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Source: cnbc.com ·
Those purchases will go along with the ETFs the Fed already has been buying, the central bank announced Monday.
Preston Pysh - @PrestonPysh
3 weeks ago
The Fed...
Always putting the FREE....in "Free and Open" markets.
Common kids, who wants to borrow a bunch of "money" and not have to worry about any consequences for having no savings. https://t.co/HiFotDU2uK
3
51
Dennis Parker⚡️ - @Xentagz
3 weeks ago
RT @Bitcoin: BREAKING: Zero bitcoin will be printed to bail out Wall Street.
https://t.co/zjahcPGbmm
130
565
a_jormagurdr
Columbia Basin 2 weeks ago
This isn't really about Cascadia, unless you wish to talk about how Cascadia will run it's money and economy.
1
NilbyBC
2 weeks ago
This is real bad.
They’re running out of treasury notes to buy and hitting physical limits on QE.
In an attempt to stave off the inevitable implosion that will occur if QE is suddenly stopped, they’ve resorted to buying crappy corporate debt.
This is an extremely bad sign. It means that the FED is stuck, and it can’t get itself unstuck.
It means we are balls deep in a liquidity trap...
This is exactly what happened in Japan... they also tried doing this in an attempt to escape their liquidity trap.
And it didn’t work.
Just like in Japan, this is likely going to result in deflation and the creation of numerous “zombie” corporations.
4
456afisher
2 weeks ago
The bailout of Corporations continue, while help for actual workers and family get no assistance.
1
EngineNerding
2 weeks ago
Many people on unemployment are making $2400 more a month than they were when employed thanks to the federal $600 per week stimulus payment which is in addition to normal unemployment pay. Stop saying that the average person isn't getting any help.
1
NigelThornberry32
2 weeks ago
Can someone ELI5? So they are buying corporate debt to keep companies afloat for a while longer? I feel like there is more to this that I don't understand
1
mulletator
2 weeks ago
There's more to this that nobody understands, and the includes the government and the Federal Reserve. The Fed is committed to "QE infinity" which means they are creating money from nothing to shore up the market. They are bailing out anyone that they deem appropriate and pumping money into the stock market in the form of ETFs and corporate bonds.
The most recent stuff is essentially bailing out the same companies that F'd everything up in 2008. Those companies used their TARP bailouts to buy back their own stock and give record-setting bonuses to their executives and CEOs. Now they got their hand caught in the cookie jar again and Uncle Sam is more than happy to bail them out.
That's good for the big corporations that made the list. So what's the downside? There are several possible outcomes.
1) Moral Hazard: This has already happened. What that means is that companies/banks will engage in reckless and irresponsible behavior knowing that they will get bailed out if it goes pear-shaped. This is already the new normal and has been for some time. Greed with no consequences, for now at least.
2) Hyperinflation: the Fed pumped trillions of dollars into the economy. That has the net effect of diluting the purchasing power of the dollar. Sort of like how shares get diluted when more are issued. While the supply of money increases, the supply of goods remains the same
This can get out of hand when they lose control and lead to runaway inflation (ie. hyperinflation). This has happened in other countries before.
3) Issues with international trade: When the US is printing money, it can essentially buy imported goods for free. That's good for the US but not good for everyone else. Sooner or later other countries will look for a better deal
4) Threat to US dollar as reserve currency: Similar to #3. Other countries don't like that the US is so freely manipulating the USD to benefit themselves and are looking for other options. China is introducing an asia-wide crypto backed by the Chinese government for example.
5) QE encourages debt: Low-interest rates are the core of QE and the purpose of that is to encourage spending and debt. Savings and bonds don't gain much at 0% interest rates so people are encouraged to get mortgages, margin accounts, and other loans. This stimulates the economy but it's really borrowing from the future.
There's way more to the story and nobody has a crystal ball. What we do know is that the Fed stepped in to prop up the market. That's good for us in the short term but it also means we're in big trouble. The fact that the Fed is purchasing actual equities for the first time means they are super desperate and that is not a good thing.
Japan has already been down this road:
https://www.investopedia.com/articles/markets/052516/japans-case-study-diminished-effects-qe.asp
https://voxeu.org/article/effectiveness-bank-japan-s-large-scale-stock-buying-programme
Japan has been in a never-ending loop of government stimulus since 2001 where they can't reach the 2% target inflation rate and are 100% reliant on BOJ (the Japanese Fed) support. This is the most likely outcome for the United States. Except that US banks have way less regulation and way more global influence and egos to match. We are going to see some desperate moves in the next six months.
5
Tyleerb
2 weeks ago
Calcium can come from egg shells. I would consider chickens a necessary part of a permaculture farm, they lay eggs for food, you can use shells to fertilize or as insect repellent. Chickens also will eat kitchen scraps and most anything else you put in front of them producing rich compost/fertilizer.
