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.
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.
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.
I don't think that's true. This is a true supply shock. Nothing fundamentally changed except that there is a "short-term" (1-2 years) issue of workers not being able to work and consumers not being able to get a job.
In contrast, in 2008, we realized things were being criminally propped-up and the economy crashed. Expectations were much higher compared to the actual performance of the economy.
The job of the Fed is to keep companies from going under due to this supply shock. If companies do go under, that means that there WILL be long-term problems with the economy because we're lowering LONG-RUN supply.
The whole point of the fed is to smooth short-run supply shocks so that long-run aggregate supply isn't affected.
> If companies do go under, that means that there WILL be long-term problems with the economy because we're lowering LONG-RUN supply.
This is a false narrative. If a company goes under, chances are the long-run supply will not be affected much, if at all.
When a company goes under, its assets are not burned, and its employees are not killed. If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off.
A government bailout only makes sense if you own a company being bailed out, and you want to stay rich. A government bailout is bad for every other American, because it introduces an incentive to making poor decisions and not planning for market downturns. We should not be rewarding bad corporate behavior with a bailout, we should be punishing it by letting the companies go under so fresh blood can have a try.
We shouldn't be living in a feudal society of fiefdoms that are propped up by the federal government. Let the market run its course.
> When a company goes under, its assets are not burned, and its employees are not killed. If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off.
But all this requires us to re-assemble these things into a new functioning company. A company isn't just a pile of people next to a pile of assets, it has internal and external relationships and processes and culture and on and on happening to make it do the stuff it needs to do. This all takes time and effort to create. To let it all burn down when we need it again in a few months is utterly pointless. What we want to do instead is freeze it for a little bit so we can thaw it out later.
In a free market, companies have little problem assembling and de-assembling themselves via mergers, buyouts, spinoffs, startups, etc. Bailing out companies is an implicit endorsement of the current structure of that industry, which, 11 years into a bull market, may be far from its natural or optimal state. For example, bailing out US airlines implicitly endorses the 3-major system, as opposed to 6 (Continental, US Airways, Northwest) from a decade or so ago -- a time which didn't include $200 change fees, 10-wide 777's, "basic economy", etc.
Why should the gov't reward fiscal irresponsibility (stock buybacks) AND a terrible airline product (and thirdly, maintain airlines' negotiating power over employees), as opposed to a "new normal" which might include some fresh ideas?
I wouldn't oppose intentionally restructuring or regulating any of these industries. That is not what we were talking about, however. We were talking about simply letting those businesses fail, and seeing what happens on the other side of this. That could result in something better, or it could result in something worse. Given the situation, I think it's likely it would result in greater concentration. I do not think let it burn down and the chips fall where they may is a good strategy.
Shouldn't the government, at the very least, wait a little while to see which companies or industries are actually close to failing, before committing $2+ trillion? American Airlines had 3.8 billion cash as of 12/31/19. Its total OpEx + Interest was about $8.2 billion in 2019. So it had nearly a half-year of expenses covered, before any cutbacks or preservation methods. I'm not an airline accountant, perhaps some obligatory expenses are hidden in COGS which increases their burn rate. But it would appear that AA could survive about 5 months even if it did nothing to reduce expenses -- if they cut back appropriately, perhaps they could extend that to a year. There's also equity and debt markets available if AA needs cash now.
I just don't see why the government felt it was necessary to immediately reassure companies they would be protected, or why, one month in, you are discussing "letting those businesses fail," as if it's a foregone conclusion. In fact, it seems highly likely they would survive intact. Poorer, but probably not bankrupt.
> There's also equity and debt markets available if AA needs cash now.
this is exactly how it should have been. If stock buybacks (or dividends, i don't think they are different) during good times, then equity raising during bad times is the counter balance.
No gov't bailout necessary. There will be a price that they can raise cash at. It's not gonna be nice for the current equity holders, but they knew what they bought when they buy equity.
And if the company fails, the gov't bailout should be for the unemployed in the form of social security and healthcare. Not for business continuity.
It's called bankruptcy protection. Companies can still operate under bankruptcy protection, while the ownership issues are sorted out. Yes it's disruptive, but it doesn't blow up the company like you're implying.
Have you jumped into a large old codebase with no access to its previous authors or maintainers? The idea that selling for parts a company is going to lead to a similarly healthy company filling the niche under new management is... extreme.
We do need creative destruction and to prevent moral hazards.
We also need to prevent mass unemployment and chaos. Nationalizing and re-privatizing can do this, but not as efficiently as just giving 0 interest loans to patch over a temporary “pause” in the flow of money.
> Have you jumped into a large old codebase with no access to its previous authors or maintainers?
Written by juniors, who doesn't really understand their codebase and writing ugly hacks all over the code? With code regularly failing at critical moments?
And you are suggesting to hire a bunch of new juniors who would finally fix this mess? I would rather fire half of the developers and hire new seniors instead who will refactor the codebase.
> If there is any long-term profit to be made, a wealthy investor will come in, buy up the assets at a low price, hire the employees who are now jobless, and pick up the torch where the previous ownership left off.
