
Fed to buy junk bonds, lend to states in fresh virus support - toomuchtodo
https://www.bloomberg.com/news/articles/2020-04-09/fed-unleashes-fresh-steps-for-as-much-as-2-3-trillion-in-aid
======
cs702
The US Federal Reserve is openly _buying crap_ (junk bonds!) and _wildly
overpaying for it_ without pretending otherwise.

Its balance sheet will have grown by as much as _an order of magnitude_ by the
end of the month, far above any levels seen during the global financial crisis
of 2008. (If you don't know what this means, think of the Fed's liabilities as
"all forms of money issuance.") It's issuing fresh money to buy crap from the
people who are stuck holding it. The sellers will come out whole, the buyer --
i.e., the US government -- will suffer the losses.[a]

Meanwhile, the US Treasury is borrowing and trying to spend on the order of an
additional 10% of GDP as quickly as possible, increasing the US federal
deficit and borrowings by that much as quickly as possible.[b]

And all of this is _urgently necessary_ to prevent economic collapse in the
US. _Urgently necessary_.

We are in uncharted waters.

[a] You'll see it here:
[https://fred.stlouisfed.org/series/WALCL](https://fred.stlouisfed.org/series/WALCL)

[b] You'll see it here:
[https://fred.stlouisfed.org/series/GFDEGDQ188S](https://fred.stlouisfed.org/series/GFDEGDQ188S)

~~~
AngrySkillzz
Not "buying crap," we are talking fallen angels AKA companies that were
previously rated investment grade that have been downgraded due to the crisis.
"... rated at least BBB-/Baa3 as of March 22, 2020 ..." in the press release.
It's not like the Fed is buying WeWork bonds, just closing a loophole in the
previous investment grade bond buying facility to cover bonds that were
recently downgraded. Which is kind of the point, extending credit to
otherwise-strong firms that are impacted by the social distancing measures.

~~~
toomuchtodo
You are no longer "otherwise-strong" if you have been impacted by COVID
economically. The economy pre-pandemic no longer exists. It will not magically
exist again in the future.

The Fed buying junk bonds is "extend and pretend". If you want to save the
jobs, allow overextended firms to fail, and then bail them out with the
government taking ownership (while removing management). We did this with GM
in 2008: we saved the jobs, we removed management, and we wiped out existing
equity owners.

~~~
jrockway
I don't think this is the right approach. Look at the airlines, for example.
They own/lease super expensive machines that need to be in the air filled with
paying customers to make the economics of being an airline viable. Travel is
now essentially banned, so they can't do that. It is likely that when the
pandemic is under control, people will again want to ride airplanes to far-
away destinations. So it seems reasonable to me to provide some sort of
financial help to the airlines alive during this once-in-a-century event. They
didn't really mismanage their business by buying airliners and not planning
for a global pandemic -- there was simply no way to run the business
profitably with an allowance for "someday we will be unable to fly for 6
months in a row". It seems to me that if society wants air travel, which we
do, we have to step up and at least provide a loan to cover for this
essentially-unforeseeable event. There isn't a passenger airline in existence
that planned for this event and is making a profit right now, it's simply not
an environment that a passenger airline can be profitable in.

The government paying for Coronavirus also provides a financial incentive to
not fuck it up so badly next time. We ignored the warning signs and decided to
do nothing -- now it's costing us. Next time, we'll know that mismanaging the
early days of a pandemic is going to cost trillions of dollars, so we'll
probably do a better job. (Or rather, vote for people that will do a better
job.)

(Here's how I think we should have handled the early days of Coronavirus. Ban
travel and buy back the tickets/reservations for all travellers. People were
still taking vacations even when Coronavirus was widespread. I'm guessing they
did that because they sunk $2000 into non-refundable reservations, and didn't
want to be the ones to subsidize the airlines. So they took their trip, got
Coronavirus, infected 3 other people, and now tens of thousands of people are
dead.)

~~~
jgacook
What on earth incentivizes them to not repeat this pattern of behaviour if
they can rely on a no-strings-attached cash infusion?

