Dumb question: does this mean normal citizens can take out loans at near-0% interest, or something close to that? I know credit card interest rates are typically tied to “the fed rate” but a but higher?
The Fed rate is the interest rates that the Fed pays banks for their deposits in the Fed. By lowering it, they’re incentivizing the banks to loan the money and provide liquidity into the market. Since banks need to make a profit on everything, they’ll loan the money out at a higher rate for things like mortgage, car loans, and credit cards. Depending on the credit worthiness and the collateral, the rates will differ (mortgage lower than an unsecured credit card). Ultimately, the Fed lowering the rates will lower all interest rates, but you’ll never get to 0% as a consumer.
Ironically, much of the tax advantage of owning vs renting is embodied in the mortgage interest tax deduction. If there were no interest, obviously it would be a good deal, but would not have the additional benefit of tax avoidance that it does at present.
Much of the tax avoidance from primary residence property has been removed from the tax code already due to the TCJA. Not all of it, but most of it. It also makes no sense to have a mortgage for the tax break. Rentals have depreciation and the interest remains deductible as an expense on them there, so that isn't really an issue.
Regarding tax avoidance from primary residence, what specifically? I can still deduct mortgage interest. Are you talking about not itemizing some home ownership expenses (like what?) because standard deduction increase? Just wondering what I’m missing..
You can't deduct it with the new larger standard personal deduction, only if you itemize. The Trump tax bill was a reform made the mortgage deduction moot for about 20 million taxpayers.
You'll never get zero on _some_ products. Retailers utilize low interest rates to provide "direct" financing to incentivize purchases at their stores. This is often provided as a "promotional"[1][2] rate with the hope that it will spur purchasing in the short term and then make money on the financing in a longer timeline. Often this is done at stores which sell "durable goods" (e.g. appliances or automobiles). The takeaway? You can absolutely get 0% as a consumer, as always though there is fine print.
Back in '95, Wachovia ran a short credit card promo, called 'Prime For Life'. The account changed hands a few times, and is currently with Chase, but it remains nailed to prime, albeit an $88 annual fee. No, they have never raised my $7K limit, the effers.
I glossed over "credit card" at first and now I'm 100% jealous. That is single highhandedly the greatest credit card ever haha! I'd pay $88 for that. You garner barely any interest as it stands!
That's kind of outside of the topic of finance though. Subsidized car loans are just as relevant to the financial markets as free samples at Costco are relevant to agriculture prices.
No, this is the fed fund rate, which is just for banks to borrow really short term (overnight usually) to each other. Most consumer loans are based on the prime rate, which has a few points added to the fund rate to cover the cost of borrowing.
- Many other rates in existing contracts are tied to the fed funds rate so things like existing mortgage and student loan payments may get smaller as a result of this action
- This will only work for new contracts insofar as credit risk does not materially increase (which it will in an economic downturn); banks will increase consumer spreads against the fed funds rate on a go-forward basis
I think they're usually tied to the prime rate, but the spread is usually 13% or more. Prime, in turn is usually 2-3% above the fed funds. So you might find a CC with rates as low 15%!
No, because the expense of processing loans becomes more significant the lower interest rates go.
It's like people complain about gas prices not dropping as much as the price of oil, ignoring that the non-oil costs largely don't go down.
Also, as something I read pointed out, the fact that people are rushing to "risk free" debt doesn't mean they are equally rushing to loan money to you, which has some risk.
So for both reasons, consumer loans aren't dropping as much as you'd hope.
Fed bond rates are what determine the 'risk-free' rate. A bank can have the fed hold on to their cash and it is really safe there. Safe enough, that financial markets consider it 'risk free'. This is why all of your loans are dependent on this number.
Banks add on a premium for inflation -- they want the dollars they get paid back in to be worth the same in real value, not nominal.
They also add a premium for default risk. This is the obvious one -- the riskier the loan, the more the bank will have to charge to break even over a large number of loans, where some of them won't be paid back.
The liquidity premium is kind of like a charge for FOMO. If it is hard for the bank to sell (or liquidate) your loan, they might be stuck with a your loan contract in a filing cabinet when they really need some cash. If they can sell your loan on the open market, then they'll give you a better rate here.
And finally, the maturity premium is a charge for uncertainty. A bank can be pretty certain that they know what the financial markets will look like in the short term. But for a 30 year loan? The financial market could be a much different beast in 30 years. This is a lot of risk on a bank that has their cash tied up for that long of a period.
My "high interest" savings accounts already took a recent haircut and this will accelerate that. I understand that's the idea: make investing attractive and savings unattractive. But for a regular joe like me, this is exactly the time I want to be saving more so it stings.
I moved some of my high yield savings account into a 12 month CD recently to maintain a more tolerable interest rate for the next 12 months while the savings account interest rate inevitably tanks. That means I can't touch it for 12 months if I want the interest, but I was careful with the amount I put in the CD so that I will most likely not have to touch it.
This should in no way be construed to be advice because I'm unqualified to give it. It's just an option.
Some banks have “no penalty” CDs that allow you to close them in the event that you need the money without taking a hit on any accrued interest. And this can happen as early as 7 days after opening the account. So the risk is very low. They’re slightly less yield than regular CDs, but not much.
A really good option during this time. My bank actually sent an email prior to the last interest rate drop, and I moved most of my savings (that I didn’t think I’d need to touch for a year) into an 11-month CD before the rates dropped.
Yeah, a person could distinguish them this way, but you're using the passive voice. Who habitually uses the words in this manner consistently, in what contexts?
Ok, but parent is lamenting that "saving" pays less than "investing". You're saying that's implied by the (or your) definition so it seems like it would go without saying.
It's not that saving pays less than investing; it's that it's paying almost nothing right now. Savings account interest rates are terrible, which is very frustrating if you want to have some cash reserves.
I'm not going to put my 6 month emergency fund or the downpayment for my future house into stocks and ETFs; they're too risky. It hurts to keep it in a savings account paying less than 1% though, which is the alternative.
Don't know why this is downvoted. Cutting interest only benefits the wall street in the next couple months. Basically this admin only knows two things: 1, Cut interest rate 2, Cut tax And it doesn't care if the world explodes after they step down.
Obama's admin let one of the world's foremost financial institutions fail and caused a mass market panic / giant economic setback. Their reasoning was entirely political and caused millions of people to lose their jobs. I'm independent, but claiming that Republicans cause recessions is pretty ironic considering the economic damage the last Democratic admin did.
Yes, Obama was President from 2000 to 2008 when the Fed let the subprime lending happen with stupid monetary policies. The crash happened in 2008 when Bush was still President.
A few days later, Lehman Brothers began to falter. Treasury Secretary Hank Paulson, who in July had publicly expressed concern that continuous bailouts would lead to moral hazard, decided to let Lehman fail. The fallout from Lehman's failure snowballed into market-wide panic. AIG, an insurance company, had sold credit default swaps insuring against Lehman's failure under the assumption that such a failure was extremely unlikely.
Well Clinton did preside over the dot com boom, leaving Bush to clean that up. He was the first democrat to be president since Carter. Not sure your thesis is very strong there as it depends upon an arbitrary duration, a nebulous criteria and an implication that democrat admins have behaved differently (based on same nebulous criteria). In reality, policies of presidents can be very loosely coupled to outcomes during their time in office. Clinton’s policies, for instance, are not insignificantly indicted by the mortgage crisis as well, but just because the chickens didn’t come home to roost before he left office doesn’t prevent us from seeing that. There’s a long tail to policy decisions for better and worse.
- It takes two years for monetary supply changes to fully propagate through the economy
- Cutting rates to 0% has not been effective in Japan or Europe
The fed does have a role to play here
- They can provide liquidity to the market
- They can serve as a backstop in a time of crisis
DC needs to get their shit together
- Eliminating Trump's tariffs would do more to increase long-term investment than cutting rates to 0%
- They should have created targeted lending program to help businesses that need short-term cash flow assistance yesterday; the next best time to do it is right f*ing now
As someone said before, I think this is more about sending a message, as in "we're going to do whatever it takes". To be honest I don't know what the future will hold from a financial/economics point of view, but imho this is an once-in-a-century crisis.
You're right, and they made a lot of changes that are necessary to keep the global economy functioning over the next few months. I did not mean to imply that they shouldn't be taking action.
I am very skeptical about cutting rates again. There are much more effective actions that could be taken at the policy level. The fed is doing what it can, but it doesn't have the right tools to lead the charge on this.
Only in the sense that the fate of the world rests in inflated asset prices. That's not to say actions of the Fed cannot stabilize the markets, which is very important. But if the world is scared and scared for a long time (demand shock), there's not much the Fed can do. Then it will come down to whether or not the USG can become the "consumer of last resort" via fiscal stimulus.
Direct purchases of shares will do little to alleviate this crisis.
The treasury purchases will fund the government to help industries which are badly affected from going under, companies with cash flow issues, and employees who need to take time off - which they already announced on Friday. I think $500b will be the beginning, will likely be much more needed
- The fed became a huge driver of liquidity from from 2016-2018
- There was a noticeable increase in market toxicity when they started letting assets roll of their balance sheet in 2018
I'm more optimistic about the impacts of their role as a liquidity provider than I am about their role holding down the effective overnight borrowing rate.
Look, I don't want to be alarmist, but the worst outcome here is not '08. It's the 1930s. This has caused material demand and supply side shocks that we haven't seen in my lifetime or my parents' lifetime.
I'm likely on the younger side of the hacker news demographic and I still believe that this is the right action to take at this moment.
We might be stuck paying it off for awhile, but I would rather deal with an inflated fed balance sheet than an entire generation of Americans coming of age during a giant economic pullback.
No, the world is much more interconnected than in the 30s. This can get a lot more ugly if it lasts multiple months. People were also a lot more used to rough conditions in the 30s and the general population is totally unprepared today. This will either pass in 1-2 months at most or we are looking at revolution or military dictatorship.
But at the same time, what percent of the population was in food distress prior to the crash of 1929, what percent had no access to medical facilities whatsoever, or could wind up in a situation where nobody was checking in on them and they couldn't put out an ask for help?
So a lot of things have changed, at least in the US, that make the infrastructure of resilience possible in a way that was specifically impossible in 1930.
> No, the world is much more interconnected than in the 30s.
More, yes, but not much more. Agriculture, commodities, finished manufactured goods and finance were all global markets before WWI. The re-integration of markets only overtook that period in the 90s, after the fall of the Soviet Union and before that the demise of Bretton Woods and managed trade.
Why not 1921? In 1920-1921 there was a major worldwide crash on the relative scale of 1929 but nobody ever talks about it because the fed did very little and we bounced back (the government actually did a few things that probably hurt). In 1929, the fed did all sorts of policy gyrations and we got a depression.
