Fed/Government in Panic Mode

[Chop]

For the record, I'm making a prediction. The Federal Reserve will purchase stocks outright if the stock market doesn't respond to stimulus ($1,000 checks to adults, suspension of payroll taxes etc.). If Congress is slow to enact these measures or if the markets accelerate downward before they can be enacted, the Fed will move ahead with stock purchases regardless of its mandate or legality.

I would rather have the Fed purchase corporate bonds sold by the companies. That way, the Fed wouldn't control private industries or elect company board members, it would simply be a creditor. Yet the companies would still get the $ they need to survive. Commercial paper effectively does this (but on a short term basis).

A problem is extending the commercial paper to, or having the Fed purchase bonds from, smaller and smaller businesses, who arguably need it the most.

Of course, there is precedent for the federal government buying equity of a private industry, then selling it off after the crisis--GM.

 

[Musburger1]

Today, the government pretty much committed to a $1Trillion dollar stimulus package. That's about 1/10th of a years gross domestic product. Sadly, it won't be enough.

Above, I projected a $2 trillion dollar deficit for the year. I think it will be more. Much more. WTI dropped to $27.00 this afternoon. It's going to keep dropping. Trump will bail out Boeing. I think he'll realize the oil industry is going to require a bailout too. Maybe that's another half a trillion. A trillion here, a trillion there. Pretty soon you're talking real money.

Do deficits matter? We are going to find out. Without massive spending our entire economy will collapse. Will massive spending eventually result in currency devaluation, a rejection of the dollar? Will it save the global supply chain from collapsing? I have no idea.

The government used massive debt to battle through the great depression. On the other end, the rest of the world's economies was destroyed and the US was an exporting power and manufacturing superpower. Plus we had a surplus of oil. If the shale revolution is wiped out by debt, none of those advantages are true for the present era.

 

[Musburger1]

I would rather have the Fed purchase corporate bonds sold by the companies. That way, the Fed wouldn't control private industries or elect company board members, it would simply be a creditor. Yet the companies would still get the $ they need to survive. Commercial paper effectively does this (but on a short term basis).

A problem is extending the commercial paper to, or having the Fed purchase bonds from, smaller and smaller businesses, who arguably need it the most.

Of course, there is precedent for the federal government buying equity of a private industry, then selling it off after the crisis--GM.

I have a problem with the Fed bailing out systemically important industries that are run privately (AIG in 2009, and current Boeing, would be examples). If such companies were nationalized, I would be more OK with it. But the way it works now, the CEOs and bond holders are encouraged to behave recklessly as the government has their back. But smaller, not systemically important private companies are left to die. The government chooses winners and losers.

When an industry or company grows so large it becomes systemically important (too big to fail), there's an argument to be made for nationalization. The government used to break up such companies (Standard Oil, Ma Bell). Not anymore. They just grow larger and more influential with the government.

 

[iatrogenic]

Couldn’t disagree more with the nationalization argument. Governments cannot run anything efficiently, including government.

Govt. needs to keep their regulatory noses out of the markets. If companies can’t survive, let em fail. Too big to fail is a myth. Others will fill the void. Happens all the time.

 

[Musburger1]

Couldn’t disagree more with the nationalization argument. Governments cannot run anything efficiently, including government.

Govt. needs to keep their regulatory noses out of the markets. If companies can’t survive, let em fail. Too big to fail is a myth. Others will fill the void. Happens all the time.

There has to be regulation. If not for regulation, rivers would be polluted (anyone remember the Love canal?), more people would die in the workplace, accidents would be more frequent (remember the Pinto rear-end explosions), etc. There must be a balance between government stifling industry and industry running amok.

Unfortunately, too big to fail isn't a myth. Once an industry is allowed to grow and become a monopoly/oligopoly that an economy is dependent upon, they have the government at their mercy. There is a quadrillion dollar derivative structure managed by a handful of systemically powerful megabanks. If they fail, the entire structure blows. They should never have been allowed to become so powerful, but as they gained size, they basically captured the regulatory agencies and made rules to suit themselves. Its too late to let them die the death they deserve. Without all the Federal Reserve hocus pocus right now, the financial system goes up in smoke.

 

[UTChE96]

The problem is mostly self-inflicted. At some point, I believe folks will conclude this virus does not pose enough of a risk to justify burning down our economy. The death rate in well tested countries like South Korea is below 1%. I suspect that is still on the high side because folks with mild symptoms likely don't get tested.