Middle class Americans are expected to have enough cash reserves to survive
2-3 months in case of an emergency. Why is this expectation not in effect for
an airline that makes vastly more profit per capita than the average
household?

Airlines spent well over 96% of their free cash flow on stock buybacks,
enriching their boards of directors, executives, and shareholders. Do you
think it's fair that they can make those decisions and still be entitled to
favourable loan agreements when their mismanagement comes back to bite them?

Why do we not let the airlines have an asset selloff of their "super expensive
machines" in an attempt to bridge the coronavirus gap before giving them
public funding? Could they not declare bankruptcy and restructure themselves
to survive until shelter in place is over and business returns to normal?

Why does the government bailout not have the cash infusions come in the form
of an equity buyout, thus bringing actual consequences to the mismanaged
airlines and bringing a more stable guarantee of investment return to the
taxpayers who have funded this bailout? Shouldn't having access to socialized
coffers come with the caveat that your company must become, in part,
socialized?

The system only works if companies feel the pain of their mismanagement. Any
whisper of bailing out the airlines without considering the above is
disgusting and un-American. You don't get to privatize profits and socialize
losses. History has shown that companies do not learn lessons unless they are
allowed to fail.

~~~
jacques_chester
> _Middle class Americans are expected to have enough cash reserves to survive
> 2-3 months in case of an emergency. Why is this expectation not in effect
> for an airline that makes vastly more profit per capita than the average
> household?_

Individuals and households have tremendously higher risk variability than
companies, because most of the time there are only one or two major sources of
income. When one or two of those incomes are interrupted it blows a giant hole
in household cashflow.

A large company, however, is not dependent on individual relationships with
sources of income. Each customer is a source of income, there are potentially
millions of them. Losing 1 or 10 or even a thousand customers doesn't blow a
giant hole in cashflow. There are correlations in those flows, but it's never
1.0.

Until now.

But let's assume we go ahead with the idea that every major company should
hold 3 months of cash. For starters, that's 3 months of _at least_ revenues,
which is going to be one and sometimes two orders of magnitude larger than
profits. Assuming that your profit is something like 10%, you're now holding
something close to _three years of profit_ on-hand, earning approximately
bugger-all. Your shareholders will lynch you.

But suppose they don't lynch you. Is that the _best_ use for your cash? Is it
the use that _genuinely_ reduces your overall risks? Almost certainly not. You
could use that cash to pay for more R&D, more equipment, more and better-paid
staff, improvement programs, to buy promising technologies, invest in other
companies, pay down loans on larger, more modern and more-efficient factories
... the list goes on and on. By choosing to hold that cash against a
catastrophic event, you greatly increase the much more mundane, but still
fatal to the company, risk that you will be out-engineered, out-manfuactured,
out-marketed, out-sold by competitors.

But suppose that everyone does it anyway. Now another COVID-19 style risk hits
everyone simultaneously. What happens? The first thing that happens is that
spending on anything that's not immediate ceases. So the money that we held
back and didn't spend on investing in the future becomes joined by
cancellation of all similar spending out of the rest of our income. So no net
gain there.

The rest of the money gets spent on keeping the lights on. If there's a crisis
big enough to halt the economy for 3 months, then it's not really going to
halt the crisis for 3 months. It will be much longer than that. So everyone
decides to hoard their cash and begins cutting everything, everywhere they
can, to stretch it out. So the cash doesn't get spent over 3 months, it gets
spent over 12 months.

But suppose everyone decides to spend at the 3-month rate anyhow. What happens
next is that everyone's bank is suddenly facing a massive simultaneous
drawdown in capital. They will almost immediately exceed their capital limits
and now, they have to suspend lending. A whole bunch of otherwise companies
get killed by the loss of credit liquidity.

But suppose we didn't put all of it in cash-at-bank? Well, we're still boned.
If everyone begins to sell their bonds, shares, gold coins and stamp
collections at once, prices crater. 3 months of reserves is now worth 2 weeks
on the open market.

You've probably guessed that the only way out of this is to pool risks.
Normally insurers do this, but insurers know that they cannot withstand
correlated risks like pandemics, so they simply don't insure them (with rare
and very expensive exceptions).

What we're seeing now is that fiscal and monetary policy is being used as
"insurer of last resort". It's never been done on this scale before. It might
never again.

All of which is to say that there's a lot to criticise about modern finance
and managerial economics, but the idea that it's identical to household
finances is very misleading.