> Look, I don't want to be alarmist, but the worst outcome here is not '08. It's the 1930s.
This seems unlikely. The Fed does not seem to be on track to contract the money supply by 30% causing a wave of bank collapses, and leading to a trade war that means international trade collapses this time. They may not pursue optimal policy but every macroeconomist knows that that would be a bad idea. The joys of limited data are a better appreciation of history than microeconomics.
It's foolish because it's literally impossible to avoid a heavy recession or depression when people are told to stay inside and do nothing.
The odds of this action working out well now are slim to none. Then when it's actually needed they will have to do it again. You'll end up with the same non recovery recovery where people are barely getting by but certain asset classes are inflated to the moon.
No, it's not foolish. We need to keep markets liquid to avoid a lending crisis. That's why the fed announced asset purchases. They don't do them all at once. They buy steadily over a period of time to help keep prices stable. That's very important.
They had to do rate cuts now because it takes a long, long time for them to work (measured in years rather than months). That was a preventative measure, not a band-aid.
Look, guys, I promise you the fed knows wtf they're doing. These guys live and breath to be ready to respond to these type of emergencies.
We should be far more worried about (the lack of) policy responses from DC. DC has no idea wtf they're doing, and it shows.
Given the guy that I just responded to called liquidity injections foolish, you should want to take your chances with the fed.
If the fed hadn't announced that action last night then the hell that would have rained down on Monday would have gone down in history with Lehman and Black Monday.
> You can't print your way out of this is the lesson we KNEW from '08.
Printing our way out of 2008-2010 is exactly what we did that worked, and it's what Europe mostly didn't do and their results were terrible by comparison (leading to another bad recession a few years later, after which the ECB finally learned a lesson; and finally after that, Europe began to properly recover, including countries hardest hit like Spain and Portugal).
The Fed's balance sheet makes this exceptionally clear:
It took the Fed a short amount of time to ramp up the programs, including eventually moving on to QE. And it worked just fine.
See that epic balance sheet expansion in 2013 and 2014? That's the Fed avoiding what hit Europe. That's the Fed further printing our way out of the mess. It's how the US economy kept expanding for ten years.
You can in fact use the Fed to debase USD-based productivity + assets and then redirect those resources in a concentrated manner at a problem, such as the housing market. The Fed can take a trillion dollars from every holder of dollars and dollar assets, and put that trillion dollars toward a problem. This only stops working if the USD has no value (or in more realistic terms, if the USD loses very immense amounts of value, becoming mostly worthless, which makes the dollar debasement & redistribution efforts lose their punch).
The Fed bought all the toxic mortgages. They recapitalized the banks, keeping the majors and the real-estate market from collapsing under the weight of trillions in junk mortgages. They largely removed those mortgages from the market, which very rapidly helped the housing market begin to stabilize and turn around.
They successfully directly bailed out homeowners to the tune of trillions of dollars and reinflated the housing market and the stock market via low interest rates.
> Printing our way out of 2008-2010 is exactly what we did that worked
It was always just a band-aid. The reason the Fed has had to take interest rates so low now is that they were unable to raise them during the lastest 'boom'.
It'll continue to be a band-aid, of course. Band-aids are useful.
It's the Japanification of the US economy, including a similar Federal debt problem (which is the single biggest reason the Fed can never raise rates back to a normal level again).
Japan still has a highly functioning country and functioning economy (one of the wealthiest and most productive on earth), even though their central bank policies and debt situation are an enormous mess.
The US has a lot of household wealth (~$100-$110 trillion) that the Fed can debase on a perpetual basis, as a never-ending band-aid. Then there is all the other dollar based wealth around the world. They can run a never-ending $80 billion per month QE program and it'll barely scratch the massive US asset base (which over time, averaged, may well outgrow a trillion dollar per year debasement). Ideally you want to see the US Government bring its irresponsible fiscal situation under control, sooner than later, so that approach doesn't have to go on for 30 or 50 years (but nobody is going to hold their breath for that). The counter is to point out that foreign actors will pull their confidence in the USD during this process (increasing the real cost for the Fed to keep doing it), whether after 10, 20, 50 years - and that may well happen, but it's impossible to forecast when. This is especially true given the currency competitors are all a mess as well, with China overloaded with debt, Japan in far worse shape than the US, and the Eurozone with no growth and their own miscellaneous debt & economic problems.
Came here to reply with the same thing. Not sure who is downvoting me but my guess is people who weren't around back in '08 or are significantly out of touch with US economic policy (or general econ policy, that is).
We really need band-aids now, like in 2008. The problem is not the band-aid now, the problem is that we did not rip it off in the good times but instead spent all the money in irresponsible tax cuts for people that didn't need them.
No. We don't. We need more emphasis on value vs. growth. In what world is WeWork's valuation sustainable.
Also who the hell is downvoting me? LOL. If you downvote, please comment here so we can debate. I'm dying to see you defend the bull market case (even sideways to slightly up which would be best case scenario).
Alot of people think that CB's should always be on call to cover their bad bets… like a gunman threatening taking a hostage if they dont get the cash grab they expect…
To bad for them, there's collateral damage sometimes… only the strong will survive.
> Alot of people think that CB's should always be on call to cover their bad bets…
I think more people would probably hope that central banks don't make bad bets anyway.
You know when you hear about Japan being this futuristic society? You go and visit and you feel like they are "ahead" and have things figured out?
Their economy is what our economy is going to look like. A short-medium term down and then long drawn out sideways market. Who knows when a recovery will be.
> You know when you hear about Japan being this futuristic society? You go and visit and you feel like they are "ahead" and have things figured out?
Was there for a couple weeks in dec '18… kyoto, fujisan, hiroshima, tokyo… I didn't think this at all unless the "ahead" was meant in jest
> Their economy is what our economy is going to look like. A short-medium term down and then long drawn out sideways market. Who knows when a recovery will be.
So people can look forward to a 30 year bear flag? lol
> Good time to refinance.
Yeah, if you aren't already underwater facing no bids when trying to get liquid.
> Was there for a couple weeks in dec '18… kyoto, fujisan, hiroshima, tokyo… I didn't think this at all unless the "ahead" was meant in jest
Tokyo is a hell of a lot more advanced than the bay area (where I grew up).
> So people can look forward to a 30 year bear flag? lol
Facetiously, I don't know what you're talking about because you look like someone from /r/wsb, but I'll entertain your comment: the markets are highly manipulated and the fed is going to turn on the money machine to pump them up again.
It's all a bubble. Until you run out things to turn into bubbles.
I kind of agree with what you said, but not at this time. We need focus on value, but after the corona situation has passed. Right now we need to focus on not letting the whole system collapse.
We don't need to merge two different ways for the financial system to collapse.
Interesting that S&P futures have fallen 3% as of 5:00pm in Asia. Are markets interpreting this less as the Fed signaling it will do whatever it takes and more as the Fed is panicked and the financial system is under a huge amount of pressure behind the scenes?
The problem is that fed action isn't enough. We need policy changes to keep SMEs above water. The White House and Congress have not taken appropriate action. Trump acted like he was going to take action on Friday, the markets ripped higher, and everything he announced was worthless, but that wasn't clear until markets closed.
A significant fraction of the economies of the world are being shut down, which is what needs to happen short term.[1] Interest rate cuts and liquidity injections won't do much of anything about the fact that, other than mostly small ticket essentials, no one is buying, no one is selling and no one is producing much right now. At the very least, this quarter is shot and markets are just trying to price in what stalling out the economy is going to mean. The problem is, no one knows how long this will take or how quickly activity will (hopefully) recover when it's all over.
[1] If you disagree, picture this scenario: everyone went about their business as usual, vastly larger numbers of cases are reported with corresponding deaths, healthcare providers are hopelessly overwhelmed, the public starts to panic... and economies are still shutting down but due to fear.
IMO the severity of the situation and the economic fallout has become more clear over the weekend as more states have issued broad orders regarding school/restaurant/bar closures and limits on public gatherings.
Ultimately the Fed can give a lot of help here, but can't fix the underlying problem. Easing credit for businesses will help get some through to the other side but it won't replace lost revenue.
Things are going to be very volatile for the foreseeable future. Non-Farm Payroll data released in a few weeks time would have had the househould sample conducted last week, so we may not know the full impact on unemployment until May, realistically.
The feds mandate is to maximize employment, stabilize prices, and moderate long-term interest rates.
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.
Any body holding significant power is at some level accountable to the public, regardless of laws or regulations or how little the public may understand. If the Fed can’t make the case to most citizens that it should exist and retain its power, then it is doomed, and no philosophical arguments could change that.
Too late for what? This was going to happen no matter what the fed did. If the mkt blew up because of inflation then your argument would make sense. That's not what happened.
Well if the quantative easing was phased out and interest rates started increasing in 2011, the stock market wouldn't be at all times high, billionaires wouldn't be so rich, but the economy would be better off.
You're just making things up. We couldn't have increased interest rates if we wanted to because Europe had to hold their rates low to deal with their debt crisis. If we moved ours out of step then it would have caused appreciation in the dollar and likely would have damaged US manufacturing. The US lower middle class likely would have been hurt if we did what you just suggested.
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.
The issue is that the vast majority of people don't want to be educated in economics. They publish the minutes of every signal one of their meetings. You are free to sit down and read absolutely everything they do and the reasoning behind it.
Precisely. This isn't an issue driven by obscure and multi-layers investment vehicles that can't survive when stressed. This is a decrease in the market driven by actual significantly reduced consumption and demand for a wide variety of services. The Fed keeping things liquid is important, as are things like low interest loans to small businesses. But it doesn't matter how cheap your credit is if you don't actually have any revenue coming in. Monetary policy will (hopefully) help keep the economy from complete disaster while the underlying issue is resolved, but that's the most it can do.
An option not talked about much yet is cancelling debts. The Romans did it quite a few times. An effective redistribution of wealth from people who own things to people who do things.
Effective sure, but surely you could have a fairer way.
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?
Isn't it unfair to allow some companies to profit on student loans when others were more prudent and didn't lend to 18 year olds?
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.
Every loan company has a risk profile. It is completely fair for some companies to give high risk loans at high interest rates. What is stupid is the usa government not subsidizing education, but making loans backed by the government and then making them non defaultable.
> 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.
>Isn't that extremely unfair to people who chose to not go to college because tuition is costly
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.
Ending slavery could be considered "unfair" to a slaveowner who just spent a lot of money purchasing a slave. That doesn't justify slavery.
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.
There is a difference between making college cheap and universally accessible or cancelling all student debt.
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.
This is correct, the financial system is actually fine. Banks are well capitalised and stable. The problems are cash flow for businesses, incomes for low income and hourly wage earners, and health care for huge swathes of Americans.