This makes the assumption that at least one of the following is true:
1. There are wealthy investors to fund the purchase
2. There are wealthy investors who realize there is a long term profit to be made
3. That wealthy investors care about long term profit
> A government bailout is bad for every other American, because it introduces an incentive to making poor decisions and not planning for market downturns.
There are events which no company can plan for, either because they are once in a several lifetime events or because they are so cataclysmic that they shake the foundations of a global economy.
> 1. There are wealthy investors to fund the purchase 2. There are wealthy investors who realize there is a long term profit to be made 3. That wealthy investors care about long term profit
all of those are true. Not just one.
> no company can plan for
and yet, in the filings for american arline, they have mentioned pandemics as one of the risks. No company wanted to plan for this, because they perceive the cost to not be commensurate with the reward - perhaps because they, after seeing 2008, know that the gov't bailout is a possibility, and that's cheaper for them than to save for a rainy day.
What would "planning for a pandemic" look like for an airline? And if they did that, would they have survived for decades competing with airlines that did "riskier" planning for a pandemic?
You can't assume this problem is only supply side. This interruption is going to have long-lasting implications on demand because lots of expenses are still piling up without businesses and consumers receiving their regular income. If you want everything to magically go back to the pre-pandemic levels, you either need to waive all those expenses or give them money to pay them. Otherwise those consumers and businesses are going to be reducing spending for the next year plus as they pay off all their expenses that are building up during the shutdown.
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.)
> The government paying for Coronavirus also provides a financial incentive to not fuck it up so badly next time.
It absolutely doesn't. Time and time again, corporations have proven their shareholders (management as well) will simply strip as much value as they can, and leave us (taxpayers via government, citizens with devalued currency via the Fed and their monetary policy) holding the bag with any losses or externalities to clean up.
For example, the Tax Reform Act was sold as incentivizing "jobs and investment"; all it incentivized was share buybacks [1]. Shareholders and management have proven themselves unworthy of trust, or more accurately, public and fiscal policy benefiting them that operates on the honor system. "Fool me once!"
> For example, the Tax Reform Act was sold as incentivizing "jobs and investment"; all it incentivized was share buybacks
So what? If I own a successful company, eventually I'm going to reach a point of diminishing returns. At that point, it no longer makes sense to reinvest my company's profits back into the same company. Eventually, I'm going to use that money to start a new business. Doing that will make more money and create more jobs than trying to scale my old company past the point of diminishing returns.
With a public corporation it's simply a case of management making that judgment on behalf of the collective shareholders.
You're asking the wrong poster (that sentence was a quote). But I believe jrockway was referring to the government's response to COVID-19, not to the companies that would be bailed out as toomuchtodo apparently assumed.
The problem with that reasoning is that governments don't suffer the consequences of mismanagement the same way companies and private citizens do. Sure, the elected officials may end up voted out, but the same bureaucrats will still be running things, and the basic institutions and systems that led to the current response aren't likely to change.
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.
Bad situations happen, they have happened before, and they will happen again.
All bailing out companies does in the long run is ensure they run things as close to the line of collapse as possible, because if there is any disruption, the government will bail them out.
It creates titanic systematic risk, and greatly rewards poorly managed companies vs well managed companies.
Any company weathering this storm well might as well have never bothered saving money and making long term wise decisions that may have limited short term upside, when you get a guaranteed bailout when things start going south when you have made decisions that lead to having no reserve capital (see American Airlines 12 billion dollar stock buyback, the airline industry wants a 50 billion dollar bailout, having spent 45b on stock buybacks in the last years, why would they save money when the government will swoop in and pay)
Don't think the individuals running these companies don't see the pattern here.
Its akin to betting red on a roulette wheel every time, and getting more free money when it comes out black instead.
No business should prepare for their business to become illegal. Air demand is down only partly due to consumer behavior. The majority of the demand is down due to government action. Your argument is like arguing alcohol producers should have prepared for Prohibition.
No the best recourse when your business becomes illegal is to grant a large dividend to shareholders before your creditors liquidate the company. Preparing for your business to become illegal is a waste of money
> If government action didn't kill demand, the ensuing death toll from letting the virus spread unchecked would eventually do it anyway.
2 million people dying in the United States isn't really that much. Given that COVID mostly affects people already more likely to die, the death toll had COVID gone unchecked would likely not be that much greater than the 2.8 million Americans that already die each year. Assuming a 30% overlap, we'd see deaths go from 2.8million to 4.2 million in one year, followed by herd immunity (according to the models). We'd then see subsequent years with a lower death rate (since there'd be fewer people with pre-existing conditions). It is unlikely that this would be as economically devastating as argued. It is incredibly unlikely it would have reduced air demand to the levels we're seeing now.
Air demand would still be around for flights to see family, etc. Most of it is gone due to government regulation. Necessary regulation for sure, but still regulation.
> 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?
Because airlines don’t typically own those airplanes, they lease them from finance companies like GE Capital. Anything they do own is likely to be at/near EoL and generally worth $0 in a market where nobody can make any use of it.
Unless you’re suggesting that the Fed just take ownership of the aircraft and print money to make lease payments to GE Capital. I’m sure the Democrats in the House will jump right on that.
>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?