~~~
DarmokJalad1701
> For starters, that's 3 months of at least revenues

Why would they need to hold 3 months of revenue? Why not 3 months of operating
expenses and suspend capex?

> more R&D, more equipment, more and better-paid staff, improvement programs,
> to buy promising technologies, invest in other companies, pay down loans on
> larger, more modern and more-efficient factories ... the list goes on and on

Does that list include stock buybacks?

~~~
jacques_chester
> _Does that list include stock buybacks?_

The omission is deliberate.

When money is being returned to shareholders I greatly prefer dividends. It
puts pressure on management to manage for sustainable long-term cashflow and
removes the temptation to pump up the stock for a quick personal profit.
Unfortunately the tax treatment in the US is very unfavourable. By contrast,
Australia gives franking credits for dividends and more companies there pay
shareholders with dividends instead.

------
nakedshorts
The Fed's balance sheet is now at $6T, which is too large for them to unwind.
This only ends in one of two ways:

1\. A massive asset bubble and a fundamental re-evaluation of risk/reward
ratios for all investments. Historically, the average P/E ratio for S&P 500
companies is around 16. Roughly speaking, this means that investors are
comfortable making their investment back in 16 years in static market
conditions. Does this decision calculus change if you know that the Fed will
bail you out as soon as times get tough? You bet it does. Similarly,
corporations are much more incentivized to take on as much debt as possible in
hopes of inflating their stock prices. When times are good, massive bonuses
for execs all around. When times are bad...hey, bailout! I expect the "new
normal" for P/E ratios to be in the 30-50 range. In the short term (next
decade or so), this means the party continues, and we see massive growth in
the stock market. But when the bubble pops, it'll pop harder than ever...

2\. The second scenario is that debt-holders worldwide lose faith in the
dollar and start dumping Treasuries, leading to hyperinflation. This doesn't
seem to be happening as of today, in fact, the more money the Fed prints, the
stronger the dollar. Central banks worldwide are printing money as well, so
the dollar looks like the "least ugly" choice by comparison. The big unknown
is how long the Fed can keep printing before debt-holders start second
guessing the dollar's value.

~~~
howeyc
Scenario 2 is your number 1, just one step further in the past. Dumping
treasuries leads to you having dollars, you've basically switched from
interest-bearing (admittedly super low interest rate right now) to non-
interest bearing (cash). You still need to put the money somewhere, hence
asset bubble.

Also, why does the government debt "bubble" ever have to "pop"? Does everyone
still believe the government has to "pay off the debt"?

They don't. Ever. For a large number of reasons, to name just a couple:

\- No more treasuries or bonds (how many people would freak out if those no
longer exist)

\- They can print more money forever. Besides, at this point it's just numbers
in the FED computer system. Hardly any of it even exists as a physical object
(paper, coins).

Also, I'll let you in on little secret. The Fed is never going to fully unwind
its balance sheet.

~~~
tryptophan
>Dumping treasuries leads to you having dollars, you've basically switched
from interest-bearing (admittedly super low interest rate right now) to non-
interest bearing (cash). You still need to put the money somewhere, hence
asset bubble.

The balance sheet can be unwound simply by waiting for the bonds to expire,
then the money goes poof out of existence the same way it poofed into
existence.

What the fed has been doing though, is rolling the money into new bonds,
keeping the total balance ~constant. If they didn't, it would leave a $4T hole
in the bond market that would suddenly need to be filled.

~~~
rsp1984
_The balance sheet can be unwound simply by waiting for the bonds to expire,
then the money goes poof out of existence the same way it poofed into
existence._

How would that work? The money's been created and has been put into the
economy. Balances on bank accounts have increased. You can't just take it back
just like that.

~~~
tryptophan
Because the bond belongs to the fed.

When it matures, the fed holds everything. There isn't anything to "take
back"; they have it all already.

