Below
the link are some quotes I took from the article.
The Fed’s New Mission to Save the
Economy.
Already,
the Fed has mounted an enormous and effective response to this national
health-care crisis, drawing on its considerable institutional strengths.
It pulled
off the shelf initiatives designed and perfected during the crisis of 2008.
Some examples: injections of liquidity into the Treasury, repo, agency-mortgage
and overseas markets, plus the rapid deployment of facilities that enable
access to financing for commercial paper and money-market funds.
The Fed
also invented new facilities—targeted at corporate and municipal bond
markets—whose operation is similar to existing tools.
It moved
quickly to relax reserve requirements, freeing up liquidity at the largest
banks.
The Fed has
even borrowed the European Central Bank’s nuclear-strength “whatever it takes”
approach to forward guidance.
But now
Congress has asked the Fed to enter uncharted territory: extending loans
directly to large and small companies across a broad range of industries and
geographies.
(Note: On April 9th the Fed announced another historically new facility in which it adds local and state governments to those it lends to.)
(Note: On April 9th the Fed announced another historically new facility in which it adds local and state governments to those it lends to.)
Enough for the direct quotes. Not
sure what image the above quotes create in your mind but what comes up for me is Sylvester Stallone wrapped
within a bullet vest, with guns on both hips, a bazooka on one shoulder, and a
torpedo launcher on top of his head.
I love the title of the article –
The Fed’s new mission to save the economy. Maybe a better title would be – the Fed’s
new mission to save itself. Talk about abandoning decades of good practice only
to replace that image of gravity and solemnity with a picture of the Lone
Ranger riding up a hill with his trusty steed Silver. Hi Ho Silver Away. The
Lone Ranger only had a couple of six
shooters but we expected him to save both the town bank and the damsel in distress. Miss Kitty could take
care of herself but no. Hi Ho Steverino.
Lest you think I am wedded to only
1950s dramas, let me move on. Back to the Fed. One could sympathize with the idea
of saving the damsel in distress but doesn’t anyone wonder if all those weapons
are going to knock the Fed off its horse?
Can the Fed really do all that
stuff? Do they have the know how? Do they have the personnel? Do they have any
any relevant experience? Do they have enough weed? Seriously, it is one thing
to imagine the Fed also shooting men off into space and solving world hunger, but
are we being a bit romantic?
The Fed was set up more than 100
years ago – as I recall it was 1913 or thereabouts. The model set up worked
pretty well – at least until we started getting loony in 2007. The idea was
that the Fed could be an independent government entity that had one mission –
make sure there was enough money in the economy. The simple idea was that for an
economy to grow, it needed money. We thought of it as largely a long-term
mission. If the economy grows by 5% per year, we need someone holding a
monetary hose full of money that would let money increase just enough so as to
not choke off that growth.
That was it. That was the hole
tuna. Money and GDP growth. End of story. Capish?
As I said recently in a post, even
the lord and master JM Keynes never saw the need for monetary policy to save us
from recessions or even depressions. That job was left to the Treasury and Superman. Maybe Spiderman too.
Read that list above of what the
Fed is doing to save us from tiny little viruses. We have gone from sanity to
the Stallone. But worse than the Stallone is the Lone Ranger on Trigger
with more weapons than even a plow horse could carry.
I have exhausted enough words and
basically generated enough personal stress for the day and have not even got to
the interesting part – evaluating each of the Fed’s new Superman roles and
wondering what it means for the Fed to do all that stuff. So maybe I will save that for next
week. I feel a nap coming on.
I hope you and your friends and families are finding ways to
transition in these challenging times.
Who knows how this will end up? Note that churches are also included because their revenue comes from their congregation with exception of the Catholic church which get some funding from Rome. That being said...I know my church has applied for loans in the same manner as not for profits and profit small businesses. What come first? People who are out of work or reduced income cannot feed their families for more than 60 days without some income form loans and distributions. They are also staying at home, not making their house or car payment. Businesses who hire these people are operating on a thread for lack of demand for their services or products due to lack of funds so they are surviving on their reserves if they have any and or small business loans if they can get past the state's red tape. So which comes first and when. Then we have the fear of the second wave which overshadows the spending in both the businesses, employees and customers. What economic model does this fall under? It is an economic Catch 22.
ReplyDeleteBe still James. The Fed will handle all that perfectly. Hi Ho Silver Away.
DeleteDear LSD. Normally, I could just barely unnerstand the Fed et al doing’s and going’s-on. Now, its inner-workings and hidden mechanisms befuddle me mucho . . . way above the stuff I learn’d in the Chicken of the Deep Sea Tuna School. Basically, seemz to me that all the “liquidity” it’s drown’n the economy with will ignite inflation and over-load the already-over-loaded national debt: ‘n I doubt much of the “loans” to bizs will be repaid further exacerbating the debt.
ReplyDeleteThanks Tuna. Some people don't worry about inflation. Seems a long way off and they are willing to take the risk. The other part I especially don't like is letting the Fed get into a game of who gets which loan and why. Too much potential for corruption if not favoritism. Already people are saying you have to be a customer of particular banks to get the money. I don't like Congress doing these kinds of things but I'd rather have Congress doing this kind of transaction than the Fed.
DeleteNice read, LSD. Unprecedented times! Hopefully our little small businesses will one day be recognized for the value they deliver to the economy, just like the "big" small businesses that vacuumed up the last batch of billions (wish I owned Ruth's Chris instead of Superheroes). Staying positive. Be kind.
ReplyDeleteThanks Senor. Strange irony. "big" small businesses ought to have a few months security blanket. Real small businesses usually can't get to that point. So the government is basically bailing out the wrong people. When these small businesses die, we are all going to feel it and it won't feel good.
Delete