Rock dust also provides trace mineral content. I’m not sure about the specifics of runoff within soil but I doubt you’d have to worry about mineral deficiencies anyway, it’s not like plants are using up all the mineral content in the ground.
A way to think about plant growth is not so much feeding the plant as feeding the soil. Remember, soil is alive and the farmers job is to help that soil life thrive. The microbes in the soil and the plant work together in a nutrient exchange, one cannot survive without the other. Most of the sugars a plant makes through photosynthesis are traded out to soil microbes in exchange for what the plant needs not used directly within the plant.
‘Conventional’ farming works by essentially sterilizing the field and then inputting everything manually and in such a way that you are not over contributing to the plant. It’s honestly more like hydroponics than true soil management. Permaculture celebrates ‘no till’ since roots, mycelium, insects and microbes are all creating a structure within the soil that works to keep both soil and plant alive.
0
NigelThornberry32
2 weeks ago
Can someone ELI5? So they are buying corporate debt to keep companies afloat for a while longer? I feel like there is more to this that I don't understand
4
Death_Metal_Panda_01
2 weeks ago
Pretty much, yeah.
Most companies have cash flow issues at the moment, with customers unable to pay or delaying payments and suppliers insisting on payment on time (not to mention payments on existing debt, which if defaulted make a recovery even more unlikely). Under normal circumstances the market would let these companies sink and no one would buy the bonds these companies would issue.
With the fed looking to buy corporate bonds these firms get a direct injection of cash that could help manage the cash flow mismatch long enough for the companies to get back on their feet and become self sustaining again.
The down side is you’ll have a lot of opportunistic companies who will look to raise cash by selling bonds to the fed even they they aren’t really on the brink of collapse (kind of like how you had large restaurant chains goo long up the small business loans earlier).
- One could create a specific SPV that meets the Feds criteria, issue bonds on that name and have very few consequences in case of default because it’s the SPV that’s on the hook and it probably won’t have much in terms of assets that could be liquidated and provide value (I’m generalising here, it wouldn’t be THAT easy but it’s certainly not impossible)
- Afaik, there isn’t much clarity on what you can and can’t do with fed money. Share buybacks? Management bonuses? Special dividends?
3
Ry-Fi
Sales & Trading 2 weeks ago
Just to clarify a bit for the person asking the question, the Fed's actions under the SMCCF are secondary purchases of bonds (it's in the name), not purchases in the primary, thus do not result in any infusion of cash to firms. The PMCCF, however, does permit the SPV to buy bonds in primary syndication which does provide capital to companies.
The crux of the Fed's objectives are more or less twofold: first to eliminate tail risk by providing additional liquidity to bond markets to ensure liquidity issues in credit markets don't result in solvency issues at otherwise healthy companies. The Fed has proven that simply signaling it is willing to buy bonds can create dramatic improvement to liquidity without actually even buying bonds. Nevertheless the Fed has made good on its commitment and has bought bonds in the primary under the PMCCF to follow through on its signaling (hence why their signaling is viewed as credible from the get go).
Secondly, their actions under programs such as the SMCCF seek to more generally make financial conditions more accommodating for issuers / corporates by lowering the cost of debt. Many have argued the SMCCF isn't really necessary given the bond market is quite healthy these days, but the SMCCF will ultimately push yields lower in the secondary market and free up "dry powder" of investors to re-invest in primary issuance, both of which should lead to tighter yields / spreads in for new issuers in the primary market.
3
braclayrab
2 weeks ago
How is this different than the current situation? I was under the impression they are already buying corporate bonds...
6
lunaire
2 weeks ago
More direct buying, less middleman costs. The end result is the same otherwise.
9
braclayrab
2 weeks ago
Thanks so much. More-or-less what I would have guessed, but I want to be sure before I start talking bullshit with my friends.
2
Esqualox
2 weeks ago
Is there anything the Fed wouldn't buy these days??? Surely there must be guidelines / limits written down on paper. Perhaps some % of student debt, which I imagine would have a more direct first order benefit to a citizens purchasing power. Just a thought bubble
1
StarchRunner
WFPB Diet - Live Long & Disaster 2 weeks ago
Issuers must have been rated BBB- or /Baa3, depending on the agency, as of March 22, just before the Fed announced its credit facilities.
Looking up past reddit posts about this, 2 months ago...
BBB-rated corporate bonds are the Achilles' heel of the global economy
This is gonna end well...
1
LordofTurnips
2 weeks ago
Companies (and individuals, but they probably have better finance options available, or for large purposes should have a company) issue financial instruments called bonds when they need to raise money. The bond is basically a loan the company wants to make, where they will pay the buyer some form of interest at an agreed upon period, before paying back the entire value of the bond at an agreed upon time (typically between 6 months to 40 years).