The fed has an important role to play of course, but they’re really a sideshow this time around.
>the financial system is actually fine. Banks are well capitalised and stable.
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.
If they didn't use them before, why would they use them now? Pushing the string. Can't fix fiscal policy issues with monetary policy. Helicopter money is all that's left, but that requires a functioning legislature, so we’ve already lost.
Allowing banks to draw down their reserves in their entirety isn’t going to change their behavior is my point. You need something like the US Gov’s SBA loan program or similar, to lend directly to businesses that are in jeopardy of default or failure. This is beyond the risk profile of traditional retail bank lending (although you’re probably near junk bond or hedge fund territory; at this scale though, those venues are inadequate). The Fed is attempting to inject liquidity in the wrong spot of the economy.
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.
> Allowing banks to draw down their reserves in their entirety isn’t going to change their behavior is my point.
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.
I work in financial services (although that doesn’t mean you should trust my opinion any more than you otherwise might; I also do not work at a bank). I am absolutely telling you, based on my research, banks will sit on that cash and not lend it out in an appreciable amount. Did banks lend more in negative interest rate policy environments? It does not appear so based on reports from the very central banks who put those policies into place [1].
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.
> Exclusive: Fed is ‘throwing money in the wrong place,’ says Sheila Bair, former top banking regulator | Published: March 16, 2020 at 6:50 a.m. ET
> 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.”
Ray Dalio has some suggestions, although I don't think they go far enough. You literally want to get cash into the hands of businesses and people who will spend it.
We weren't dealing with a crisis before. Now we are.
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.
Game over is an exaggeration. There’s 3.4 trillion sideline cash. China’s economy collapsed 80-90% in the last month and will take months to recover, on top of exploding debts. Japan and Germany was in recession before coronavirus hit.
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
Closing down schools, banning large gatherings, setting up drive thru testing, ramping up test kits next week, letting employees to work from home, closing borders to China and Europe (25k cases), etc
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 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.
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.
Well systemically remember Americans are out-of-the-box more “socially-distanced” than Italians. We all commute one person to a car, we have an outsized sense of personal space. We are less community oriented by and large.
> Do you have a source for 80-90% collapse in China? That sounds way high
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.
> Also 3000 confirmed cases does not mean 3000 actual infections.
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.
Cases are recorded. If it's not in a medical record, it's not a case. Technically, the reference was to ~3000 but someone then wanted to dispute that cases was not the same as infections. The number is irrelevant. If it's not known for sure, it's not a case and it's not a known infection, medically. I don't understand how factual correction gets downvoted, but here we are.
This is a pedantic word splitting argument. The relevant measure is number of people infected no the number we happen to know for sure because we finally got around to testing. If we had South Korea’s level of testing then maybe your argument would warrant breath behind words, under the current circumstances save your breath.
>> > 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.
3000 cases tested positive but from what I know, we're barely testing.
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.
You don’t have an accurate sample size if you don’t measure. Based on the growth rates over time in every other country, the US should have way more cases. There are only a few thousand because we aren’t measuring.
FYI the governor of Ohio estimates 100,000 people in Ohio are infected. So there is that.
He's way off, he's a Republican and more cases = better for them, because that means this has a CFR of < 1%... my guess would maybe be more like 100-1k, but that doubles in 6 days to 200-2k, then 300-3k...etc... in 20 days it could be 100k though.. but the hospital's would be extended beyond belief, and I haven't heard reports of that yet.
I'm sort of surprised they didn't try to push the issue from the bottom. give every tax filer some amount of money say, $200. A bonus for each dependent, say, $100.
pulled numbers absolutely out of thin air.
I thought the issue was money sloshing around at the bottom, a couple hundred bucks can be a big deal when you're out of work.
Ah well, I'm sure the experts have it well in hand.
> It is very last measure as in that point you are basically admitting that capitalism has failed.
1. it might be better to prevent a situation of people unable to pay rents and mortgages and have the entire banking system collapse on this enormous liquidity trap. That could mean end of capitalism for sure
2. from capitalist point of ciew, you can look at helicopter money as a dividend. Companies 'give out' money to shareholders and Alaska and Saudi Arabia give out oil money to citizens too.
Maybe in some sense this would be admitting that capitalism failed, but not in some bad sense. Any monetary policy at all is acknowledging that we want a closed-loop to keep the economy stable; this closed loop is an acknowledgement that anarcho-capitalism (without any feedback loop) is not stable.
Helicopter money seems reasonable to me. Depending on how it's delivered, it could act like a temporary UBI.
Do it every month. Call it UBI. And fund it from land tax not taxing labour, to encourage people to do actual useful things. Like manufacturing ventilators instead of playing the stock market or the land market.
Quantitative easing is NOT helicopter money. HK is the first country that actually tried something like Helicopter money. 1500 US$ for each citizen.
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.
> It is very last measure as in that point you are basically admitting that capitalism has failed.
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.
Citizens that are given Helicopter Money or UBI will then spend it at their discretion. This kind of free money is a complement to, not a failure of, capitalism.
It was done to great effect in Australia during the GFC, and the fact it was done early is a contributing factor to its success allowing us to ride it out with minimal downside. So hardly a last resort.
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.
Sure, not unilaterally. But last time the fed chair testified before congress that emergency action was required [1]. The fed can do lots of things besides futz with interest rates.
But again, this is just Sunday afternoon armchair quarterbacking.
The fed is there to stabilize markets and banking, monetary policy absolutely can alleviate stress on people which makes them more sane and predictable. Top reasons for divorce: money (economics) and cheating.
Does the Federal Reserve Bank do vaccines, now? This isn't a financial crisis. Money won't fix it. People aren't transacting in big chunks of the economy because they're immobilized by a plague.
Now... certainly once the virus is under control, economic recovery is going to depend on finance and liquidity, so it's not like the Fed has no role to play. But... it's not the Fed's fight to "lose". Until case counts are down and infection risk is negligible, we're looking at a depression regardless.
The thing is, it will be a financial crisis at some point once people start loosing their jobs and can't afford to pay bills in addition to a medical disaster no-one can pay for.
Combination government and market failure, where the market dispassionately says "you should all just lose your jobs, no demand for now", and the government doesn't intervene?
Most ski resorts in North America are shut down for at least a week, but Jackson Hole closed for the season and others are expected to follow. Hospitality and service industry workers who have seasonal jobs, are making a large chunk of their annual earnings during spring break, which is now. Already people are asking about rent reductions. How does that work? Landlord takes a haircut? Will the bank take a mortgage haircut? Who even owns the actual loan, do they take a hair cut? And if no one does, then that means the renter is effectively taking the full hit.
Maybe some of them will qualify for unemployment insurance, but I have no idea how long that lasts or what percent on the dollar it pays.
The government can simply ban shorts, much like 2008, and what other European stock markets have done already. That would kill the shorts dead in its tracks. Then the stock market would stabilize, in time for businesses to stabilize and hopefully by summer everything will be recovery focused.
Game over happens when, fiat money seems to have, on a risk adjusted, liquidity adjusted basis, a better return and better appeal than holding existing real private assets, therefore a process starts where people, businesses and banks try to hoard government paper all at the same time instead of holding private assets. Demand shifts so far towards government paper and away from private assets that the supply of the later assets go in steep decline (eg. businesses close, people are laid off etc.).
Basically fiat's appeal as an asset, its above market return, puts the private asset market in a gridlock.
It's normal for private asset returns to go negative in a crisis. Before paper money existed, losses on assets were a common thing. Your land would suffer from drought, your live stock would get an infection. You didn't stop working and shut everything down because you temporarily expected to get a poor return. You still wanted to eat something at the end of the year.
The existence of an artificial government asset that has difficulty following the private assets rate of return into the negatives, can sometimes block a large part of the private asset market from existing. Business owners choose to stop any investment, wind down their business and sit on cash. The world moves towards everybody holding pieces of paper and nobody producing anything you could buy with these pieces of paper.
Counter intuitively, in order to prevent people from holding too much government paper, you have to print a lot of it very early to make it seem less appealing.
For example, if toilet paper companies had been ahead of the curve and kept the shelves stocked, they probably wouldn't have needed to manufacture so much toilet paper because fewer would have hoarded it if it didn't look scarce. The fact that they didn't produce enough early enough, means they ended up having to produce more overall.
> Game over happens when, fiat money seems to have, on a risk adjusted, liquidity adjusted basis, a better return and better appeal than holding existing real private assets, therefore a process starts where people, businesses and banks try to hoard government paper all at the same time instead of holding private assets.
This is what happened in the 1930s. But as you say, counteracting it is as easy as printing money. Which normally has the disadvantage of causing inflation (this is what they were excessively afraid of in the 1930s), but when there are existing deflationary forces in effect, all it does is even things out.
The real question is, what happens to the money they print? Buying treasuries with it is the usual option, which isn't a total disaster (it pushes investment back into stocks by lowering the yield on bonds), but a better option right now might be paying out the new money as a UBI.
That would serve two purposes at once. One, you fight the deflationary effect, and two, you help people out whose businesses are suffering, both by giving the proprietors a UBI and by giving their customers one as well so they then have some more money to patronize businesses with. So instead of propping up stock prices artificially, you maintain their value organically by strengthening consumer demand.
This also provides a nice answer to the question, what do we do once interest rates are already zero? At that point we can use any additional new money to fund a UBI instead of driving interest rates negative.
It will be used to monetise government debt. You will see targeted fiscal action announced tomorrow, to the tune of perhaps a hundred billion or more, aiming to help the businesses (and employees of those businesses) that are (and will be) decimated by the freeze in economic activity, and the crash in demand.
From the announcement on Friday it sounded like the financial aid to companies that need it will be distributed through IRS as tax credits, or directly as cash to those companies with cash flow issues. I don't know how they aim to decide which companies qualify for the aid.
There will be several similar fiscal stimulus measures announced over the coming weeks, perhaps even bailouts.
"Monetize government debt" is just another way of saying buy treasuries. Which makes some sense as long as the interest rate on treasures is positive -- the people who sell them to the Fed will then have cash and want something else to invest it in, and the Fed (and therefore the US treasury) effectively gets to collect the interest on those bonds.
But how much sense does it really make to have the Fed buy treasuries at a negative interest rate? They'd be paying someone else for the treasuries which they'd then have to pay interest on (instead of collecting interest), for the sole purpose of getting new money out into the economy. Obviously at that point it's time to consider alternate ways of getting the new money out there -- like just giving it out to everybody in the country as a UBI. Or if you want to do something equivalent with slightly different accounting, have Congress pass a UBI funded entirely with debt, but then the Fed monetizes the debt (and the new debt causes treasury rates to be zero instead of negative against the monetization).