~~~
rsp1984
When the bond matures it's either paid back or rolled over to a new bond or
the debtor defaults. There is no fourth option.

------
acd
We could give money to people/government directly. Why create money as private
debt?

~~~
throwaway_USD
Government indebted every US taxpayer $18,000+ on the promise of a $1,200
check per person...the remainder is given to the FED to "lend" back to
taxpayers and businesses.

In other words, imagine I took $18,000 from you, paid you $1,200 directly from
the $18,000, then I loaned you the balance and charged you interest on the the
very money I took from you and loaned back to you.

What should have happened is exactly as you say, give the people $18,000 and
allow them to spend it or loan it for the benefit of hurting businesses and
the economy and allow the taxpayers to make interest.

~~~
tantalor
Your analogy is only true _on average_. In reality, most people are not net
losers, but some (with high savings) stand to "lose" a lot.

~~~
enchiridion
Why do you say that? Because of inflation?

~~~
__s
People who didn't have 18000 to begin with didn't lose 18000

~~~
grecy
But $18,000 in taxes they've paid (or will pay) that should have been spent on
roads, schools, hospitals and more social services won't be.

So everyone's life is $18,000 worse off.

Do I have this wrong?

~~~
__s
Yes you have this wrong, because taxes are not a flat fee. However, you could
argue that the tax money is equally shared across citizens at the time 18000
is taken, but now we're getting into arguing semantics

------
aazaa
> Its Secondary Market facility may purchase U.S.-listed ETFs. While the
> preponderance of those holdings will be those primarily focused on U.S.
> investment-grade corporate bonds, the remainder will be in ETFs whose
> primary investment objective is exposure to U.S. high-yield corporate bonds.

In other words, the Fed is buying junk bonds through ETF. There's one more
stage to go: buying equity ETFs, like the Bank of Japan has been doing for
years.

~~~
jmcqk6
>There's one more stage to go: buying equity ETFs, like the Bank of Japan has
been doing for years.

People keep saying this, but what is the chain of logic for the fed getting
into equities? They aren't in freefall. They've been rallying for the last two
weeks.

~~~
aazaa
The global dollar short squeeze [1], if left to unfold, will drive the dollar
to highs that will paralyze the US and world economy. The Fed will combat this
problem through aggressive devaluation. This devaluation will take the form of
moving privately-held assets onto its balance sheet through purchases.

Taken far enough, this program will leave the Fed without Treasuries to buy.
To diversify the flow of assets onto the balance sheet, ever riskier assets
will be purchased. Today it's junk bonds. Tomorrow it could be stocks.

[1] [https://www.lynalden.com/global-dollar-short-
squeeze/](https://www.lynalden.com/global-dollar-short-squeeze/)

~~~
acchow
The fed has instituted infinite QE and we have a dollar short squeeze?
Unlikely.

~~~
dajohnson89
Surely there's some limiting factor preventing truly infinite QE.

------
tren-hard
Is a pure political move? At least watching the daily WH meetings this seems
to be priority numero uno. Doesn't this cause more problems in the long run
propping up businesses that can't survive two months without a bailout, err
loan?

> Loan sizes will range from $1 million to $150 million.

$150 million is obviously no longer about protecting employee payrolls like
these business relief loans started out with.

~~~
whatok
These are for companies that have either up to 2.5bn in revenue or 10k
employees. Do you know how much payroll is for companies of that size?

~~~
froindt
To put some guesstimates on it:

Say 50k average cash compensation (low for tech, but most businesses aren't
tech). Health insurance, social security, medicare, 401k match, etc. would add
to this number.

10k employees * 50k/year / 12 months = 41.6 (repeating of course) million per
month.

------
lubujackson
What isn't getting considered is that this is only possible here because U.S.
currency is the world's reserve currency. Other countries may try this to some
degree but risk hyperinflation. The U.S. actually won't get inflation because
many countries use the dollar for debt, so cash is king.