Ex-shareholders technically. Remember, stock buybacks only generate value when you exit the stock. Technically, if you've been holding, you're up shit creek.
>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?
Who the hell would buy them at this point? Wealth is so consolidated right now it'd be right back in the hands of the same people who were incentivizing the behavior in the first place.
The rest of your post is 100% spot on though in my estimation though.
> Why is this expectation not in effect for an airline that makes vastly more profit per capita than the average household?
Wtf does profit per capita than an average household even mean?
Also, profit is irrelevant if we’re talking about a super capital intensive business that can’t scale back its expenses when the revenue goes away (which is the case for all of these airlines leasing planes and paying employees).
> 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.
Everything you've said is spot on, especially the last sentence--there is a lot to criticize.
The issue here is not really about the actual economic impact of the virus. No amount of money printing or loan issuance can recover the real economic output that has been lost. There is real destruction of capital and wealth because humans and their toys require continuous consumption to maintain homeostasis but production has fallen off a cliff.
What makes everything so insanely complicated is that the real economy is intimately tied up in a financial economy that compounds the distress. Missing debt payments has massive repercussions for both individuals and companies which can far exceed the value of the missed payment. We have built a legal and financial framework around our economy (under the banner of "risk management") that binds us to mutual destruction when things go badly. This is why the popping of the mortgage bubble in 2008 nearly annihilated the global banking system rather than just bankrupting a bunch of risky mortgage underwriters and maybe taking down a bank or two.
Our solution appears to be just making sure no one misses a payment by handing out cash like Santa Claus on a bender. I guess it does the job, but the level of moral hazard this invites is troubling (to put it lightly).
> 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
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.
It depends on the prospects of the company and how good investment opportunity are. For a company in a fast-growing market it’s probably better to invest and expand the empire. For a more mature company it’s probably better to return the cash to shareholders so they can invest somewhere else.
"it seems reasonable to me to provide some sort of financial help to the airlines alive during this once-in-a-century event"
For how long? It's anyone's guess how long the pandemic will last. If we're lucky, there could be a vaccine ready in 18 months, but maybe we won't be so lucky.
And how much money should the airlines be given, as opposed to, say giving money to people who can't afford to pay their rent or feed themselves or their families?
What do you mean “as opposed to”? The money is made up, created from thin air. The interest rate is negative. The only side effect is inflation. And commodity prices are cratering.
> 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.
Do you operate an airline? Do you have some crystal ball that reveals the true economic costs of capitalizing and operating an airline?
Capitalism is premised on the notion that the aggregation of economic decisions made by individuals, with full freedom of choice, leads to the most productive and equitable allocation of capital for the economy as a whole. It's also premised on "skin in the game"--those who risk their capital in a venture both reap the rewards and bear the risk of losing that capital if things go poorly.
Here's the bottom line: no matter which way you slice it, capital is being destroyed when airlines can't operate for six months. Who should pay for that? If your answer is anyone other than the investors who put their capital at risk in financing the airline, then we have stepped outside of capitalism already and we might as well just nationalize the airlines to accomplish whatever your goal is.
GM was not allowed to fail and then the government took ownership of the company. That's not all what happened:
On July 10, 2009, following Chapter 11 reorganization after an initial filing on June 8 2009,[25][26] the original General Motors sold assets and some subsidiaries to an entirely new company including the trademark General Motors. Liabilities were left with the original GM freeing the companies of many liabilites resulting in a new GM.
GM emerged from government backed Chapter 11 reorganization after an initial filing on June 8, 2009.[25][26] Through the Troubled Asset Relief Program the US Treasury invested $49.5 billion in General Motors and recovered $39 billion when it sold its shares on December 9, 2013 resulting in a loss of $10.3 billion. The Treasury invested an additional $17.2 billion into GM's former financing company, GMAC (now Ally). The shares in Ally were sold on December 18, 2014 for $19.6 billion netting $2.4 billion.[27][28] A study by the Center for Automotive Research found that the GM bailout saved 1.2 million jobs and preserved $34.9 billion in tax revenue.[29]
Also in 2009 General Motors of Canada Limited was not part of theGeneral Motors Chapter 11 Bankruptcy, the company shed several brands, closing Saturn, Pontiac, and Hummer, while selling Saab Automobile to Dutch automaker Spyker, and emerged from a government-backed Chapter 11 reorganization. In 2010, the reorganized GM made an initial public offering that was one of the world's top five largest IPOs to date, and returned to profitability later that year.[19][30][31]
The government did the same thing its doing now. Investing in companies on a short term basis to prop them up and allow them to continue to operate. Once the economy is stabilized, it will cash out its investment(s) like it did with GM.
What you are advocating for is not at all what occurred with GM.
I think what the person meant in spirit is aligned with what happened in practice — GM’s shareholders were wiped out and the government (through chapter 11 restructuring and investment) ensured it was a going concern and had a subsequent IPO (privitization) ..
> You are no longer "otherwise-strong" if you have been impacted by COVID economically.
“Otherwise” is a word with meaning, and, contrary to your claim, that's exactly what “otherwise” means.