Doing some kind of "targeted tax cuts" along the same lines might also work, but probably not as well, because governments suck hard at detail-oriented master plans like that and usually just end up creating a lot of harmful economic distortions. Across-the-board even distribution reduces the incentive for people to change their behavior in order to get the money while still getting the money out there, and not putting it disproportionately in the hands of the rich.
Low aggregate demand. Note that when they talk about low aggregate demand they mean demand for stuff versus money.
So low aggregate demand for stuff (this includes consumables but also investments stuff such as factories) is the same as high aggregate demand for money (including money like instruments such as gov bonds).
We used to think that rates couldn't go negative for exactly the reason you just described.
Turns out that assumption was wrong for a few reasons a) holding onto money is expensive b) in many cases banks have incentive to hold government securities c) sometimes they are outright required to hold government securities d) this is related to (a), but there is risk in holding onto cash where government debt is in many cases perceived as risk-free.
The thought today is that rates can go only slightly negative for short periods of time, which we will continue to believe until some government tries to push the lower bound again.
So people are willing to accept small negative rates if it would be less than the operational costs of shipping enormous truckloads of bills around, storing them, securing them, and insuring them against theft / fire? Is that's what's going on here?
That's kind of the thought, yes. Negative rates should not be sustainable for any significant period of time and most interest rate models are built on that assumption.
Sorry, I want to clarify quickly that appleiigs is right that it isn't cost of insuring cash so much as depository risk. When I say cash, I mean currency as opposed to debt/equity, not physical bills.
Can you even get a significant amount of money in truckloads of bills? If you would try it, you'd be surprised how much the banks would push against it.
If you're a giant financial institution, would you want to count, hold, warehouse, secure and move around $100 million in $100 bills? It weighs roughly the same amount as a car.
It's the same reason I keep my money in a bank with no interest even though I sometimes have to pay ATM fees when I need it: the convenience and security offset the costs.
You got some really weird replies. As interest rates go down, people move their money away from treasuries into other assets such as stocks, real estate, etc. Stocks and real estate at least can provide a return, therefore, it's preferred over negative treasuries and cash.
Negative rate treasuries can be preferred over cash because it's owed by the US gov't which has less credit risk than having your cash sitting at some savings & loans credit union in small town in Utah.
Edit: for the other replies: cash in this context does not mean physical paper money.
The more new fiat money is injected into the economy, the more valuable cryptocurrencies become.
It doesn't really matter where that fiat money enters the market. So long as there are millionaires and billionaires at the top of the food chain who keep amassing big money without having to lift a finger, cryptocurrencies will have increasing value.
The Fed's policies have created a large and growing class of people who simply don't know what to do with their money - And these people just keep dumping their money straight into cryptocurrencies and corporate stocks.
It doesn't matter where they dump their money in fact. So long as what they're buying is more scarce than their fiat money, it will go up in price - And to many rich people today, pretty much everything which exists is more scarce than fiat money so the bar for what makes a good investment is very low.
> The signal here should be read as "whatever it takes to avoid a depression."
Should it?
> If the Fed loses this fight, game over.
It might be game over for the Fed, but not the country. For most of america's history, the Fed didn't exist and the US did very well without the Fed.
It's the same silly fearmongering rhetoric by the abusive powerful to the masses. Without us, it'll be chaos. The same argument was made to justify the existence of monarchies. Without monarchies, it would be anarchy. The same to justify the existence of the pope and catholicism. Without catholicism, it would be depravity. Abusive spouses say that their to abused spouses, without me you are nothing.
Just maybe, the cause of our financial woes are the Fed itself? Maybe if we got rid of kings, religion, abusive spouses or the Fed we might be better off.
After all, the Fed is just a private institution ( an international banking cartel ) used to parasitically leech off the american people.
More aptly, the Fed is like an anarchist who sets your house on fire and then comes to your house to "help" you put out the fire.
The fed is pushing on a rope. Any upcoming depression will be driven by collapse in demand, not supply. Slashing interest rates won't do anything to prop spending when consumers are sitting at home, not working, and not buying anything.
All this is, is an attempt to boost asset prices, to bailout investors.
The "pushing on a rope" analogy is usually used to describe how monetary policy stimulates demand but not supply. I do agree with you about asset prices.
Let us say hypothetically the congress approves FED to buy stocks and ETF. Just curious what will they buy: s&p index, total market index or something else.
Let us say if they buy one index, will it be fair for companies who are not in the index?
They’d sooner shift from buying treasury bonds to other bonds before they’d go into equities. But what do I know. It’s be better if they went into the student loan market.
Not only that but they've removed the reserve requirements entirely for "thousands" of banks. There are only ~4500 commercial banks in the USA total. So that's at least a good fraction of them. These banks can now create money out of nothing as much as they want.
That doesn't appear to be the case at least according to the Fed's website (https://www.federalreserve.gov/monetarypolicy/reservereq.htm ), which shows the most recent change to the requirements being in January - setting it at 3% for large banks.
Reserve requirements never really limited the ability of banks to create money. Canada hasn't had reserve requirements for >20 years. Neither does the UK, New Zealand, Australia, Sweden and Hong Kong. But all banks are indeed subject to capital requirements, and that does limit money creation
Anyway, reserve requirements are generally not effective, including in the USA. Much has been written about this. Banks are usually not reserve constrained (especially post QE), there are many ways to game reserve requirements, there are many ways to get reserves when you need them, and central banks increase reserves systematically when they are in demand via interest rate mechanisms.
This is very simplistic. 10% of what? Checking account deposits? Savings account deposits? If savings and checking accounts have different reserve requirements (and afaik they do), then depositors just moving money back and forth between different kinds of accounts can change the bank's required reserves. Banks also have flexibility on how they report their accounts.
Furthermore, the reserve requirement is enforced across a 2 week period. Banks don't need to have all the required reserves all the time, just some of the time.
And what if they don't meet the requirement? Is it that they are forced to close by regulators, or do they just pay a penalty? If it's the latter, then how often in practice do banks actually meet their requirements? Because it might be cheaper to pay the penalty than to meet the requirement.
> What happens now if someone deposits $100,000, the bank lends out $100k because it can, and the someone tries to withdraw their money?
No one's doubting that banks need cash on hand to meet the demands of their depositors, and that they need assets to use for net settlement with other banks. But cash demand on any given day is probably much lower than 10% of deposits (and afaik, the reserve requirements don't expect banks to hold anywhere near 10% of deposits in cash). As for inter-bank settlement, there are a lot of ways to get sufficient liquidity, including borrowing on the repo market and the overnight market.
Holding reserves costs banks opportunity-cost (because they only earn interest-on-reserves, which for most of US history was 0). And there is no shortage of safe, liquid assets out there (US government debt). Even mortgage debt is liquid. And there are tons of reserves sloshing around there, due to QE.
So banks are definitely not reserve constrained... not even close. But banks might be capital constrained. There's a big difference between reserve requirements and capital requirements.
But in many cases, banks might be constrained by neither. They are probably constrained by a lack of demand from lenders. There are not enough people to lend to.
That is also contingent upon state policy as well. It's kinda weird but in my state, WI, State law trumps federal law because our state laws are more stringent. It has something to do with our laws being grandfathered in before the federal government ever did anything about commercial lending.
It will, but not just yet. There’s too many people trying to refi right now and supply can’t keep up with demand, so rates are higher than they should be. Give it another 3-6 months and I wouldn’t be surprised if mortgage rates fell by another 1%.
I personally don’t think there’s a floor, all that matters is spread over treasuries. If we go with your 2% number, that’s the spread between the mortgage risk and the risk-free rate. If risk-free goes to -1%, then it’d make sense for mortgages to go to 1%. This is something that already happens in European countries. I don’t think there’s an inherent reason for the risk-free rate to be a positive number.
On a different note, 2% default != 2% loss. Mortgages are secured by the property, losing investors only a small fraction in foreclosure, so a 2% default * 25% severity = 0.5% loss.
It's already a pretty good time to refi for most people as rates dropped to a bit under 3% recently. They went back up a little bit though as mortgage companies had to take on staff to handle all the additional demand.
Just apply and see what rate they give you. The initial applications are annoying but once you've done that you can drag your application with a lender out for a long time so long as they can still mark it as an "active" file.
I worked in the industry and your credit score was the primary reason we based off your rate, and we knocked it down a bit if there was a promo or if you had autopay.
You don't get dinged hard by just applying. Ask how long they keep your credit report before pulling it again and just get rate quotes during that time period. It's smart and also lenders know when they'll be increasing rates before it goes in affect so it doesn't hurt to do it now and then just wade it out.
Also ask for a rate modification. Nobody knows about this but you can request to get just your rate modified and nothing else changes. It's WAY less time consuming, cheaper, you don't need an appraisal, and can be done in a day. The downside is you can't get "new money" (more than your current principle balance) and you're not extending your loan.
I have to agree. A full lockdown of the country with a return to normal at the speed China achieved would do more than fooling around with interest rates. In the current situation, there's not much productive a business can do with more loans anyway.
They won't come out and say it, but the plan is to let the virus slow roll through the population of young/healthy to build up herd immunity. Some will die, but it will be better in the long run. You can tell that's the plan as they're talking about "flattening the curve." The area under the curve is the same, but they want to allow it to slow roll through the population so we don't over load the healthcare system.
Compare this "flattening the curve" plan to what China has done. They have gone full on "shut down everything" and isolated the whole country. Their idea is to eradicate the virus in the country. This is a worse plan because it means they will not have herd immunity, though they may transition to that plan as time moves forward.
This is why a full shutdown of the country is a bad idea. What happens then is when you start opening the country up there's a whiplash effect and it starts spreading rapidly again. For what it's worth, the UK publicly announced this is their plan. I forget the stat but they said they plan to let 40 or 60% of their population get it.
You mean like shutting down travel from contaminated countries, which was widely viewed as a terrible choice just a week ago?
There was only one way for the virus to get here, and that was through travel.
CDC fucked up the testing after that failed, which got us to where we are now. Testing is supposed to be fixed this week.
CDC just recommended people not gather in groups of more than 50. Things are starting to tighten down significantly.
At this moment, I feel like we have a very real chance of getting a handle on things within the next two weeks. From there, we live through another month or two of lockdown and slow burn our way into summer.
It's going to be hard, but I don't think we're dead in the water yet.
A depression can kill a lot more people than COVID-19. This is why the state of California just told young, healthy people to continue to visit restaurants for now as long as tables are six feet apart.
This is not just an idea from thin air: they're doing lots of projections on models of what is actually going to do more harm.
Think of it this way: if the economy shrinks by 30%, that means we have to spend 30% less on everything. That's 30% less funding for wellness, hospitals & emergency services. 30% less that people spend on self-care like gym memberships. 30% less on gasoline to get to outdoor activities. If your food budget drops by 30%, there's a good chance you're going to eat less healthy foods. If people are going out 30% less often, you will see increases in both physical and mental illness ,as we know that social contact improves health.