Check out this amazing interview about this may unfold:
[https://youtu.be/_hA3TV1bGsg](https://youtu.be/_hA3TV1bGsg)

~~~
yingw787
I can't believe I'm saying this, but I'm worried the day the U.S. dollar will
no longer be the world's reserve currency might happen in my lifetime (in the
next 80 years). This was unthinkable to me just a month ago.

It's not just the fact that the Fed is buying crap. To me, that's old news. I
don't think there's any currency in the world that can rival the dollar of a
united U.S. Ultimately, the dollar is backed by the faith of the U.S.
government to honor its debts, and nobody else comes close.

But...news that the Federal government is pitting states against each other,
between public and private parties, and between state and federal government
in its response to this national emergency I think is something we haven't
seen. It's like chained Black Swan events. I don't think state governors will
let this debacle go unanswered if they have any real authority.

If it threatens the Union, if people in Massachusetts or New York or
California ask each other whether the people in Oklahoma or Georgia or
Mississippi will stand by them during hard times and if the Union still makes
sense, then investors might start asking whether _the country will exist to
service its debt in the future_. A tipover event like that would immediately
put on a stopper on debt renewal and the gravy train, at an absolute minimum.

That's a spiders-on-eyeballs hades-says-hi level of scary, but I wouldn't
discount the significance of socio-economic or political effects on economic
and financial stability, given how this biological risk wasn't priced into our
economic or financial grand strategy.

~~~
aianus
Where else are you gonna go but the USD?

The second reserve currency is the EUR, the EU is already actually starting to
break up with the departure of the UK, and is way more likely to continue to
break up than the US.

As for CNY, China is a known currency manipulator with no free exchange
mechanisms, no central bank independence, and no rule of law.

JPY or GBP? I don't see it.

~~~
asenna
Serious question, does Bitcoin not make sense here?

I know cryptocurrencies are not well liked on HN but if there's ever a time to
answer "Why do we need Bitcoin?", won't this be it?

~~~
4weekoldroses
It's still too easy to steal

------
whatok
The Fed is buying a limited universe of high yield by issuers that were
recently downgraded. The cutoff date happens to coincide around where Ford got
downgraded. They are not (at least currently) buying wider universe HY. The HY
ETF purchases are last in their purchase waterfall. Limited HY for "fallen
angels" makes sense as these corporate facilities were announced a while ago
and did not have much details at the time.

------
vladimirralev
That's pretty outrageous without presenting an economic model that justifies
the decision at such volume. Are they picking winners and losers or are they
really optimising something? No way to know.

------
bediger4000
Which states? That's a legit question these days. I live in Colorado, can I
count on some of this stimulus? Maybe. If I lived in California, probably not.

~~~
thomashobohm
Any state that wants a loan can get one. This isn't really a "stimulus" per
se; the Fed is just ensuring that states facing short term liquidity issues
can continue operating. To solve the broader structural problems at play, the
government needs to step in with some fiscal stimulus.

~~~
quxpar
Sure, and anybody who wants a covid-19 test can get one.

------
deevolution
Seems like the US should have UBI at this point. How can the purchasing of
junk bonds be justified but not a UBI? Give every citizen a fed bank account,
type in some numbers and poof! 2k/month.

~~~
mardifoufs
Because UBI is a permanent cash handout while this is a temporary measure that
only consists of bond purchasing? Unless you think UBI should be high interest
monthly loans, I don't see why you are coming up with your conclusion.

~~~
deevolution
Why would the loans be high interest? Fed interest rate right now is almost
0%. In some countries the interest rates are below 0. Why do banks have the
special privelage of barrowing at this rate but people don't? Its a scam!

~~~
mardifoufs
The high yield bonds the FED is buying are high interest. Also the banks have
access to those low interest rates because they usually have collateral.

------
brocklobsta
I've played a few thought experiments thought my head in the case the Fed
leads to the decline in dollar confidence and I can't think of any country in
the world that wouldn't be affected. Most countries use USD as the reserve
currency, and this leads to some big dollar demand around the world. Is this
the secret to low inflation? Keep USD as the world's currency and outsource
labor to cheap companies to reduce upward price pressure?

------
steveeq1
Isn't it obvious this will lead to hyperinflation? I am BAFFLED why this isn't
being reported on cnn or whatever. All I see is corona virus. The sad thing is
is that there will probably be more lives lost to hyperinflation than
covid-19.

