Fed to pump more than $1 trillion in dramatic ramping up of market intervention

[tn1911]

Fed to pump more than $1 trillion in dramatic ramping up of market intervention

https://www.cnbc.com/2020/03/12/fed-...purchases.html

[SomeOtherGuy]

Ooooh, what could possibly go wrong?

[Leftie]

Ooooh, what could possibly go wrong?

Hold my beer!

[Sam]

Where is that trillion $$ coming from? are they printing more money? would that create inflation? My economics knowledge is extremely basic.

[kwelz]

Where is that trillion $$ coming from? are they printing more money? would that create inflation? My economics knowledge is extremely basic.

Sadly your economics knowledge seems higher than our current leadership.

[Leftie]

Sadly your economics knowledge seems higher than our current leadership.

From what I can see, it's going to come from borrowing money from someone else (like Saudi or China), and adding to the 23.45 trillion USD which constitutes national debt right now... OR they are printing 1.5 trillion dollars worth of cash.

The direct consequence to the American citizen is roughly identical: In theory, every dollar (or fraction thereof) in our pocket currently is now worth less than what it was before, because there are more dollars in circulation.

Eventually this will mean that the dozen eggs that you bought yesterday which cost $1.99 will cost more for the same dozen eggs if you were to buy them at a later period in time (such as 4-6 weeks from now).

On a greater level, the practical and unintended consequences of just putting 1.5 trillion USD into our economy could be described by a Bill O'Reilly quote about "doing things live".

[tn1911]

https://www.newyorkfed.org/markets/d...tional-details

[SomeOtherGuy]

From what I can see, it's going to come from borrowing money from someone else (like Saudi or China), and adding to the 23.45 trillion USD which constitutes national debt right now... OR they are printing 1.5 trillion dollars worth of cash.

They are not literally printing paper money, but they are taking actions that affect its value in the same way.

In the repo operation, the Fed is buying US Treasury securities and simply expanding its own balance sheet. Nominal money is created from nothing. This is how the Fed has always worked, but it's been getting out of hand since 2008 and this March 12, 2020 announcement is a new high or low, depending on your perspective.

Some portion of US debt is purchased by various foreign governments, but that amount has decreased greatly since 2008, and it appears China in particular has sold off much US debt in the last few years. Who bought it? Really hard to know. Much of it is "bought" in certain banking centers and the trail disappears. Most likely a lot of it is covertly on the balance sheet of the Fed or other central banks, backed by nothing.

The direct consequence to the American citizen is roughly identical: In theory, every dollar (or fraction thereof) in our pocket currently is now worth less than what it was before, because there are more dollars in circulation.

Yes.

Eventually this will mean that the dozen eggs that you bought yesterday which cost $1.99 will cost more for the same dozen eggs if you were to buy them at a later period in time (such as 4-6 weeks from now).

Yes, and I was seeing a lot of price increases in the last 4-6 months before COVID started. This will make it worse.

The basic version: there's a range of ways this could go bad, but it's kinda like having an unexpected "dawn" at 3am coming from the western horizon. It could be nukes, a refinery fire, a forest fire, SMOD, or aliens, but no possible cause is good news.

[sundance435]

From what I can see, it's going to come from borrowing money from someone else (like Saudi or China), and adding to the 23.45 trillion USD which constitutes national debt right now... OR they are printing 1.5 trillion dollars worth of cash.

The direct consequence to the American citizen is roughly identical: In theory, every dollar (or fraction thereof) in our pocket currently is now worth less than what it was before, because there are more dollars in circulation.

Eventually this will mean that the dozen eggs that you bought yesterday which cost $1.99 will cost more for the same dozen eggs if you were to buy them at a later period in time (such as 4-6 weeks from now).

On a greater level, the practical and unintended consequences of just putting 1.5 trillion USD into our economy could be described by a Bill O'Reilly quote about "doing things live".

Does anyone bother to read even the Wikipedia page about what greatly exacerbated the crash of '29 and turned it into a "Great Depression"? It was the Fed not taking steps like this.

Not to be glib, but your quote is how you would explain "printing money" to a 3rd-grader and doesn't come close to explaining what they're doing here. The Fed is not "printing money" - it's temporarily creating an additional $1.5 trillion of liquidity. They are buying U.S. Treasuries and other securities, which is not the same as injecting cash or dollars directly into the economy. The Fed rarely prints money in an unplanned sense, e.g. direct stimulus through a $1,000 "gift" to everyone over 18. "Repossession", in this sense, means the fed is buying securities that are worth more in the long term than the $1.5 trillion they are "creating", with an agreement for them to be repurchased at a later date by the possessor - to free up immediate capital with the obligation on the current asset holder to repurchase. It frees up $1.5 trillion in capital for the private sector. This will add to balance sheet debt in the short term (obviously offset by a corresponding asset), but it's not like traditional spending by the government. The Fed buying Treasuries and other securities is literally a wash on a balance sheet and could even be an appreciating asset.

Quantitative easing (which is also not the same thing) had the same effect on the national debt, which is to say, not much. It's $1+ trillion budget deficits that got us to the $20+ number.

Inflation? At worst, it would be temporary. It would also be going up against strong deflationary pressure from the rest of the economy and would eventually be removed once the assets are purchased back.

[Leftie]

They are not literally printing paper money, but they are taking actions that affect its value in the same way.

In the repo operation, the Fed is buying US Treasury securities and simply expanding its own balance sheet. Nominal money is created from nothing. This is how the Fed has always worked, but it's been getting out of hand since 2008 and this March 12, 2020 announcement is a new high or low, depending on your perspective.

Some portion of US debt is purchased by various foreign governments, but that amount has decreased greatly since 2008, and it appears China in particular has sold off much US debt in the last few years. Who bought it? Really hard to know. Much of it is "bought" in certain banking centers and the trail disappears. Most likely a lot of it is covertly on the balance sheet of the Fed or other central banks, backed by nothing.

That's a really good point, and a great clarification. Repo operations are, in my mind, a potentially pernicious tool by which to regulate an economy which may have greater negative consequences on the economy, just not in the foreseeable future (however long you deem to be "foreseeable" is typically administration-dependent, it seems).

The "backed by nothing" component of foreign debt being potentially repurchased by an American entity (in USD, which is backed by nothing) I feel will be extremely important if the economy turns fully pear-shaped.

Without digging through historical commodities market data and cross-referencing with inflation data/home goods pricing, I'm in speculation territory on this. Anecdotally though, I've seen the same price increases, and am seeing enough components in adjacent sectors align to not like what is happening.

While I agree with your basic version being that no possible cause is good news, I'd like to at least have positive ID on the components to start triaging my response (if even possible).

From a market perspective, I would like to remain rosy and justify the current environment by saying that the downward trend is driven by algorithmic trading, fear sell-offs, and futures speculation having a compounded effect on the market, but I think that the next quarterly reports for many companies are going to show that there's a "there" there more than just a knee-jerk market reaction.