Now, the underlying premise for that “otherwise strong” being a meaningful category (that firms in that position are well positioned for a post-COVID rebound if they are prevented from a catastrophic collapse due to COVID) may be subject to legitimate debate, but that's another question.
> The economy pre-pandemic no longer exists. It will not magically exist again in the future.
That's ridiculous nothing structural has changed about the economy. When the doors fly open people will be back to work and life will resume as normal, as it always has.
So many obvious examples, but since up thread people are using the "teach a man to fish" idea, let's go with that... you are now the captain of a fishing boat!
So what happens when, in order to cover expenses while you're quarantined for a few months, you've sold your fishing boat, fishing poles, life vests, etc.? Your fishing boat might have been turned into scrap metal by the time you can resume working, and you've already spent all the money in the interim (you sold it for cheap because at the time everyone else was selling their fishing boats for the same reason). That's why life won't necessarily return to normal when this is over.
A fishing boat is likely owned by a small business welcome to take out a (potentially forgivable) loan from the SBA to tide them over. Scheduled maintenance can be either deferred or completed by folks wearing masks -- I'd wager boat maintenance people wear masks anyways. Not to mention, is there any evidence people aren't eating fish anymore, and boats aren't out on the water -- well isolated from the rest of society? Isn't being out on the water about as socially isolated as you can possibly get?
Beyond that, China was out of commission for 76 days. How long are you expecting this to go in the US beyond 76 days, and why?
We don’t know when the doors will open. It’s reasonably certain they won’t “fly” open.
If the coronavirus continues to be a major threat for the next year or two, which is well within the realm of possibility, we don’t know what society or the economy will look like after.
Worse, we don’t know that there is an after. It’s possible there is no effective and safe vaccine, and that social distancing becomes a permanent feature of life.
> Worse, we don’t know that there is an after. It’s possible there is no effective and safe vaccine, and that social distancing becomes a permanent feature of life.
Ok, deep breaths. We know that the disease triggers antibody response, we know basically nobody has become re-infected. That means herd immunity is very much in the cards -- and that vaccination is in the cards. So, there is an end-point, when some 70% of the population has it or has been vaccinated.
Next, week now that something like 0.5-9% of people who go to the hospital with severe symptoms of COVID then die (depending heavily, heavily on their age [4]), which means, 99.5%-91% of people with severe symptoms don't die. Now, there's a massive pile of people who show no symptoms at all, and another massive pile of people who show mild flu-like symptoms. This could represent 86% of all cases based on an earlier study [3]. The morality rate is much much lower than the numbers we're seeing because of adverse selection bias. If you only sample the people walking into hospital because they're sick, of course, they're much more likely to die than people who didn't go to the hospital.
This disease is worse than the flu, but not massively worse than the flu especially when you consider the flu kills 646,000 people each and every year worldwide (in spite of vaccinations being broadly available) [2] and this pandemic just crossed 95K -- and somehow we manage not to shut down the world because of the flu.
What that means is that we should respond about the same way we do to COVID as we do to the flu in steady-state conditions. There's no world in which social distancing, either via disease elimination, via vaccination program or via herd immunity, remains a part of our lives forever as a result of COVID.
> We don’t know when the doors will open. It’s reasonably certain they won’t “fly” open.
That was not the case in China where much of the economy is recovering judging from NO2 emissions from satellite imagery.
It's also not the case in Sweden where they aren't shutting down the economy for COVID. "Although herd immunity is not the official strategy, some officials maintain that there is no other conceivable way to stop the epidemic, praising the original British strategy that the United Kingdom later backed away from." [1]
And how's that working out for Sweden? 20x death rate to date compared to neighboring Finland which has a lockdown in place, and an ever accelerating rate of infected. Cool, cool.
Also China today is nothing like China pre-covid. Mandatory mask wearing everywhere, temperature checks every few blocks, in every shop, mobile codes to scan certifying your virus free status before being allowed to buy anything. They're not exactly planning their next Disneyland trips over there.
Sweden's deaths per 10M population is currently sitting at 778. That's lower than than the UK (1,202), France (1,825), Italy (3,024), Spain (3,306) and Switzerland (1,113), just to name a handful. Finland has not even administered enough tests to know what's what.
Your comments about China are more hyperbole. What I've found most interesting during this entire event is how many people desperately want to convince themselves and others that we're facing certain doom. It's really quite bizarre.
Schneier's essay follow-up on a post-9/11 world really crystalized my thinking on what's happening here [1]. I think this quote was particularly poignant:
"We're bad at accurately assessing risk; we tend to exaggerate spectacular, strange, and rare events, and downplay ordinary, familiar, and common ones. This leads us to believe that violence against police, school shootings, and terrorist attacks are more common and more deadly than they actually are—and that the costs, dangers, and risks of a militarized police, a school system without flexibility, and a surveillance state without privacy are less than they really are."
Or in this case, that COVID is much more fatal, devastating and terrifying than it really is, while the flu is much more tame and approachable -- and that we should spare literally no expense in the world to prevent it. Even though of course the flu kills 650,000 people each and every year, year after year. We're just used to it so we pay it no mind.
What we're seeing is less a pandemic (although of course it is one) and more a bug in human psychology on a massive never-before-seen scale.
