The Fed said it will lend $1.5 trillion to the short-term funding markets.So the Fed is lending this absurd amount of money because banks and corporations had put on too much debt. Now these companies can’t pay off what they owe with the economy and stock market tanking, and revenues going down the drain. Which puts us right back in 2008, except the job losses will be following the crash instead of leading up to it.
In a statement, the Fed also said it would add purchases of Treasury notes and bonds to increase its balance sheet. The central bank had previously been buying only $60 billion of T-bills each month.
The new polices were designed “to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the Fed said.
“The Fed is very aware that the coronavirus and its negative economic fallout is a health crisis that cannot be addressed through monetary easing. However, in the last week, the dramatic deterioration in the corporate bond market and clear signs of illiquidity raised the Fed’s concerns that the negative health care shock was evolving into a potential financial crisis. For these reasons, the Fed acted aggressively,” said Mickey Levy, chief economist at Berenberg Capital Markets.
Wall Street investors figured it out as well. The DOW Jones was down nearly 2,200 points when the Fed’s interventions were announced. It gained back nearly 1,500 of those points in 15 minutes as traders had a cocaine rush of “the Fed will bail us out”. But then all of that gain being given back over the last 3 hours of trading, and then some.
Why did the DOW fall back and end up at the largest % drop since Black Monday in 1987, and 4th largest ever? Likely because the Fed’s statement gave the same message that its surprise rate cut did last week - telling the public (and especially Wall Streeters) THIS ECONOMY IS SCREWED MORE THAN YOU KNOW.”
Much like how the incompetence and deceptions in the White House made coronavirus much more dangerous to the Americans’ economic and physical health, it’s the panicky uncertainty that result from these Fed moves that are the big problem. That, along with the reckless greed of a corporate America who can’t stop trying to flip short-term profits no matter how much it puts everyone at risk, is turning the correction that comes with the popping of a stock market bubble into a full-fledged crash followed by a recession.
And by the way, sending a bunch of money to the superrich isn’t going to get people tested and treated for coronavirus. So how about we stop caring about what the CEOs think and start caring about those who didn’t screw up? You know, the folks with real jobs, real health problems, and who can’t tap $1.5 trillion from DC banks when they’re in a pinch?
Because it's people who have real jobs and don't have unlimited wealth that are going to be the ones feeling pain very quickly, even if they're not already afflicted with COVID-19.
Translation: JPMorgan is now forecasting a US recession in 2020. https://t.co/Ic9qMd3hh6
— Heather Long (@byHeatherLong) March 12, 2020
And that assumes $500 billion being added to our projected fiscal deficit of $1 trillion. If it's less than $500 billion? The rebound in Q3 won't be nearly that much, if at all.
It's as if these banks and corporations reflexively, no, truly, with some kind of autonomic response, race headlong, even compete with each other, to see who can crash the economy first.
ReplyDeleteAnd then, of course, that personality-disordered, sociopathic minority whose affluence insulates them from the consequences of economic collapse race to buy up devalued assets and garner yet more monopoly power over the flow of money in the economy.
So the default mode, the "normal," is this unconsidered, idiotic boom and bust. Lather, rinse, deregulate and repeat...