way to do it. We weren't holding rates low to inflate equity markets. The fed doesn't care about equity markets more than any other economic gauge. We were holding rates low because we were trying to minimize unemployment and there were no signs of inflation.
When we started getting nervous about inflation, we started increasing rates, and selling off the balance sheet. That didn't go terribly well which is we stopped.
The fed is a completely apolitical institution that works very hard to monitor and assist the economy. They are academics, not billionaires. Their sole purpose is to make sure that you have a job and don't have to worry about the price of milk increasing 200% in a week.
Both of those things have been called into question this week, neither is because the fed didn't increase interest rates quickly enough.
I'm not going to assume anything about your political leanings, but I do want to address this. I have heard a lot of Bernie supporters spouting the theory that you just told me. The irony of that is that he wants to put labor reps on the fed. You know what labor reps would push for? Super low interest rates to weaken the dollar and increase manufacturing activity. Their position is completely contradictory.
On the other hand, US was growing a steady 2% and had record low unemployment before this. If US can flatten the curve, with only ~3000 cases thus far, US will recover quickly and come out way ahead. And the sideline cash will rush into US
Also 3000 confirmed cases does not mean 3000 actual infections. Depending on the model, the expected number is orders of magnitude higher.
I live in Shanghai. It normally takes about two weeks for things to go back to normal after Lunar New Year ends, which was two months ago. Things are not yet back to normal. Maybe 30% of office workers are back at work, 50% maximum. Gyms, bars, restaurants are almost all still closed. The dental hospital is still closed. You can basically write off February and at least half of March for economic production.
How is that any different than saying 2 months out of a decade is 1.7%??
That's exactly what it means. 3000 cases of positively identified infections in individuals, if you want to get more wordy. Some of those have recovered, some have died. Still the number is over that today.
Here in California as of today -- if you have a cough, and a fever, you will not be tested unless you have had international travel or known contact with a victim. This I know because I've spoken to two doctors and a nurse through Aetna.
FYI the governor of Ohio estimates 100,000 people in Ohio are infected. So there is that.
No, it's a correction.
>> > Also 3000 confirmed cases does not mean 3000 actual infections.
This statement is factually incorrect.
> The relevant measure is number of people infected no the number we happen to know for sure because we finally got around to testing
That is irrelevant to the response I gave. It seems to be a popular interest today, in trying to clarify a concept, which is unrelated. I am done engaging with this derail.
Yes, if practiced as intended, which there is no guarantee.
Did Italy do that?
Perhaps not as quickly as they should have. The rest of the world is learning from Italy's experience (they should have been paying closer attention to China, but that's another story)
Another thing to realize is that these numbers you are seeing are WITH CONTROLS. Sure, "only" 3,000 Chinese have died. Maybe it's more than that, it's hard to trust Chinese numbers. But even at 2x or 3x, that's far cry from the millions it could have been, had China not both imposed extreme controls to limit the spread of the disease AND allocated emergency resources to healthcare.
Some models show realistic scenarios where 5 million Americans die within a year, if the virus is allowed to spread at its maximum rate.
That would imply 100% infection, at a base reproduction rate of 15 (close to measles), and a mortality rate of 30% (close to Ebola).
If left unchecked covid-19 would infect 100-250 millions Americans. The R0 is 2.5-3. The average mortality rate is said to probably be closer to 1% rather the 3.4% previously advanced, so 1-2.5 millions deaths, which we will hopefully never reach if people follow the current social distancing and self-quarantine guidance.
That would implies 100% infection, at a base reproduction rate 15 (close to measles), and a mortality of 30% (close to Ebola).
If left unchecked covid-19 would infect 100-250 millions Americans. The R0 is 2.5-3. The average mortality rate is said to probably be closer to 1% rather the 3.4% previously advanced, so 1-2.5 millions deaths, which we will hopefully never reach if people follow the current social distancing and self-quarantine guidance.
Italy should not be looked to as a model of how to handle this.