I think Schneier is speaking about our memories of events in retrospect, however. Spectacular, strange and rare events are more punctuated in our memories, and therefore take up more of our mind share when reflecting on the past.
What's going on now, in the moment, seems to be something different. I keep hearing people taking minor news stories and blowing them up into apocalyptic scenarios like they WANT them to be true. As an example, there was a story a few days ago about how some tigers at the Bronx Zoo were infected. The next day, I overheard some people talking about how Covid19 is now infecting pets and there are animals spreading it in the streets of NY. Nearly every day I'm hearing things like this. Go look at the trending movies on Netflix - every one of them has to do with pandemics or the world ending. People want to fantasize about these realities. Why is that? It has to be some kind of coping mechanism. Is this an expression of society's deep discontent with the way things are and a desire to see it all come down? Whatever it is, for some reason, imagining the worst case scenario decreases pain/increases pleasure for a lot of people. It's fascinating.
That's a great article, thanks for sharing. I definitely agree that life seems easier in a post-apocalyptic scenario in the same way that re-writing some software from scratch is easier than just fixing it :P i.e. it seems that way now, but definitely isn't when you get there. However, having it as a waypoint marker sure is comforting.
> What we're seeing is less a pandemic (although of course it is one) and more a bug in human psychology on a massive never-before-seen scale.
That's debatable. Great Britain and Netherlands in the beginning wanted to simply let it go and use a "herd immunity" strategy, but changed track quickly after seeing how ICUs were overloaded in Italy and Spain. I've never heard ICUs being overloaded and medical resources being stretched to their limits during the flu season... Could you explain why? Isn't a great difference that we have flu vaccines but no known cure for COVID-19 yet?
> ...but changed track quickly after seeing how ICUs were overloaded in Italy and Spain.
Are you sure it wasn't public push-back?
> I've never heard ICUs being overloaded and medical resources being stretched to their limits during the flu season... Could you explain why?
There's never a whole lot of excess medical capacity since medical capacity is, you know, expensive. The disease burden of the flu is high. The US alone sees 45,000,000 flu infections each year. Having two diseases with the burden of the flu is double high, but it's not a reason to stop the world.
> Isn't a great difference that we have flu vaccines but no known cure for COVID-19 yet?
Yep, sure is. That said, COVID has shown so far to exhibit very little mutation. Globally the delta between viruses is about 15 base pairs. This means a single vaccine (or single infection leading to immunity) may be all we need. [1] The flu mutates regularly and different strains make it out each season which is why the flu vaccine needs to be given each year and why it's different each year. Flu vaccines are much less effective (19-60% [2]) for those reasons than, for instance, an MMR vaccine.
> And how's that working out for Sweden? 20x death rate to date compared to neighboring Finland which has a lockdown in place, and an ever accelerating rate of infected. Cool, cool.
Think about it: if you allow it to spread, then yes, you will see people die. The same is true of the flu, which has so far killed more people in the same period of time than COVID has according to the CDC -- in every age category [5].
I bet flu deaths are plummeting in Finland, too. I bet you anything that Sweden has 20X the death rate from the flu as compared to Finland and Denmark. Because nothing spreads when you're locked in. But it would be absurd to lock everyone inside because of the flu right? It's a question of risk management not risk elimination. [1]
And they're quite right, that they will be safe from a second wave as no other country will.
So, to answer you question, it's working out well.
> Also China today is nothing like China pre-covid. Mandatory mask wearing everywhere, temperature checks every few blocks, in every shop, mobile codes to scan certifying your virus free status before being allowed to buy anything. They're not exactly planning their next Disneyland trips over there.
1. They wore masks anyways due to the pollution ([2] this photo is from 2013 not 2020).
2. They had police/army stops anyways due to the PRC government being totalitarian. [3]
3. They have actually re-opened Shanghai Disneyland, as of March 9th. [4]
I don't have a good sense on the other points but I would point out the points about China are not quite right.
1. This is untrue. Masks were worn intermittently only on "bad pollution" days in cities like Beijing and Shanghai. Inland cities like Chengdu there is not widespread mask usage.
2. There is a difference between Xinjiang and the rest of China. You definitively do not see this type of security checkpoints in "regular" pre-covid China.
China is not back to "normal", there is fits and starts in the restarts to life, and there is also a psychological drag on consumer demand even though some shopping is reopened.
1. I think it's fair to say every day is a bad pollution day in Beijing haha. I've seen the PM counts. With that in mind, of course, I've no reason to doubt you.
2. Sure, it varies.
I didn't mean to imply it was back to 100%, just that it was pointed in the right direction again.
Which makes the flu look comparatively worse than COVID since the flu stats include widespread vaccination campaigns. For what it's worth the flu vaccine efficacy ranges from 19-60% (unlike or instance an MMR which will get you 88-97%) because there are a lot of strains of the flu (and which one is dominant in a given season varies) and it mutates regularly. COVID has shown no mutation so far (I believe the delta between viruses across the world is 15 base pairs) so a herd immunity or immunization strategy will be much, much more effective.
> 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.
Citation needed for this. The 1920s would seem to differ.
Part of that was because many of the countermeasures taken during the Depression were counterproductive.