This is why the Twitter meme of "everybody panic and go home and stay there for three weeks" may actually do a lot more harm than good even if it helps slow the spread of COVID-19.
Unless you think your state and county leadership is incompetent, follow their advice, as they are best informed about the local conditions.
> if the economy shrinks by 30%, that means we have to spend 30% less on everything
Doesn't ring true. If my salary drops by 30%, my expenses would not all drop by that percentage. Things like food and medicine would drop a little, not close to 30%. Things like vacation spending may drop by 100%.
This is effectively how you print money in a modern economy. They're giving banks access to a lot more cash and have reduced reserve requirements to 0%, meaning that banks can loan new money without limitation and without fear that they'll be able to borrow to cover those loans.
Most money is not actually on paper, so the amount you print is not the point.
But who are they going to lend to? Aren't most companies losing cashflow due to loss of employees/supply, and don't have demand due to everyone staying home?
The only companies that are going to be borrowing are those that are out of money and need to try and weather the current crisis. If the banks make a mistake here and the companies they lend to go bankrupt, they go bankrupt too.
Why is this warranted yet? This is a terrible that will only signal that the fed is panicking and nothing else. There are no indications that the supply chain is disrupted or that the economy is sputtering. It will happen at some point in the next few weeks with or without the infusion and rate cuts now. These things are much better done when warranted rather than now. As of now it’s only a humanitarian crisis and only thing that will help is effective communication to contain the pandemic. These infusions now will soon be forgotten by the next bad news and the effect will not persist.
Somehow I doubt Powell is living paycheck to paycheck. Professionals shouldn't cave under pressure that's why they make the big bucks. This is only a rebuttal to the "what would you do?" I have no idea whether or not he was pressured or if this is a good or bad move.
Bank runs are coming. We are witnessing financial collapse and possibly the early failure of the American empire. Futures trading was halted today. Market will tank tomorrow. That's after a $1.5T stimulus. This is it.
The fed had now pushed one $1.5T stimulus package and lowered rates to zero in an absolutely desperate attempt to prop up a market when the entire country is about to shut down - what are they propping up when no one is going to spend any money?
Don't believe me? China. Iran. Italy. Spain. Austria. Multiple Nordic countries. Nationwide shutdown. Coming to a state near you.
300MM people just panicked at the same time, and the stores have been empty for two days. Imagine what's going to happen when they all discover fractional reserve banking.
I think the issue is cash-flow. So the govt should do things to mitigate cash-flow. Such as pause rent/mortgage payments for 2 months for anyone that is out of work due to this.
It maybe works for mortgage as government deals with banks regularly.
But what if you rented from an individual owner who needs your rent? Liberalized (without proving that you are looking for a job for let us say next 3 months) unemployment insurance may be a better solution that keeps the economy churning.
I agree it’s not as simple as only mortgage freeze. But if the land lord needs the rent, probably that’s for their mortgage. But yes, I agree better unemployment insurance is a good idea.
A mortgage freeze would save the landlord and they wouldn't need the rent. If they need the rent when their mortgage payment is frozen, then they're not a good landlord. Chances are, they won't be a landlord for long when the lender calls the loan due as well.
Let's not offload the onus on landlords personally responsibility to manage their finances. If they don't have a mortgage to pay, they'll get by just fine if they can't collect rent.
My point is that cash-flow is the issue. And most Americans pay a substantial portion of their income towards housing. What does cutting the fed interest rate by 1% do for “typical” Americans? I don’t think it reduces day to day stress which in turn causes more problems.
I don’t have a complete answer, but I feel like the answers that are given by the government are not the best answers and not the most effective use of funds.
This feels like the end of an era - an era that ran from the fall of the Berlin Wall up to the appearance of Covid-19. A global era, a largely peaceful era, a profligate era, and an era of growing inequality. Who knows what comes next...
At this point, I'm actually starting to wonder.
If we literally do nothing about the virus, or do the bare minimum, the worst case scenario based on the numbers I hear is 7.7b * 0.6 (total infections) * 0.02-0.03 (presumed mortality rate after the healthcare system collapses MINUS the rate if it doesn't), ~115m people are going to die worldwide. This appears to me to be the absolute worst case scenario given current knowledge; gradually slowing infection rates, the fact that the developing world skews younger and is less connected, etc., may make it better.
That 115m will skew heavily towards the elderly, i.e. loss in days-of-life would be significantly less than you would expect.
Now, if you put value on days of human life (which you totally can do; first, as a matter of policy, you won't pay a million dollars to give a 90 year old another year of life, nor would you pay a billion to cure cancer in one teenager; second, you do it every day when you take quantifiable risks to make money or for convenience, everything from being a logger or a deep sea fisherman, to merely driving)... if you put value on human life, how much would this waste of life be worth? And how much waste of life is a worldwide recession or depression going to produce - in direct deaths, days lost by billions of people
in s terrible economy, esp. if it gets to GD levels or worse, or in the developing world where it definitely will if the economy grinds to a halt; and on top of that in purely monetary terms, as people are not able to do things from buying houses to merely making ends meet, depending on the circumstances?
At this point everybody seems to admit it's beyond containment and the only thing we are trying to do is flatten the curve and prevent the deaths. Is entering a recession, or worse a depression and risking a total collapse really worth it?
I am starting to doubt it.
PS. Frankly this reminds me of plane crash reporting. Everybody is, comparatively speaking, overreacting because the event is visible and distinct, even though many more people die in cars every day.
There's a billion people in India and so far the mortality and spread rates there aren't similar to other countries. There is a theory that humid and warm places will not have these mortality rates (as validated by our common sense that summer time flu is less common). I don't think we have enough information about the virus to generalize to the whole world yet.
> There's a billion people in India and so far the mortality and spread rates there aren't similar to other countries
That is a lack of testing, same as what keeps US numbers depressed. India is severely lacking in cohesive response to viral outbreaks, to the point they are still dealing with a Swine Flu epidemic from 2009 (https://www.indiatoday.in/india/story/9-swine-flu-deaths-utt...)
> There is a theory that humid and warm places will not have these mortality rate
There is no scientific evidence to support this. The wild spread in the Middle East indicates heat may not be a factor.
The theory is more the humidity. The virus gets trapped in vapor and pulled harmlessly to the ground. The counter to the theory is that at least in developed countries people flee the humidity by living in low humidity air conditioning.
Interestingly, currently shortages are being caused by the reaction, not the virus. King County is reporting "Growing COVID-19 concerns and closures have led to canceled blood drives and 2500 lost donations, putting our local blood supply in danger of collapse."
Factory closures and disrupted supply chains put manufactured supplies in danger going forward, too. Again, we need to make sure that the cure is worse than the disease.
That is true. Although, they (we?) won't all die at once. 100s of people are dying now, mostly very elderly. If the panic wasn't ramped up, people would have barely noticed this against the background rate of deaths from other diseases. They would have started noticing when it got to around Italian levels, and very ineffectual lockdown/self-quarantine would start that wouldn't affect the economy nearly as much as it has been currently affected in countries with barely any deaths. Then there'd be a month or so of panic as ~everyone gets it and lots of people die. Then it's back to normal.
Alternatively, as a base case we are going to have years of a recession. Evictions, foreclosures, wiped out retirements, divorces, ruined childhoods and early careers messing up millions of lives for decades, suicides, preventable deaths in the developing world where losing your livelihood is a much bigger deal, potential flare-up of wars as young men there don't have jobs, etc.
Why? What, exactly, do you predict is going to happen economically once the spike would have passed esp. given the age distribution of the deaths?
I honestly tried to think about it and the only tangential thing I could definitely predict is LOTS of people from the city councils all the way to the white house not being re-elected. Which, obviously, made me even more cynical.
Sidestepping the issue of how much a human life is worth you are also missing that the death rate would skyrocket if everyone gets sick and needed treatment at the same time.
I did take that into account.
From what I see reported, death rate with access to health care is 0.5%, without 2.5-3.5%. So the difference is the 2-3% that I was using.
There is no option B like you seem to be implying. I guarantee if we did absolutely nothing, and the hospitals predictably became overwhelmed and people were dying without any access to care, and you'd also start to see significantly more cases of younger people dying, there would be mass panic and self quarantine in any case.
It's true that I didn't take that into account, I suppose. However, I'm not sure what the scope of the panic is going to be... self-imposed quarantine, again, will be selective location-wise, risk-wise, and overall won't prevent the economy from functioning nearly as much as what is currently going on. In fact, when Italian healthcare was collapsing a doctor on FB was railing at people for thinking it was bad and still going out to dinner.
> At this point everybody seems to admit it's beyond containment and the only thing we are trying to do is flatten the curve and prevent the deaths.
No. Only the UK is operating on that fatalist assumption. South Korea, China, Taiwan, and Singapore have all successfully contained it, and Italy is starting to do so as well.
I keep hearing this is the UK policy on HN but it’s been repeatedly denied by the authorities? The UK’s reactive containment policy is also what almost every country is doing as well, even in Europe, besides a few exceptions like Italy and Spain who have way higher rates. For one thing the UK has already announced harsher law enforcement policies than what we have here in Canada.
> Matt Hancock insists 'herd immunity' not part of government's plan for tackling coronavirus
> Mr Hancock added: "Herd immunity is not a part of it. That is a scientific concept, not a goal or a strategy. Our goal is to protect life from this virus, our strategy is to protect the most vulnerable and protect the NHS through contain, delay, research and mitigate."
The UK government has been explicit that they don't expect to new able to contain the virus in the long term, and are merely trying flatten the curve. They might not be trying to build herd immunity intentionally, but they certainly have given up on being able to contain the virus isn the long run, according to their own statements.
The US may have already passed 100k cases. Is anyone performing randomized tests and publishing the results? That should give us a real sense for how far it's spread. The trouble is that the growth rate is so great, it's a moving target.
Only because of the panic. The narrative fairly recently was "why bother, more people die from the flu"; which isn't true, but basically the effect of everyone around merely being sick, with 80+% mild cases, would not be nearly as dramatic as envisioned, I think. I did not account for that in my original comment, but it's not going to be end of the world.
And yes, we will eventually get to 40-60% infection rate unless we go into a permanent lockdown, the question is just how fast.
Can you operationalize that? I find it very hard to be charitable with that kind of response; by "not human", do you mean "not donates-to-save-one-kid-with-cute-photo-and-a-story-instead-of-100-kids-without-those human"?
First of all, let's be clear that flattening the curve WILL save lives, even if the same number of people ultimately get exposed to the virus. Not only will we avoid overrunning hospitals, we also buy ourselves valuable time to ramp up production on equipment like ventilators, necessary medicine and protective gear, find better treatments and cures, and perhaps develop a vaccine.