After another couple weeks trapped in the house with the kids, I think most people are going to say "f this". It's going to become another virus that we will have to deal with every year like we do the flu.

 

[Musburger1]

The problem is mostly self-inflicted. At some point, I believe folks will conclude this virus does not pose enough of a risk to justify burning down our economy. The death rate in well tested countries like South Korea is below 1%. I suspect that is still on the high side because folks with mild symptoms likely don't get tested.

After another couple weeks trapped in the house with the kids, I think most people are going to say "f this". It's going to become another virus that we will have to deal with every year like we do the flu.

It is possible that there are many people that contracted the virus and because they never exhibited serious symptoms, the virus was never detected. If that is the case, then the death rate may well be around 1%.

On the other hand, if you go by statistics, the death rate is very alarming in many countries (Italy is a great example). It is inaccurate to divide the number of deaths by the number of cases, because most of the cases are active, meaning they haven't yet either died or recovered. Instead, we should compare the number of deaths to the number of recovered.

In Italy, we show 2,158 deaths and 2,749 recovered. That would indicate a death rate around 40% of the resolved cases. There are currently 27,980 cases in Italy. If you were to divide the deaths into the total it would still be a high number of around 7%, but some of those 27,980 will die, especially with the shortage of respirators.

It could be that the virus has mutated in some regions and depending on what strain is prevalent, the result varies.

 

[Statalyzer]

The government used massive debt to battle through the great depression.

It didn't really work until WW2 increased demand drastically.

 

[UTChE96]

On the other hand, if you go by statistics, the death rate is very alarming in many countries (Italy is a great example). It is inaccurate to divide the number of deaths by the number of cases, because most of the cases are active, meaning they haven't yet either died or recovered. Instead, we should compare the number of deaths to the number of recovered.

John Hopkins estimates 25-50 unreported cases for every confirmed case. I suspect the overwhelming majority of these unreported cases are minor in nature which is why they went unreported. That would reduce the calculated death rate by an order of magnitude.

Also, a relatively high number of Italians smoke which would also skew the death rate as respiratory health is a key factor.

 

[Driver 8]

After another couple weeks trapped in the house with the kids, I think most people are going to say "f this". It's going to become another virus that we will have to deal with every year like we do the flu.

Agree

 

[SabreHorn]

Governments cannot run anything efficiently, including government.

People that work for the federal government work for the government for a reason, nobody will hire them, they can't get a real job.

Three sure ways to make sure a business fails - have the government try to run it; have engineers try to run it; have the military try to run it.

As for the "to big to fail", it is not a myth. The insolvent FDIC has used that for years. (Yes they are insolvent and have been for at least 60 years)

 

[Musburger1]

It didn't really work until WW2 increased demand drastically.

There's a good chance it won't work now too.

 

[Musburger1]

Fed Launches Primary Dealer Credit Facility Which Will Accept Stocks As Collateral
Wow. That didn't take long. I figured the Fed wouldn't take this route for at least another month or two.

33 Million Jobs Lost: Mnuchin Tells Congress That Without Bailiouts, Depression Era Unemployment Awaits

Remember when Hank Paulson demanded $700 billion (because it sounded like a good figure) or the world would end?

 

[Chop]

I oppose nationalizing important private industries.

I support enforcing the anti-trust laws—something that hasn’t been done consistently for decades.

If the public can bail them out, the public can break them up.

 

[iatrogenic]

I oppose nationalizing important private industries.

I support enforcing the anti-trust laws—something that hasn’t been done consistently for decades.

That's because there are no monopolies without gubment interference. This is a well worn topic between a few of us. Fortunately, the naysayers all succumbed to my way of thinking.

 

[Statalyzer]

That's because there are no monopolies without gubment interference.

Not so sure about that. Government certain helps by enacting regulations that only the biggest companies can easily handle, but that's not the only factor.

 

[Monahorns]

It didn't really work until WW2 increased demand drastically.

The depression didn't end until the soldiers came home and went back into the economy. The uptick in non-military production numbers tell the story.

 

[Monahorns]

Monopolies that don't charge monopoly prices and serve their market well are not a problem. It is those whose existence are enforced by regulation and law.

 

[Statalyzer]

The depression didn't end until the soldiers came home and went back into the economy. The uptick in non-military production numbers tell the story.