~~~
jdhn
>Isn't it obvious this will lead to hyperinflation?

I thought that QE was going to lead to a lot of inflation, and it hasn't
seemed to. If inflation has shown up anywhere, it's been in the stock market
and housing prices due to low interest rates. Even then, I'm hesitant to say
that it's primarily responsible for the rise in housing prices because I think
demand from my generation (millenials) is helping to cause the sharp spike in
markets such as NYC LA, Atlanta, etc.

~~~
dragonwriter
> I thought that QE was going to lead to a lot of inflation, and it hasn't
> seemed to.

A major point of QE was to lead to significant inflation _compared to not
adopting the policy_ ; without it, the projections were that significant
deflation would occur.

So, it netted to very low but positive inflation, as intended.

> Even then, I'm hesitant to say that it's primarily responsible for the rise
> in housing prices because I think demand from my generation (millenials) is
> helping to cause the sharp spike in markets such as NYC LA, Atlanta, etc.

There's no spike, just a smooth continuation of a trend that has existed
during most economic expansions (and even some recessions) since at least when
Gen X were children.

See, e.g.,
[https://fred.stlouisfed.org/series/NYSTHPI](https://fred.stlouisfed.org/series/NYSTHPI)

------
londons_explore
What are the chances the fed makes money overall on these junk bonds?

Buy enough of them and you might prop up the economy long enough for the bonds
to come to term and be repaid.

Buying any one individual bond would have been lossmaking, but buying in such
volume proves profitable due to a kind of network effect?

Is this likely/possible? Is it possible someone other than the fed could have
done this? Like maybe a foreign government (China, EU, Saudi Arabia)?

~~~
mywittyname
Don't be surprised if there are provisions in the agreements to socialize the
losses and privatize the profits. Like the ability to buy back the bond at
original value at some point in the future, or some kind of "service
agreement" that allows the bank to retain some of the interest payments.

We can already see this by the fact that the bond market has surged, pretty
much guaranteeing that the Fed is going to overpay for these bonds.

~~~
chrisjc
I believe TARP made a profit... Out of curiosity were profits privatized?

------
xiaolingxiao
How does this impact someone like AirBnb? Other commentators made note of the
fact that its loan with 10% interest rate is essentially non-investment grade.
If the fed will buy junk bonds, does this prompt lenders to issue more of such
instruments, thereby allowing companies like AirBnB or WeWork to float for as
long as the Fed buys?

~~~
smabie
The fed buying junk bonds is going to decrease the yield, so probably not?

------
neonate
[https://archive.md/IuHN0](https://archive.md/IuHN0)

------
blackrock
The recession is cancelled.

Let the new dawn of Infinite QE begin!

===

Let us give thanks to the the Fed. They just impoverished all of us. Because
of this, then the rich will just keep getting richer. The oligarchs of America
wins again.

What should you learn from this? Take out cheap low interest loans to buy up
assets. Your dollar just got cheaper, while all prices will go up. In 10
years, your $700,000 USD house, will be priced at $1,400,000 USD.

------
arunkd13
If you don't let something die, you will have to keep paying for its medical
bills.

------
andarleen
With the enormous amounts of debt the US already has I simply fail to see how
the country will recover any time soon (10 to 20 years). I am genuinely
worried that the US will enter a spiral it never thought possible (worse than
the cultural decline that led to Trump’s election).

------
jgacook
Ah we begin the long journey of having a system so politically broken that the
central bank must command its balance sheet to stop the rotten structure from
collapsing, a la Weimar Republic or Zimbabwe.