At the moment, noone really wants to be holding these bonds from different companies. if a company goes bankrupt, you aren't guaranteed those future payments from the bond. However, as noone wants them the people who did buy corporate bonds and loaned money to those companies are stuck with it now and likely to lose money. The Federal Reserve has decided that as the pandemic was largely unprecedented (if you lent money to a company 5 years ago expecting them to pay it back in 2025, you didn't expect them to close down and lose heaps of money in a pandemic), they will buy those bonds back from investors, below the PV the bonds should have, but at a higher value than the investors could reasonably expect if they tried to sell them at a market price. It is hoped the investors will use the money for other investments to help prop up the economy (or save it in the bank, but then the bank can lend that to other people).
The general issues with such a scheme are:
1. Hasn't been done before and the federal reserve does not really have a mandate to do it.
2. While in theory it could work well, there's a massive loophole the federal reserve cannot avoid without appearing biased or losing its independence. Basically, because the corporations also need money at this time, they can now issue more corporate bonds to raise money. Before, no-one would buy the bonds, but now the fed has guaranteed that it will buy them. The initial purchase and sale of bonds could be worked out internally through transfer pricing between different segments.
3. The purchasing of bonds is from private individuals (either people or corporations) above the market price. Therefore, it is possible for the Fed to lose independence if they pay more money for bonds in company A held by investor B over investor C.
4. Companies should negotiate debt restructuring directly with debtholders, while after the fed buys the bonds, it locks in bankruptcy if a company cannot pay them back in time.
4
Capn_Underpants
https://imgur.com/sggT2XO 2 weeks ago
Asset prices increase and the poor get poorer.
5
Peytons_Man_Thing
2 weeks ago
The word "bailout" appears a whopping zero times in this article.
I am ignorant of many things regarding the financial market, and I read heaps of jargon therein. If the Federal Reserve isn't actually federal, how is this a bailout?
4
AllBrainsNoSoul
Seattle 2 weeks ago
Bailout almost always means cheap loan. Buying a bond is making a loan. The federal reserve is a central bank created by federal law but with private bank ownership. It’s a hybrid system. Certainly, it’s different than a purely government entity but the fed has also never bought corporate bonds before.
4
Synthwoven
2 weeks ago
Why won't the Fed buy my corporate bonds? Oh, I bet it because I am the sole shareholder of my corporation and I am not already a billionaire.
3
whitslack
2 weeks ago
Isn't this exactly what caused Japan's "lost decade," propping up insolvent corporations instead of allowing them to go bankrupt and be liquidated?
3
bitsteiner
2 weeks ago
They own debt of bankrupt Hertz already. Federal Reserve = bad bank
The Federal Reserve can keep unprofitable corporations alive as long as they can afford the paper to print the notes. This is the end of capitalism!
2
gnomeChomskii
2 weeks ago
When my Trump supporting dad talks about how the left wants socialism, and oh how terrible it will be, and how everyone is too young to know about it....yeah i will refer to this program.
7
19Kilo
2 weeks ago
> yeah i will refer to this program.
And it will bounce off his thick, red armor. I bet you'll get some non-sequitur about Hillary or Obama as a follow up comment.
6
coolplate
2 weeks ago
So.... Just giving taxpayer money away too billionaires then? Tis the season a guess, fuck it
4
purgance
2 weeks ago
What we are seeing is the last archaic relics of the 18th century understanding of money (what it is, how it works) crumble.
This is a process that's been going on since the establishment of the Federal Reserve, accelerating with the various reforms of the system of international exchange (Bretton Woods, etc).
The problem is that we persist in this conception of money as a commodity. Money is not a commodity. It's not an asset. The fact that you can trade it as such doesn't mean that it is actually that.
Money is an abstraction layer for trade - it enables to to communicate between resources (goods or services) without one knowing what the other is doing.
The purpose of money is to facilitate this transaction, and account for (read: preserve) the value of the resources between each transaction.
So the Fed's interest is in making that happen.
It turns out that a lot of the conventional monetary policy (particularly Paul Volcker and Alan Greenspan's dogmatic but empirically worthless ideas) actually harms one or both of these objectives - particularly anything that conceives of money as having an intrinsic value that is influence by the Fed (put simply: inflation has very little (if any) relationship to the volume of money in the financial system).
So what Powell is doing is applying the evidence Bernanke/Yellen developed during the Great Recession; namely that the money supply doesn't effect inflation. The serve the first (and primary) purpose of money, money must be available to transact. This means that economic agents (in this case, corporations) must have very easy access to money. It's not a question of borrowing or debt, that's irrelevant to monetary theory and money supply - the question is whether the money exists in the system (this means not that there "is money" but rather than there's money that is being actively lent ie non-reserve money).