Also, it turns out that fighting a world war is a good economic stimulus. I believe the first American recession after the Great Depression was a very brief post-war recession caused by scaling down war production. IOW, war production was such a large chunk of the economy that simply doing less of it because we won was enough to cause a measurable GDP dip.
It also took four years after the Great Depression started for the Federal Government to pass the New Deal that helped pull the country out of the gutter. As much as I wish Congress had moved faster and done more with the CARES Act they’re still way ahead of their counterparts a century earlier.
The new deal extended the great depression and it's mishandling is extremely well known. Destroying goods to drive up prices, centrazlied price fixing, the blue eagle program, wage controls, the reason healthcare is tied to employment.
The new deal was a failure and caused long lasting damage to the USA.
The works of the roots of the vines, of the trees, must be destroyed to keep up the price, and this is the saddest, bitterest thing of all. Carloads of oranges dumped on the ground. The people came for miles to take the fruit, but this could not be. How would they buy oranges at twenty cents a dozen if they could drive out and pick them up? And men with hoses squirt kerosene on the oranges, and they are angry at the crime, angry at the people who have come to take the fruit. A million people hungry, needing the fruit—and kerosene sprayed over the golden mountains.
And the smell of rot fills the country.
Burn coffee for fuel in the ships. Burn corn to keep warm, it makes a hot fire. Dump potatoes in the rivers and place guards along the banks to keep the hungry people from fishing them out. Slaughter the pigs and bury them, and let the putrescence drip down into the earth.
There is a crime here that goes beyond denunciation. There is a sorrow here that weeping cannot symbolize. There is a failure here that topples all our success. The fertile earth, the straight tree rows, the sturdy trunks, and the ripe fruit. And children dying of pellagra must die because a profit cannot be taken from an orange. And coroners must fill in the certificate—died of malnutrition—because the food must rot, must be forced to rot.
The people come with nets to fish for potatoes in the river, and the guards hold them back; they come in rattling cars to get the dumped oranges, but the kerosene is sprayed. And they stand still and watch the potatoes float by, listen to the screaming pigs being killed in a ditch and covered with quick-lime, watch the mountains of oranges slop down to a putrefying ooze; and in the eyes of the people there is the failure; and in the eyes of the hungry there is a growing wrath. In the souls of the people the grapes of wrath are filling and growing heavy, growing heavy for the vintage.
FDR was effective at getting himself elected to office. Double-digit employment persisted until the Second World War, which the US only entered during his third term. It's a great political achievement to get elected to a third term as President despite unemployment remaining above 10% for the entirety of your first two terms, but that doesn't erase unemployment remaining above 10% for the entirety of FDR's first two terms.
Yeah, FDR was so effective that when the supreme court ruled his actions unconstitutional, he threatened to pack the court with his own appointees and now there are practically no limits on what the federal government can do.
Why it not preventing a “black swan” event from wrecking companies who could have otherwise continued to operate if it wasn’t for the shelter in place response?
It's not a black swan, pandemics are predictable. @nntaleb, the author of 'The Black Swan' has been explaining this.
More crucially, the virus is affecting the real economy, and people's lives. Fixes for the financial economy that don't address that directly are band-aids to make balance sheets look good.
I don’t quite agree. When 99.9% of businesses gets blindsided by the impact of the shelter in place orders it becomes a black swan like event. All those businesses couldn’t predict an event this cataclysmic to their core product.
Just because the pandemic itself was predicted doesn’t mean much when the global fall out is totally novel and unpredictable.
Many companies did prepare and don't need a bailout. If you don't need a bailout, you don't need to give up ownership. Don't devalue a currency because of poor management at scale. Otherwise, you're supporting greed and kleptocracy with monetary policy.
Ok, let's look at a theoretical business that is designed to survive a pandemic. Well, what is the biggest problem that would affect such a business? Of course, lack of customers! If you don't have customers you also don't need employees. So you can just fire them! Now that we have gotten rid of the first dead weight the next problem is that you still have certain fixed costs. All that real estate is now empty since you fired all your employees. There isn't much you can do except save up money like scrooge McDuck. The easiest way to get that money is by screwing over your employees during good times. Don't give them raises and bonuses. You'll need that money during some government lock down. Now the lockdown is over and your business survived without needing government help.
Maybe you have noticed something. The rich managers don't really a give a damn about the lock down. They have a huge amount of money and mostly diversified their net worth away from their own business. $5 million after a 50% stock market crash is still $2.5 million.
That might sound like a huge loss but only when you forget to consider that there also exist people that aren't managers and they are in the majority. If you lose your job that is pretty much a 100% reduction in income. If you lose your job you can't just kick out the rest of your family to reduce costs. For every manager that is seeing his portfolio dip there are probably a dozen more non-managers having a worse time.
The bank bailouts weren't actually about bailing out banks. The taxpayers were bailing their own money out. Dead banks mean your money is gone. It's like video game servers shutting down. Your stuff is just gone. The managers at the bank probably couldn't care less about their customers losing all their funds.
As discussed before, not only in this thread but in the responses to other articles, some of these companies should not have wasted their cash on stock buybacks. They ran out of their emergency funds, and have only themselves to blame.