So, is saving lives worth the economic impact? I think the answer is very simple.
I did account for the death rate when the healthcare system is overwhelmed; I have no doubt it will save lives.
Then, as I also said, if you are 60 and your very old mother is on her death bed, and you get to buy her one more week of life by eliminating your entire retirements savings, would you do it? If not, after that we are so to speak just haggling about the price.
Oh, and what if I came for your retirement savings because they could save my mother, that you don't even know?
There are trade-off on another level too. Recessions have very real human consequences that I mentioned in another comment. Many of them involve deaths, but many more just involve ruined lives. I'd sooner let one 80yo die than make one 40yo miserable for the rest of his life.
It’s worth exploring every angle and weighing the pros and cons.
He brings up the Statistical Value of a Human Life (SVHL) which is a valid point yet uncomfortable to people who are new to learning how our world functions.
Also some of us are old enough to still remember the swine flu (H1N1) and the bird flu (H5N1).
Stopping production for a significant period of time was the first gut punch covid is throwing. The second one seems to be landing on Europe and third will be North America.
This means China will have a head start on getting supply up and running.
If the ROW is at a standstill in production, China will fill that gap which could further displace a lot of production in the west.
China getting containment in order didn’t bounce back but also bounce ahead in many places.
I think that may be plausible. But I also think that a lot of companies relying on Chinese manufacturing all suddenly saw they had all their manufacturing eggs in one basket.
I’m not suggesting that we should move manufacturing back to US, but we should diversify. I’m seeing that some of my suppliers have already moved to other Asian countries. I expect that diversification to continue.
There’s thousands of rich bourgeoisie in this world that don’t think like you. But your comment gives me hope that there’s more people out there that are driven by things other than fear and greed.
Curious why you need to government involved? Why not just take your money out of your 401(k) yourself? You'll suffer a penalty, but people are in need.
If he gave his money to a few people in need, it would be effective for them, wouldn't it? And probably better spent then after going through the tangled mess of government bureaucracy. What more could you hope for?
The GoFundMe model of health insurance and welfare doesn’t work. It’s my government’s job. It’s why we have social security and medicare and Medicaid and TANF, etc, in the first place. I can’t do it alone.
Promoting the general welfare is right in the preamble of our constitution:
> We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
And in the letter of transmittal, Washington wrote:
> Individuals entering into society, must give up a share of liberty to preserve the rest. The magnitude of the sacrifice must depend as well on situation and circumstance, as on the object to be obtained. It is at all times difficult to draw with precision the line between those rights which must be surrendered, and those which may be reserved.
318 comments
[ 3.4 ms ] story [ 169 ms ] threadUnless we see negative fed rates. Not that I think going so negative we see consumer level 0% mortgages is likely.
[1]: https://www.mymoneyblog.com/be_careful_of_0.html [2]: https://www.edmunds.com/car-loan/what-you-need-to-know-about...
https://www.questia.com/magazine/1G1-16441751/wachovia-claim...
- Many other rates in existing contracts are tied to the fed funds rate so things like existing mortgage and student loan payments may get smaller as a result of this action
- This will only work for new contracts insofar as credit risk does not materially increase (which it will in an economic downturn); banks will increase consumer spreads against the fed funds rate on a go-forward basis
It's like people complain about gas prices not dropping as much as the price of oil, ignoring that the non-oil costs largely don't go down.
Also, as something I read pointed out, the fact that people are rushing to "risk free" debt doesn't mean they are equally rushing to loan money to you, which has some risk.
So for both reasons, consumer loans aren't dropping as much as you'd hope.
Interest Rate = Real Risk Free Rate + Expected Inflation + Default Risk Premium + Liquidity Premium + Maturity Premium
Fed bond rates are what determine the 'risk-free' rate. A bank can have the fed hold on to their cash and it is really safe there. Safe enough, that financial markets consider it 'risk free'. This is why all of your loans are dependent on this number.
Banks add on a premium for inflation -- they want the dollars they get paid back in to be worth the same in real value, not nominal.
They also add a premium for default risk. This is the obvious one -- the riskier the loan, the more the bank will have to charge to break even over a large number of loans, where some of them won't be paid back.
The liquidity premium is kind of like a charge for FOMO. If it is hard for the bank to sell (or liquidate) your loan, they might be stuck with a your loan contract in a filing cabinet when they really need some cash. If they can sell your loan on the open market, then they'll give you a better rate here.
And finally, the maturity premium is a charge for uncertainty. A bank can be pretty certain that they know what the financial markets will look like in the short term. But for a 30 year loan? The financial market could be a much different beast in 30 years. This is a lot of risk on a bank that has their cash tied up for that long of a period.
This should in no way be construed to be advice because I'm unqualified to give it. It's just an option.
A really good option during this time. My bank actually sent an email prior to the last interest rate drop, and I moved most of my savings (that I didn’t think I’d need to touch for a year) into an 11-month CD before the rates dropped.
I'm not going to put my 6 month emergency fund or the downpayment for my future house into stocks and ETFs; they're too risky. It hurts to keep it in a savings account paying less than 1% though, which is the alternative.
It does, except for when cash performs better than equities (like during a bear market).
I was talking about starting recessions, not digging out of them, so my statement holds.
A few days later, Lehman Brothers began to falter. Treasury Secretary Hank Paulson, who in July had publicly expressed concern that continuous bailouts would lead to moral hazard, decided to let Lehman fail. The fallout from Lehman's failure snowballed into market-wide panic. AIG, an insurance company, had sold credit default swaps insuring against Lehman's failure under the assumption that such a failure was extremely unlikely.
https://en.wikipedia.org/wiki/Economic_policy_of_the_George_...
So, how does that change your view?
- It takes two years for monetary supply changes to fully propagate through the economy
- Cutting rates to 0% has not been effective in Japan or Europe
The fed does have a role to play here
- They can provide liquidity to the market
- They can serve as a backstop in a time of crisis
DC needs to get their shit together
- Eliminating Trump's tariffs would do more to increase long-term investment than cutting rates to 0%
- They should have created targeted lending program to help businesses that need short-term cash flow assistance yesterday; the next best time to do it is right f*ing now
I am very skeptical about cutting rates again. There are much more effective actions that could be taken at the policy level. The fed is doing what it can, but it doesn't have the right tools to lead the charge on this.
Among other steps, this is likely to mean:
- Negative-yielding long-term treasuries
- Direct purchase of stocks or ETFs, which would require congressional approval. Expect the discussions to start soon.
The steps already taken and the ones to be taken will create financial manipulation on a scale never before seen.
If the Fed loses this fight, game over.
Only in the sense that the fate of the world rests in inflated asset prices. That's not to say actions of the Fed cannot stabilize the markets, which is very important. But if the world is scared and scared for a long time (demand shock), there's not much the Fed can do. Then it will come down to whether or not the USG can become the "consumer of last resort" via fiscal stimulus.
The treasury purchases will fund the government to help industries which are badly affected from going under, companies with cash flow issues, and employees who need to take time off - which they already announced on Friday. I think $500b will be the beginning, will likely be much more needed
- The fed became a huge driver of liquidity from from 2016-2018
- There was a noticeable increase in market toxicity when they started letting assets roll of their balance sheet in 2018
I'm more optimistic about the impacts of their role as a liquidity provider than I am about their role holding down the effective overnight borrowing rate.
I'm likely on the younger side of the hacker news demographic and I still believe that this is the right action to take at this moment.
We might be stuck paying it off for awhile, but I would rather deal with an inflated fed balance sheet than an entire generation of Americans coming of age during a giant economic pullback.
So a lot of things have changed, at least in the US, that make the infrastructure of resilience possible in a way that was specifically impossible in 1930.
More, yes, but not much more. Agriculture, commodities, finished manufactured goods and finance were all global markets before WWI. The re-integration of markets only overtook that period in the 90s, after the fall of the Soviet Union and before that the demise of Bretton Woods and managed trade.
This seems unlikely. The Fed does not seem to be on track to contract the money supply by 30% causing a wave of bank collapses, and leading to a trade war that means international trade collapses this time. They may not pursue optimal policy but every macroeconomist knows that that would be a bad idea. The joys of limited data are a better appreciation of history than microeconomics.
Though sometimes I wonder exactly how much policy makers sophistication has evolved
https://youtu.be/JUvm9UgJBtg
The odds of this action working out well now are slim to none. Then when it's actually needed they will have to do it again. You'll end up with the same non recovery recovery where people are barely getting by but certain asset classes are inflated to the moon.
They had to do rate cuts now because it takes a long, long time for them to work (measured in years rather than months). That was a preventative measure, not a band-aid.
Look, guys, I promise you the fed knows wtf they're doing. These guys live and breath to be ready to respond to these type of emergencies.
We should be far more worried about (the lack of) policy responses from DC. DC has no idea wtf they're doing, and it shows.
Isn't that the same thing we were told in 2008?
There's no possible way this could go wrong.
If the fed hadn't announced that action last night then the hell that would have rained down on Monday would have gone down in history with Lehman and Black Monday.
They've already lost it. It's clear they're scrambling. You can't print your way out of this is the lesson we KNEW from '08.
Printing our way out of 2008-2010 is exactly what we did that worked, and it's what Europe mostly didn't do and their results were terrible by comparison (leading to another bad recession a few years later, after which the ECB finally learned a lesson; and finally after that, Europe began to properly recover, including countries hardest hit like Spain and Portugal).
The Fed's balance sheet makes this exceptionally clear:
https://i.imgur.com/QbF5jzJ.png
It took the Fed a short amount of time to ramp up the programs, including eventually moving on to QE. And it worked just fine.
See that epic balance sheet expansion in 2013 and 2014? That's the Fed avoiding what hit Europe. That's the Fed further printing our way out of the mess. It's how the US economy kept expanding for ten years.
You can in fact use the Fed to debase USD-based productivity + assets and then redirect those resources in a concentrated manner at a problem, such as the housing market. The Fed can take a trillion dollars from every holder of dollars and dollar assets, and put that trillion dollars toward a problem. This only stops working if the USD has no value (or in more realistic terms, if the USD loses very immense amounts of value, becoming mostly worthless, which makes the dollar debasement & redistribution efforts lose their punch).
The Fed bought all the toxic mortgages. They recapitalized the banks, keeping the majors and the real-estate market from collapsing under the weight of trillions in junk mortgages. They largely removed those mortgages from the market, which very rapidly helped the housing market begin to stabilize and turn around.
They successfully directly bailed out homeowners to the tune of trillions of dollars and reinflated the housing market and the stock market via low interest rates.