Either way, it was the war that ended the depression. War is such a different beast than peacetime that it's possibly not that meaningful to measure the economy the same way. But in 1945 the United States was responsible for 51% of the world GDP. Certainly we had a leg up from not having our factories under attack at any point, but it takes a lot more than to account for "greater than the rest of the world combined". It'd be hard to exaggerate how insane American production was in WW2 - even just dispassionately listing off some fact would appear jingoistic. If that counts as still being in a depression, then I would wonder if the definition is one that isn't accurate to use during wartime.

 

[Chop]

So if the whole world (other than medical and other essential workers) takes a 2-3 month stay-at-home vacation, what does the bounce-back look like?

 

[Monahorns]

Either way, it was the war that ended the depression. War is such a different beast than peacetime that it's possibly not that meaningful to measure the economy the same way.

I can't agree with that because it wasn't until the soldiers returned, filled up the work force, and started producing goods for civilians that the economy turned around.

I don't consider building tanks, boats, planes, and bombs as contributing to peoples' well being. Because while that was going on, civilians were subject to rations. Supply of goods to those who were working in the factories was withheld from them and they suffered real shortages of needed things. They were kept poor by the war. Soldiers faced sickness, deprivation, and death from the war.

If that is your idea of a good economy, then you can have it. I don't want it.

 

[Monahorns]

So if the whole world (other than medical and other essential workers) takes a 2-3 month stay-at-home vacation, what does the bounce-back look like?

The whole world other than all those working added hours to respond to the crisis, all those businesses suffering losses, all those business owners deliberating on sacrificing the future to give a little aid to their employees in the short term, all those workers who now can't pay rent, or pay their bills.

Sounds like a hell of a vacation. Nothing I would wish on my enemies. If they have a job after 3 months maybe they rebound.

For those who don't have a job 2 months later there is only the dead cat bounce of a few government checks that don't really help out all that much. Their lives are way worse off than those who actually got the virus. 99.8% of those people will make it back.

 

[Musburger1]

Mnuchin: Fed To Make $4 Trillion In Business Loans, Send $3,000 Checks To Family Of Four

Whatever it takes. This is expected to pass Monday. Should temporarily excite Wall Street and pump the markets. How long will the expected euphoria last? Who knows? It will be determined on how much more damage the pandemic inflicts and how much consumer habits change as a result of what people are going to experience for the duration of the pandemic.

 

[Austin_Bill]

I can't agree with that because it wasn't until the soldiers returned, filled up the work force, and started producing goods for civilians that the economy turned around.

I don't consider building tanks, boats, planes, and bombs as contributing to peoples' well being. Because while that was going on, civilians were subject to rations. Supply of goods to those who were working in the factories was withheld from them and they suffered real shortages of needed things. They were kept poor by the war. Soldiers faced sickness, deprivation, and death from the war.

If that is your idea of a good economy, then you can have it. I don't want it.

You have a very elementary understanding of money and economics.

 

[Chop]

When it comes to stimulating the economy, Dems usually favor deficit federal spending while the GOP usually favors tax cuts. One would think, in a time like this, they could swing a deal that includes both.

What I’ve read thus far indicates the agreement will mostly consist of some massive deficit spending and a possible payroll tax break?

 

[Musburger1]

When it comes to stimulating the economy, Dems usually favor deficit federal spending while the GOP usually favors tax cuts. One would think, in a time like this, they could swing a deal that includes both.

What I’ve read thus far indicates the agreement will mostly consist of some massive deficit spending and a possible payroll tax break?

The government will spend and reduce taxes. This will amount to probably a couple trillion dollars.
The federal reserve will make loan guarantees at low (or zero) interest to businesses. This, according to Mnuchin, might be 4 or 5 trillion dollars.

This is enormous.

 

[Musburger1]

If the powerful lobbyists have their way, the bailout numbers are staggering. Check it out. Conservatism now means bailouts for all.

"Stop The Coronavirus Corporate Coup": Here Is A List Of Everyone Demanding A Bail Out

 

[Chop]

Earlier today, Pelosi left the meeting with Senate leaders and said the House will introduce their own bill...

 

[Horn6721]

Good move Pelousie. That will only delay help.

 

[Musburger1]

Good move Pelousie. That will only delay help.

Republicans want help (bailouts) for small business. Democrats want to tie that to additional help for workers such as requiring the businesses to grant paid sick leave etc. Both parties are willing bail out large corporations since that’s who all politicians answer to. Most likely the compromise will be massive money for everyone.

hy the hell do we even pay taxes since deficits don’t matter?