Besides the fact that FDIC would have covered those ( anyone remembers FDIC fridays? ), banks are not servers. Your analogy is wrong. If they failed, the disruption would be great, but money would not be lost, the houses, cars, equipment, factories, people would still be there. The bailout was aimed at the real owners in the US. And they got it. Simply because golden rule works.
Both money and value would be lost. The former due to write-offs (one persons debt is another’s person’s income) and the latter due to disorganization / entropy / chaos. The FDIC fund is not able to cover all deposits currently and would require massive government spending and distribution.
A failing bank doesn't mean your money is gone. In the US, savings accounts are FDIC insured up to a maximum of $250K. If your bank fails, it's likely getting acquired by another bank anyway. Customers have value.
When the federal government acts as an insurer of last resort against correlated phenomena, but does not have any ability to set premiums or regulate behavior, companies will seek to maximize their risk in these situations. This includes buying back stocks with low interest loans. This is not the Fed's job. If these companies want to file claims, they will need to talk directly to their insurer, the taxpayers.
If a company is failing, the existing management will need new jobs anyway. All the government is doing with the parents strategy, is ensuring less jobs are lost and less lives are impacted. It's not like the government really wanted to run
GM...
The Fed buying junk bonds is completely misleading and likely only has consequences for a single company; Ford. Ford has more liquidity on-hand than GM (investment grade which means nothing right now) and can likely ride this out better than they can. Which one is more "overextended"? Do you have any idea of how large the universe is that this covers? Are these non-high yield companies not "overextended" somehow because a random rating agency put some different letters next to their name?
Ford's finances were marginal prior to COVID ramping up across the world (debt downgraded to junk in September 2019 [1]). If the Fed's actions are solely to support $F from becoming insolvent, that's in violation of their mandate.
Your argument holds little water when you wave away the ratings of "random rating agencies". Their ratings are what drives investment decisioning by the largest funds in the world.
Ford was only downgraded by a single rating agency in September and only recently downgraded by the rest last month; well after the initial model of these facilities was announced. Ford has been preparing for being downgraded and has the liquidity to support themselves even without Fed action.
I'm not waving away rating agencies. I'm saying that General Motors has less liquidity than Ford. In your "no bailouts" world, Ford would be in better shape than General Motors. General Motors is investment grade, does that magically make them better than Ford even though cash on hand says different?
Ratings really mean nothing right now as far as the health of a company goes and ratings agencies have specifically mentioned that they are backlogged with assessing all consequences of what's going on right now. Ratings have and are always backwards looking data. How the "largest funds" in the world invest is completely irrelevant for this.
I'm not willing to argue further about a marginal automaker's balance sheet and debt ratings. You are free to your opinion. Their financial statements and debt ratings are publicly available for those interested.
You're making wildly sweeping statements about "extending and pretending" without having any of the underlying facts. I'm clarifying those statements with some underlying facts. Up to you to incorporate that into your worldview.
"Otherwise Strong"
They've been downgraded for a reason (airlines for example)
Most of those fallen angels are leveraged to the max because they were borrowing money to finance share repurchasing and in some cases even paying dividends.
The moral hazard of this latest move is unconscionable
Air Canada, ACACN 008911AZ2 US008911AZ26, rated Ba2 qualifies for this since their HY paper is held by HYG.
American Airlines Group, AAL 02376RAE2 US02376RAE27, rated B1 qualifies for this since their HY paper is held by HYG.
Probably a great time to write malware hack and steal money from these companies listed in IG and HY ETF's since they'll be made whole apparently now no matter what malfeasance they were up to before hand.
However, lets keep in mind that since the announcement on March 23, frbny via loans through blackrock has yet to buy any corporate bonds in the secondary market as of April 8th ("Loans" > "Secondary credit") : https://www.federalreserve.gov/releases/h41/current/
Supporting the paper in the secondary market through ETFs, will allow any new issuance to be priced more favorably than if it wasn't at all, even if frbny isn't the one doing the origination (yet, at this rate I think they will eventually along with equity etfs purchases). That's the point I'm making.
Ok, I'm just pointing out that this does not bail out airlines at all. It helps on the margin but airlines are very idiosyncratic right now and likely are going to require much different and flexible funding needs than what these facilities are designed for. Congress will (and already is) be bailing out the airlines; not the Fed.
Several IG airlines could have issued over the past few weeks but haven't for a reason. We have had a flood of IG new issuance and not a single airline or adjacent industry. CCL which basically has the same problems as airlines right now (gov basically making business illegal) was able to raise quite a bit of money. Difference is, they know that they aren't going to get bailed out.
And as of today my initial comment is out of date since DAL got downgraded.
Yeah, I guess fair enough, though it a bit hard for me to seem sympathetic to DAL senior unsecured paper (US247361ZU54) considering it was grifting along at Baa3 for quite some time before this covid-19 situation. But hey, if the US gov is willing take on more of the credit risk, oh well, cant wait untill selling US paper to be the trade of the century.
Right, but there's a massive difference between the broader high yield universe that would definitely see some credit losses pre-Corona vs recently downgraded companies that would likely be okay without this. These facilities were created to triage, not resuscitate.