It was always just a band-aid. The reason the Fed has had to take interest rates so low now is that they were unable to raise them during the lastest 'boom'.
It's the Japanification of the US economy, including a similar Federal debt problem (which is the single biggest reason the Fed can never raise rates back to a normal level again).
Japan still has a highly functioning country and functioning economy (one of the wealthiest and most productive on earth), even though their central bank policies and debt situation are an enormous mess.
The US has a lot of household wealth (~$100-$110 trillion) that the Fed can debase on a perpetual basis, as a never-ending band-aid. Then there is all the other dollar based wealth around the world. They can run a never-ending $80 billion per month QE program and it'll barely scratch the massive US asset base (which over time, averaged, may well outgrow a trillion dollar per year debasement). Ideally you want to see the US Government bring its irresponsible fiscal situation under control, sooner than later, so that approach doesn't have to go on for 30 or 50 years (but nobody is going to hold their breath for that). The counter is to point out that foreign actors will pull their confidence in the USD during this process (increasing the real cost for the Fed to keep doing it), whether after 10, 20, 50 years - and that may well happen, but it's impossible to forecast when. This is especially true given the currency competitors are all a mess as well, with China overloaded with debt, Japan in far worse shape than the US, and the Eurozone with no growth and their own miscellaneous debt & economic problems.
If you've downvoted me then you probably need to watch this: https://www.youtube.com/watch?v=PHe0bXAIuk0.
This is a wet band-aid.
Also who the hell is downvoting me? LOL. If you downvote, please comment here so we can debate. I'm dying to see you defend the bull market case (even sideways to slightly up which would be best case scenario).
To bad for them, there's collateral damage sometimes… only the strong will survive.
I think more people would probably hope that central banks don't make bad bets anyway.
You know when you hear about Japan being this futuristic society? You go and visit and you feel like they are "ahead" and have things figured out?
Their economy is what our economy is going to look like. A short-medium term down and then long drawn out sideways market. Who knows when a recovery will be.
Good time to refinance.
Was there for a couple weeks in dec '18… kyoto, fujisan, hiroshima, tokyo… I didn't think this at all unless the "ahead" was meant in jest
> Their economy is what our economy is going to look like. A short-medium term down and then long drawn out sideways market. Who knows when a recovery will be.
So people can look forward to a 30 year bear flag? lol
> Good time to refinance.
Yeah, if you aren't already underwater facing no bids when trying to get liquid.
Tokyo is a hell of a lot more advanced than the bay area (where I grew up).
> So people can look forward to a 30 year bear flag? lol Facetiously, I don't know what you're talking about because you look like someone from /r/wsb, but I'll entertain your comment: the markets are highly manipulated and the fed is going to turn on the money machine to pump them up again.
It's all a bubble. Until you run out things to turn into bubbles.
We don't need to merge two different ways for the financial system to collapse.
Have a look at any country in history that printed it's way out of trouble, and see how that worked out for them in the longer term.
Zimbabwe is a good recent one to look at.
Yes, as the poster to whom you responded to said. The United States, for some definitions of printing.
It's the kind of thing that you can do, when you control the world's reserve currency.
Edit: S&P futures limit down at 5:15.
[1] If you disagree, picture this scenario: everyone went about their business as usual, vastly larger numbers of cases are reported with corresponding deaths, healthcare providers are hopelessly overwhelmed, the public starts to panic... and economies are still shutting down but due to fear.
Ultimately the Fed can give a lot of help here, but can't fix the underlying problem. Easing credit for businesses will help get some through to the other side but it won't replace lost revenue.
Things are going to be very volatile for the foreseeable future. Non-Farm Payroll data released in a few weeks time would have had the househould sample conducted last week, so we may not know the full impact on unemployment until May, realistically.
This isn't the Fed's fight. Monetary policy won't fix this.
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.
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.
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
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 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.
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.
Italy should not be looked to as a model of how to handle this.
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.
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.
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.
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.
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.
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.
[1] https://en.wikipedia.org/wiki/The_Market_for_Lemons
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/...
But again, this is just Sunday afternoon armchair quarterbacking.
[1] https://en.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008#...
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...
Does the Federal Reserve Bank do vaccines, now? This isn't a financial crisis. Money won't fix it. People aren't transacting in big chunks of the economy because they're immobilized by a plague.
Now... certainly once the virus is under control, economic recovery is going to depend on finance and liquidity, so it's not like the Fed has no role to play. But... it's not the Fed's fight to "lose". Until case counts are down and infection risk is negligible, we're looking at a depression regardless.
Most ski resorts in North America are shut down for at least a week, but Jackson Hole closed for the season and others are expected to follow. Hospitality and service industry workers who have seasonal jobs, are making a large chunk of their annual earnings during spring break, which is now. Already people are asking about rent reductions. How does that work? Landlord takes a haircut? Will the bank take a mortgage haircut? Who even owns the actual loan, do they take a hair cut? And if no one does, then that means the renter is effectively taking the full hit.
Maybe some of them will qualify for unemployment insurance, but I have no idea how long that lasts or what percent on the dollar it pays.
Why would that need congressional approval? Seems like exactly what they've done with Maiden Lane LLC
Basically fiat's appeal as an asset, its above market return, puts the private asset market in a gridlock.
It's normal for private asset returns to go negative in a crisis. Before paper money existed, losses on assets were a common thing. Your land would suffer from drought, your live stock would get an infection. You didn't stop working and shut everything down because you temporarily expected to get a poor return. You still wanted to eat something at the end of the year.
The existence of an artificial government asset that has difficulty following the private assets rate of return into the negatives, can sometimes block a large part of the private asset market from existing. Business owners choose to stop any investment, wind down their business and sit on cash. The world moves towards everybody holding pieces of paper and nobody producing anything you could buy with these pieces of paper.
Counter intuitively, in order to prevent people from holding too much government paper, you have to print a lot of it very early to make it seem less appealing.
For example, if toilet paper companies had been ahead of the curve and kept the shelves stocked, they probably wouldn't have needed to manufacture so much toilet paper because fewer would have hoarded it if it didn't look scarce. The fact that they didn't produce enough early enough, means they ended up having to produce more overall.
This is what happened in the 1930s. But as you say, counteracting it is as easy as printing money. Which normally has the disadvantage of causing inflation (this is what they were excessively afraid of in the 1930s), but when there are existing deflationary forces in effect, all it does is even things out.
The real question is, what happens to the money they print? Buying treasuries with it is the usual option, which isn't a total disaster (it pushes investment back into stocks by lowering the yield on bonds), but a better option right now might be paying out the new money as a UBI.
That would serve two purposes at once. One, you fight the deflationary effect, and two, you help people out whose businesses are suffering, both by giving the proprietors a UBI and by giving their customers one as well so they then have some more money to patronize businesses with. So instead of propping up stock prices artificially, you maintain their value organically by strengthening consumer demand.
This also provides a nice answer to the question, what do we do once interest rates are already zero? At that point we can use any additional new money to fund a UBI instead of driving interest rates negative.
From the announcement on Friday it sounded like the financial aid to companies that need it will be distributed through IRS as tax credits, or directly as cash to those companies with cash flow issues. I don't know how they aim to decide which companies qualify for the aid.
There will be several similar fiscal stimulus measures announced over the coming weeks, perhaps even bailouts.
But how much sense does it really make to have the Fed buy treasuries at a negative interest rate? They'd be paying someone else for the treasuries which they'd then have to pay interest on (instead of collecting interest), for the sole purpose of getting new money out into the economy. Obviously at that point it's time to consider alternate ways of getting the new money out there -- like just giving it out to everybody in the country as a UBI. Or if you want to do something equivalent with slightly different accounting, have Congress pass a UBI funded entirely with debt, but then the Fed monetizes the debt (and the new debt causes treasury rates to be zero instead of negative against the monetization).
Doing some kind of "targeted tax cuts" along the same lines might also work, but probably not as well, because governments suck hard at detail-oriented master plans like that and usually just end up creating a lot of harmful economic distortions. Across-the-board even distribution reduces the incentive for people to change their behavior in order to get the money while still getting the money out there, and not putting it disproportionately in the hands of the rich.
So low aggregate demand for stuff (this includes consumables but also investments stuff such as factories) is the same as high aggregate demand for money (including money like instruments such as gov bonds).
Why would anyone buy a negative-rate treasury bond instead of just hanging on to their cash?
Turns out that assumption was wrong for a few reasons a) holding onto money is expensive b) in many cases banks have incentive to hold government securities c) sometimes they are outright required to hold government securities d) this is related to (a), but there is risk in holding onto cash where government debt is in many cases perceived as risk-free.
The thought today is that rates can go only slightly negative for short periods of time, which we will continue to believe until some government tries to push the lower bound again.
It's the same reason I keep my money in a bank with no interest even though I sometimes have to pay ATM fees when I need it: the convenience and security offset the costs.
Negative rate treasuries can be preferred over cash because it's owed by the US gov't which has less credit risk than having your cash sitting at some savings & loans credit union in small town in Utah.
Edit: for the other replies: cash in this context does not mean physical paper money.
It doesn't really matter where that fiat money enters the market. So long as there are millionaires and billionaires at the top of the food chain who keep amassing big money without having to lift a finger, cryptocurrencies will have increasing value.
The Fed's policies have created a large and growing class of people who simply don't know what to do with their money - And these people just keep dumping their money straight into cryptocurrencies and corporate stocks.
It doesn't matter where they dump their money in fact. So long as what they're buying is more scarce than their fiat money, it will go up in price - And to many rich people today, pretty much everything which exists is more scarce than fiat money so the bar for what makes a good investment is very low.
Should it?
> If the Fed loses this fight, game over.
It might be game over for the Fed, but not the country. For most of america's history, the Fed didn't exist and the US did very well without the Fed.
It's the same silly fearmongering rhetoric by the abusive powerful to the masses. Without us, it'll be chaos. The same argument was made to justify the existence of monarchies. Without monarchies, it would be anarchy. The same to justify the existence of the pope and catholicism. Without catholicism, it would be depravity. Abusive spouses say that their to abused spouses, without me you are nothing.
Just maybe, the cause of our financial woes are the Fed itself? Maybe if we got rid of kings, religion, abusive spouses or the Fed we might be better off.
After all, the Fed is just a private institution ( an international banking cartel ) used to parasitically leech off the american people.
More aptly, the Fed is like an anarchist who sets your house on fire and then comes to your house to "help" you put out the fire.
The fed is pushing on a rope. Any upcoming depression will be driven by collapse in demand, not supply. Slashing interest rates won't do anything to prop spending when consumers are sitting at home, not working, and not buying anything.
All this is, is an attempt to boost asset prices, to bailout investors.
Let us say if they buy one index, will it be fair for companies who are not in the index?