By buying commercial paper, the Fed is providing that money (usually called "liquidity" in this context though I personally think this terminology is archaic because it again conceives of money as an asset rather that a construct (something artificial and arbitrary)) to the system.
The whole point of all this is to facilitate transactions - to make sure that economic agents who want to transact can and do. Buying bonds ensures that one class of agents (blue chips) can do that.
The biggest problem the Fed has right now is that there's no established mechanism for the Fed to push money into the hands of Tier 1 and Tier 2 consumers (middle and working class - ie, 75% of the economy). These consumers are the ones that are choking off growth because of lack of access to cash.
The prevailing system assumes that this is Congress's bailiwick. Unfortunately, Congress is Congress and so that's essentially a non-starter (I'm still shocked Nancy was able to get the $600 through; presumably it was while the Senate leadership was cowering in a bunker).
The obvious solution would be the Fed buying consumer paper (which they are already doing indirectly by buying paper from financial institutions) - but this creates a big debt problem that has a dramatic and negative effect on consumption going forward; consumer paper is also the most lossy form of lending and so I think the Fed is naturally going to be averse to this.
This is really the last bastion of the old guard of "let's go back to the gold standard" (which is an ideology that really needs to die, 10 years ago - no prediction it has ever made has come true, and it sticks around basically because its adherents are too stupid to study the failed predictions of the past) approach to monetary policy.
There is a valid question to be asked about Fed-backed lending to consumers. There's no question that it will stimulate growth, but what happens when the defaults roll in? This could very well be UBI by the back door, and on the face of it there's no obvious reason it wouldn't work. When consumers were all given $1,200 they didn't go out and bid up the price of milk to $200, e.g.
I'm in favor of moving forward, not as a test but because the economic evidence shows that the 'money' functions (facilitate, account) do not depend on the money having intrinsic value. There's no reason to expect that it would, we just cling to this notion for historical reasons that again have no basis in reality (they're literally just stories we tell ourselves to help us get over our discomfort with our own limited understanding of economic systems).
25
henriquemaia
2 weeks ago
Thanks for your insightful comment. Can you recommend any paper/book where I can learn more about this shift in monetary thinking?
3
xyznagornoaa
2 weeks ago
The problem is not that this will cause inflation as the secular trends of technological progress make production cheaper and cheaper every year at the same time aging populations reduce the demand for goods.
The problem is a destruction of capitalism and a continued destruction of a society based on merit. These fed liquidity injections are top heavy they primarily benefit those who already held all the power and wealth. When those people die their children will posses the wealth and so on. The average mans upward mobility is being eroded day by day by both these monetary policies and stupidly of the American political system. This is a recipe for societal collapse as at some point the uneducated masses will wisen up their societal contract has been eroded to shreds and they are destined to a life of debt slavery. The American dream is still a reality in many people’s minds, if these patterns continues many will wisen up that it is only a dream.
I would go so far as say the recent riots are a great early signal showing us that the people are realizing their societal contract is no more.
11
realestatedeveloper
2 weeks ago
Yeah, peasants were not constantly uprising during the European feudal era. Neither were they during the 2000 years of imperial Chinese rule. A few uprisings here or there, but peasants always went back to their place at the end.
And what you are really seeing is *white middle class Americans* realizing the social contract is dead. Doubtful that anyone Asian, black or brown was ever under any illusion that the social contract was meant for us.
The silver lining is that we are primed for a political takeover - the investor and technocrat class taking over from the agribusiness and industralist class. It will be even less democratic, but tbf I think our experiment in overrepresenting white middle American low skill labor in politics has run its course
8
boofmeoften
3 weeks ago
The US government has signaled that no matter what the stock market is going up even if it has to take the whole house of cards with it.
7
EdofBorg
3 weeks ago
Usually the banks don't go belly up until the 2nd term of a Republican President (both Reagan and Bush 43) but its a long hard slog between now and November. Wall Street on super welfare instead of the regular welfare they been on since 2009.
Not a good sign. I wouldn't have more than enough money in the bank to pay my bills if I were you.
1
jdhn -
@jdhn
3 weeks ago
Absolutely unreal. Either things are worse than people are letting on, the Fed is simply refusing to let the market drop any further due to optics, or both.
I hope anybody who is bearish on stocks has closed out any short positions because at this point, I can't see how stocks will be allowed to go down.
throwawaysea -
@throwawaysea
3 weeks ago
As others have mentioned, this suggests there is large scale dilution of currency happening. When people realize that, it can be extremely destabilizing. We are somewhat protected just because everyone else trades in Dollars and there’s good demand for it, but there’s a limit to how far that goes. At some point, sentiment catches up to fundamentals.
Also isn’t this a sort of nationalization by financial instrument?
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