I read some news this morning that put me in a bad mood.
CNN reports this:
The New York Federal Reserve is taking out the big guns to calm panicky financial markets.
The NY Fed announced plans Thursday to inject vast amounts of money into the financial system, totaling at least $1.5 trillion. And the Fed promised to start purchasing a range of Treasuries — a step that effectively marks a return to the 2008 crisis-era bond buying program known as quantitative easing, or QE.
This was what both the GW Bush and Obama stimulus did.
“The market in a sense broke today. The Fed came out and fixed it,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
No, it didn’t.
The NY Fed said it would offer $500 billion in a three-month repo operation Thursday afternoon — and then will do the same thing the next day. Moreover, the Fed said it will offer a $500 billion one-month repo operation Friday and take additional steps as well.
The NY Fed’s moves briefly improved the mood on Wall Street, lifting US stocks off their lows during an historic selloff. Markets are still are track for their worst week since 2008.
It lifted the stock market.
Repeat after me: “the stock market is not the economy.”
CNBC reports this:
The Federal Reserve stepped into financial markets Thursday for the second day in a row and the third time this week, this time dramatically ramping up asset purchases amid the turmoil created by the coronavirus.
However, questions remain whether the Fed can arrest the market’s issues on its own. Wall Street has been looking for an aggressive fiscal response and has yet to get it from Washington lawmakers.
“The virus was the catalyst but it’s not the cause,” said Christopher Whalen, founder of Whalen Global Advisors. “Both bonds and equities were inflated rather dramatically by our friends at the Fed. You’re seeing the end game for monetary policy here, which is at a certain point you have to stop. Otherwise you get grotesque asset bubbles like we saw, and the engine just runs out of fuel.”
Reading both of those articles, let me see if I get this straight.
The market is in a downturn because people are not going to work, people are not going out and spending money like they normally would, and there are shortages in supply from overseas.
The FED’s answer is to bump the stock market and the banks.
So the stockbrokers and hedge fund managers and C-suite executives will have the value of their stock inflated and get huge bonuses, but layoffs will continue as production and consumption dry up.
The FED is creating another bubble, that can only end poorly.
This thing is going to amount to another trillion-dollar golden parachute for Wall Street, the way that the Obama stimulus did.
The career bank executives at the FED only care about one group of people, the bank executives, and only know how to do one thing, dump money into what benefits the bank executives.
If someone is going to spend $1.5 trillion dollars, how about doing it in a way that is useful.
Order every federal worker a brand new pair of Berry compliant shoes.
Berry compliance means that they are made in America from American sourced materials.
Fuck, have the government order a whole new fleet of cars and trucks and use the Department of Agriculture to buy every farmer in America a new tractor.
Just make sure that they mandate that every car, truck, and tractor is made in America from American made materials, sourced through American owned companies.
Build a new federal office building and demand that American workers only use American made tools to do the job, and let the construction workers get reimbursed for buying made in American tools and equipment.
At least then we can guarantee that assembly line workers at Danner, Rocky Boots, DeWalt, Milwaukee, John Deere, Caterpillar, Ford, Chevy, and Goodyear will still be going into work and making things.
Making sure that tooling and raw materials are US-made means that the stimulus will filter down to Carpenter, Kennametal, Nucor, Alcoa, and all the other vendors, suppliers, and subcontractors.
Congress could pass a law mandating that Berry Compliance be extended to everything the US Federal government purchases.
Every toilet set in every federal office building should be injection molded in a plastics mill in Indiana or Ohio.
There is a way to make sure American workers are still clocking in and getting paid and having money to spend.
The FED won’t do that though, because they only give a fuck about the stock market, and as long as their banking buddies land safely from an economic crash with golden parachutes, all is well for them. If you end up out of work and upside-down on your mortgage in Flyover country, they couldn’t give less of a fuck.
The FED needs to be added to your list.
Pretty much nailed it, J.Kb.
What they’re doing can create neither buyers nor sellers of real goods or services. That means, whatever influence it has on the stock market, it will make no real difference on the time frames necessary to actually (positively) impact what’s happening beyond Wall Street.
Um, I don’t quite agree.
Financing is not directly making or buying or selling widgets, but it enables all those things. Read Ludwig von Mises for all the details (Human Action is a good start; The Theory of Money and Credit goes much deeper but is not easy to read).
Various countries have shown this quite clearly over the centuries: if credit dries up, business largely stops too. So no, the stock market doesn’t sell cars or toilet paper, but it matters for all those things, and if it crashes, that has far reaching consequences.
Never mind the fact that most of us are stock owners, either directly or via our retirement accounts.
But the stock market isn’t the credit market. (Yes, I know, sometimes credit rating is linked to stock performance. Yes half of us have 401(k)s we worry about. But things like that aside…)
The bond market is more relevant to corporate funding and the like.
At the end of the day, though, the consumer has to be living up to their name for companies to survive. A company with zero credit and lots of customers has a chance of surviving, the opposite is not true.
If you wanted to spur spending with credit, just use the FED to subsidize lowering of interest rates for commercial and corporate credit accounts. They only boosts stock value.