That doesn't appear to be the case at least according to the Fed's website (https://www.federalreserve.gov/monetarypolicy/reservereq.htm ), which shows the most recent change to the requirements being in January - setting it at 3% for large banks.
Start of paragraph 4.
last item, heading is "Reserve Requirements"
"... the Board has reduced reserve requirement ratios to zero percent effective on March 26"
Anyway, reserve requirements are generally not effective, including in the USA. Much has been written about this. Banks are usually not reserve constrained (especially post QE), there are many ways to game reserve requirements, there are many ways to get reserves when you need them, and central banks increase reserves systematically when they are in demand via interest rate mechanisms.
[1] https://en.wikipedia.org/wiki/Reserve_requirement#Countries_... [2] https://en.wikipedia.org/wiki/Basel_III [3] http://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me_... [4] http://bilbo.economicoutlook.net/blog/?p=9075 [5] http://macromusings.libsyn.com/marc-lavoie-on-canadian-centr...
What happens now if someone deposits $100,000, the bank lends out $100k because it can, and the someone tries to withdraw their money?
This is very simplistic. 10% of what? Checking account deposits? Savings account deposits? If savings and checking accounts have different reserve requirements (and afaik they do), then depositors just moving money back and forth between different kinds of accounts can change the bank's required reserves. Banks also have flexibility on how they report their accounts.
Furthermore, the reserve requirement is enforced across a 2 week period. Banks don't need to have all the required reserves all the time, just some of the time.
And what if they don't meet the requirement? Is it that they are forced to close by regulators, or do they just pay a penalty? If it's the latter, then how often in practice do banks actually meet their requirements? Because it might be cheaper to pay the penalty than to meet the requirement.
> What happens now if someone deposits $100,000, the bank lends out $100k because it can, and the someone tries to withdraw their money?
No one's doubting that banks need cash on hand to meet the demands of their depositors, and that they need assets to use for net settlement with other banks. But cash demand on any given day is probably much lower than 10% of deposits (and afaik, the reserve requirements don't expect banks to hold anywhere near 10% of deposits in cash). As for inter-bank settlement, there are a lot of ways to get sufficient liquidity, including borrowing on the repo market and the overnight market.
Holding reserves costs banks opportunity-cost (because they only earn interest-on-reserves, which for most of US history was 0). And there is no shortage of safe, liquid assets out there (US government debt). Even mortgage debt is liquid. And there are tons of reserves sloshing around there, due to QE.
So banks are definitely not reserve constrained... not even close. But banks might be capital constrained. There's a big difference between reserve requirements and capital requirements.
But in many cases, banks might be constrained by neither. They are probably constrained by a lack of demand from lenders. There are not enough people to lend to.
For the same reason, I expect margin interest to drop by the same amount.
On a different note, 2% default != 2% loss. Mortgages are secured by the property, losing investors only a small fraction in foreclosure, so a 2% default * 25% severity = 0.5% loss.
I worked in the industry and your credit score was the primary reason we based off your rate, and we knocked it down a bit if there was a promo or if you had autopay.
You don't get dinged hard by just applying. Ask how long they keep your credit report before pulling it again and just get rate quotes during that time period. It's smart and also lenders know when they'll be increasing rates before it goes in affect so it doesn't hurt to do it now and then just wade it out.
Also ask for a rate modification. Nobody knows about this but you can request to get just your rate modified and nothing else changes. It's WAY less time consuming, cheaper, you don't need an appraisal, and can be done in a day. The downside is you can't get "new money" (more than your current principle balance) and you're not extending your loan.
Compare this "flattening the curve" plan to what China has done. They have gone full on "shut down everything" and isolated the whole country. Their idea is to eradicate the virus in the country. This is a worse plan because it means they will not have herd immunity, though they may transition to that plan as time moves forward.
This is why a full shutdown of the country is a bad idea. What happens then is when you start opening the country up there's a whiplash effect and it starts spreading rapidly again. For what it's worth, the UK publicly announced this is their plan. I forget the stat but they said they plan to let 40 or 60% of their population get it.
https://www.capitaleconomics.com/wp-content/uploads/2020/03/...
https://www.capitaleconomics.com/wp-content/uploads/2020/03/...
There was only one way for the virus to get here, and that was through travel.
CDC fucked up the testing after that failed, which got us to where we are now. Testing is supposed to be fixed this week.
CDC just recommended people not gather in groups of more than 50. Things are starting to tighten down significantly.
At this moment, I feel like we have a very real chance of getting a handle on things within the next two weeks. From there, we live through another month or two of lockdown and slow burn our way into summer.
It's going to be hard, but I don't think we're dead in the water yet.
It seems more than "just" saving lives. Purely economically, wouldn't a crashed health care system hurt the economy for a longer term?
This is not just an idea from thin air: they're doing lots of projections on models of what is actually going to do more harm.
Think of it this way: if the economy shrinks by 30%, that means we have to spend 30% less on everything. That's 30% less funding for wellness, hospitals & emergency services. 30% less that people spend on self-care like gym memberships. 30% less on gasoline to get to outdoor activities. If your food budget drops by 30%, there's a good chance you're going to eat less healthy foods. If people are going out 30% less often, you will see increases in both physical and mental illness ,as we know that social contact improves health.
This is why the Twitter meme of "everybody panic and go home and stay there for three weeks" may actually do a lot more harm than good even if it helps slow the spread of COVID-19.
Unless you think your state and county leadership is incompetent, follow their advice, as they are best informed about the local conditions.
Doesn't ring true. If my salary drops by 30%, my expenses would not all drop by that percentage. Things like food and medicine would drop a little, not close to 30%. Things like vacation spending may drop by 100%.
Most money is not actually on paper, so the amount you print is not the point.
The only companies that are going to be borrowing are those that are out of money and need to try and weather the current crisis. If the banks make a mistake here and the companies they lend to go bankrupt, they go bankrupt too.
No bank run is coming, and we are not witnessing financial collapse, nor the failure of the American empire.
Don't believe me? China. Iran. Italy. Spain. Austria. Multiple Nordic countries. Nationwide shutdown. Coming to a state near you.
300MM people just panicked at the same time, and the stores have been empty for two days. Imagine what's going to happen when they all discover fractional reserve banking.
But what if you rented from an individual owner who needs your rent? Liberalized (without proving that you are looking for a job for let us say next 3 months) unemployment insurance may be a better solution that keeps the economy churning.
Let's not offload the onus on landlords personally responsibility to manage their finances. If they don't have a mortgage to pay, they'll get by just fine if they can't collect rent.
I don’t have a complete answer, but I feel like the answers that are given by the government are not the best answers and not the most effective use of funds.
Now, if you put value on days of human life (which you totally can do; first, as a matter of policy, you won't pay a million dollars to give a 90 year old another year of life, nor would you pay a billion to cure cancer in one teenager; second, you do it every day when you take quantifiable risks to make money or for convenience, everything from being a logger or a deep sea fisherman, to merely driving)... if you put value on human life, how much would this waste of life be worth? And how much waste of life is a worldwide recession or depression going to produce - in direct deaths, days lost by billions of people in s terrible economy, esp. if it gets to GD levels or worse, or in the developing world where it definitely will if the economy grinds to a halt; and on top of that in purely monetary terms, as people are not able to do things from buying houses to merely making ends meet, depending on the circumstances?
At this point everybody seems to admit it's beyond containment and the only thing we are trying to do is flatten the curve and prevent the deaths. Is entering a recession, or worse a depression and risking a total collapse really worth it? I am starting to doubt it.
PS. Frankly this reminds me of plane crash reporting. Everybody is, comparatively speaking, overreacting because the event is visible and distinct, even though many more people die in cars every day.
That is a lack of testing, same as what keeps US numbers depressed. India is severely lacking in cohesive response to viral outbreaks, to the point they are still dealing with a Swine Flu epidemic from 2009 (https://www.indiatoday.in/india/story/9-swine-flu-deaths-utt...)
> There is a theory that humid and warm places will not have these mortality rate
There is no scientific evidence to support this. The wild spread in the Middle East indicates heat may not be a factor.
That's quite an assumption!
Alternatively, as a base case we are going to have years of a recession. Evictions, foreclosures, wiped out retirements, divorces, ruined childhoods and early careers messing up millions of lives for decades, suicides, preventable deaths in the developing world where losing your livelihood is a much bigger deal, potential flare-up of wars as young men there don't have jobs, etc.
I honestly tried to think about it and the only tangential thing I could definitely predict is LOTS of people from the city councils all the way to the white house not being re-elected. Which, obviously, made me even more cynical.
But yeah that's another factor against this.
No. Only the UK is operating on that fatalist assumption. South Korea, China, Taiwan, and Singapore have all successfully contained it, and Italy is starting to do so as well.
> Matt Hancock insists 'herd immunity' not part of government's plan for tackling coronavirus
> Mr Hancock added: "Herd immunity is not a part of it. That is a scientific concept, not a goal or a strategy. Our goal is to protect life from this virus, our strategy is to protect the most vulnerable and protect the NHS through contain, delay, research and mitigate."
https://politicshome.com/news/uk/health-and-care/illnesstrea...
So, is saving lives worth the economic impact? I think the answer is very simple.
Would you rather lose your job or your parents?
Then, as I also said, if you are 60 and your very old mother is on her death bed, and you get to buy her one more week of life by eliminating your entire retirements savings, would you do it? If not, after that we are so to speak just haggling about the price. Oh, and what if I came for your retirement savings because they could save my mother, that you don't even know?
There are trade-off on another level too. Recessions have very real human consequences that I mentioned in another comment. Many of them involve deaths, but many more just involve ruined lives. I'd sooner let one 80yo die than make one 40yo miserable for the rest of his life.
He brings up the Statistical Value of a Human Life (SVHL) which is a valid point yet uncomfortable to people who are new to learning how our world functions.
Also some of us are old enough to still remember the swine flu (H1N1) and the bird flu (H5N1).
This means China will have a head start on getting supply up and running.
If the ROW is at a standstill in production, China will fill that gap which could further displace a lot of production in the west.
China getting containment in order didn’t bounce back but also bounce ahead in many places.
I’m not suggesting that we should move manufacturing back to US, but we should diversify. I’m seeing that some of my suppliers have already moved to other Asian countries. I expect that diversification to continue.
I'm willing to sacrifice my 401(k) and retire on just SS if need be if my government is willing to help everyone worse off than me.
Promoting the general welfare is right in the preamble of our constitution:
> We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
And in the letter of transmittal, Washington wrote:
> Individuals entering into society, must give up a share of liberty to preserve the rest. The magnitude of the sacrifice must depend as well on situation and circumstance, as on the object to be obtained. It is at all times difficult to draw with precision the line between those rights which must be surrendered, and those which may be reserved.