This liquidity isn't a life boat. It's propping up corporations and people who
have been dangerously over leveraged for years and who are beginning to become
habituated to the notion of getting a government bailout when times get hard.

To the enlightened HN participants proclaiming that this is a necessary step
to save an ailing economy facing an unprecedented crisis, consider the
following:

1) this crisis was not that unprecedented and many companies had large enough
balance sheets that they were able to weather it. Why are we rewarding
corporate mismanagement? Have any of the corporations eligible for asset filed
for bankruptcy or attempted an asset selloff to recover some liquidity?

2) the Main St. loan pool is much smaller than the Wall St one. Why do we
expect smaller businesses to be better able to weather this crisis?

3) what is this cash infusion actually doing to tackle the exponential rise in
unemployment? How does it help the taxpayer? It's not going to stimulate
consumption in people who have lost their jobs and kickstart a recovery - the
unemployed will likely be unemployed for months to come and the loan
recipients will likely be so saddled with debt at the end of this that they
won't experience growth again for years. There's no mandate that companies
receiving emergency loans have to maintain their current workforce. The
taxpayer receives no equity in the companies they have gone into debt to save.

4) given the size of these loans we may well be in another recession in 10-20
years and still have the majority of these loans outstanding. Do we then
forgive these loans when the usual suspects need another round of cash
infusions?

5) the Fed has set interest rates close to rock bottom for the better part of
a decade (and backed down from raising them last year when Trump threatened
bloody war) leading to a massive asset bubble and a business climate addicted
to cheap liquidity. The message this bailout sends is that corporate over-
leveraging is rewarded with a cash infusion, but god help the individual who
took out a mortgage, car loan, etc. and lost their ability to keep up payments
from coronavirus unemployment. Why is one type of entity granted access to
public money in order to be spared from their bad decisions?

The scale of this debt is almost unfathomable and adds to an already
overloaded Federal Reserve balance sheet. Other commenters have rightly
pointed out how precarious this situation is in the longer term. I'm more
worried about the callousness of the average person on this issue. American
economics are so polluted with worship of great titans of business that nobody
really seems that concerned that millions of Americans are facing perhaps
permanent homelessness and long-term unemployment in the next few months.

Pumping failing businesses full of cash when millions of our citizens are
struggling to buy food should not be normal. It is not a stepping stone of
necessity to preserve our way of life. It is a choice to use capital to
violate perhaps the most central tenet of capitalism: businesses must face the
consequences when the punch bowl runs dry. This is socialism for corporations
and we're all footing the bill.

~~~
rsanheim
Thank you for this explanation. So much of what I’ve been reading about the
fed / stimulus response has felt rotten to the core, but I’ve lacked a clear
explanation for exactly why.

It’s impossibly l to know how this will all play out over the next several
decades, but the house of cards is teetering dangerously and when it crashes,
it will be a tremendous fall.

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ghouse
So, the GOP is pro-free market, except when they're not? RIP capitalism?

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OscarCunningham
The Fed's mandate is to keep the value of money steady. Suddenly deviating
from that mandate wouldn't be 'free market'; it would just be stupid. The
Fed's actions here are exactly what they promised.

In fact, if we did have a system with a private money supply then those
issuers would also be printing money right now.

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ghouse
I consider increasing the Fed's balance sheet by 10x to working exactly
against the mandate of keeping the value of money steady. How else might that
action be interpreted?

However, in contrast to your explanation, I understand the Fed's mandate to be
"promote effectively the goals of maximum employment, stable prices, and
moderate long term interest rates"

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OscarCunningham
> I consider increasing the Fed's balance sheet by 10x to working exactly
> against the mandate of keeping the value of money steady. How else might
> that action be interpreted?

If they don't do it, there will be a lot of deflation. With it there won't be
as much. So the money printing is making prices more stable. (There will
probably still be some deflation unless they go further, which they should.)

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cryptica
Does the Fed buy from the public too? I have high quality junk bonds to sell
them... Extra junky; just as they like 'em.

My junk bonds are way better than Goldman Sachs'... Goldman Sachs couldn't
make a junk bond if they defaulted on it!