The fallen angels is an interesting construct. At the end of the day, their ratings are considered junk. Classifying them as crap is appropriate. Without serious infusion of cash there is a notable nonzero change they would fail. What is the point of those ratings if they are being ignored at the first sign of trouble?
Yes. Their purpose is to have funding. Do you think they pay higher interest rates out of the goodness of their hearts? I am not sure what you are arguing here.
If they are buying bonds on the open market then it's not helping the companies that issued them, its helping investors. If they are buying newly issued bonds then you can argue its helping the companies.
Buying bonds on the open market absolutely helps companies that issue them because new issues are priced off secondary market. Are you going to buy a new issue bond at 5% yield when a similar secondary bond from the same company is at 10%?
Supporting the secondary market allows firms to place new issues, and raise the capital they need to sustain themselves through this. Essentially, you just don't want the market locked up.
Every time the Fed does something outrageous and indefensible, you ALWAYS see a bunch of comments and articles like this trying to rationalize it. All the facts are clear as crystal and speak for themselves:
- Corporations have kept getting bigger and reinforcing their monopolies far beyond the point of optimum efficiency and have been manipulating elections and policy-making to benefit their own interests.
- House prices in big cities have kept going up due to a combination of factors including centralization of capital due to corporate monopoly power.
- Many corporations took free 0% loans from the government to buy back their own shares; often for the purpose of tax evasion. This conduct is unethical in at least 3 different ways when you consider the fact that the Fed is now shamelessly bailing out these corporations to clear that same debt which they used for tax evasion.
- Freedom of speech in the work environment has declined significantly.
- Trust between people has declined to an all time low due to the adverse, coercive work environments in which we operate.
- We are facing huge environmental threats which are not addressed due in a large part to lobbyists backed by corporate interests.
- The financial system is over-complicated and opaque; few people understand how fiat money enters the system but it's clear from empirical evidence that it benefits corporations while harming both small businesses and consumers. Even the Fed itself has admitted that their cash injections do not reach small businesses or the workers.
- Our governments will screw over its citizens in the most blatant way imaginable; they will even exploit a health disaster as an opportunity to fast-track the agendas of their corporate masters.
It's bad enough that most people just stand back idly and nod their heads... But it's deeply disturbing to witness some people go further than that and actually manufacture excuses for what are obviously deeply unethical activities...
Also, it seems that these people who spread misinformation for the sole benefit of corporations are not even getting paid for it! This behavior is not even aligned with the capitalistic self-interest ideals which their corporate thought leaders keep preaching, it's like some weird type of selective masochistic altruism whereby some individuals feel compelled to only help evil people who they know will hurt them along with the rest of society.
If you're a real capitalist, do as you preach and stop defending other richer peoples' interests! That's not how it's supposed to work.
If you're not a billionaire yourself and you oppose the idea of the government making laws which will reduce the wealth of billionaires, you're a socialist for the top 0.0001 percent. A maso-socialist.
> Many corporations took free 0% loans from the government to buy back their own shares; often for the purpose of tax evasion.
[citation needed]
Buybacks and dividends have, more or less, the same federal tax revenue implications. The difference is that dividends incur a taxable event in a window outside the shareholder’s control.
Beyond that, I’m curious where the idea comes from that the government is giving 0% loans to corporations. Yes, the Fed overnight rate is effectively zero, but you can’t have your cake and eat it too. If I borrow from the overnight window, I have to pay it back the next day. Very hard to do that if I already spent it. Or are we talking about the repo market, where banks can get a longer low-interest loan by putting up security in the form of Treasury bonds?
Both of these facilities are to manage liquidity and don’t provide a 0% loan capability to run-of-the-mill corporations.
"Our governments will screw over its citizens in the most blatant way imaginable; they will even exploit a health disaster as an opportunity to push the agendas of their corporate masters."
The ratio of monetary and fiscal policy is off and it will be until we more fully embrace MMT. However, allowing massive employment engines to fail is not going to solve wealth inequality nor encourage investment in green solutions.
All empirical evidence from history points to the fact that people in civilized countries have essentially always been able to rebuild their economies after even catastrophic economic failures... Often better than it was before.
Look at Germany today; it's an economic powerhouse. You wouldn't believe that this is the same country that it was after WW2 - Germany did not succeed in spite of the post-WW2 economic crisis, it succeeded because of it. Also, it's not the first time Germany recovered in this way either, just look at post-WW1 economic crisis. Germany went from being penniless to become an economic and military superpower in a very short time. It had accumulated so much surplus wealth that its military could almost afford to wipe out the entire planet in WW2.
Financial crashes are an excellent way to clear out inefficiencies and allow the markets to reform themselves and allow meritocracy to regain significance.
Economic issues after WW1 helped give rise to nationalism and led to WW2. This is why the marshall plan was so important after WW2. Similar countries experienced post-WW2 economic crisis, but few prospered as much as Germany.
To use your reasoning, many countries should be as prosperous as Germany (like, say Argentina - hyperinflation and economic crisis followed by economic restructuring..)
While rebuilding is a very human endeavor, it can take decades or generations. We need to have creative destruction in the economy, we do not need economic depression to do that (other ways to deleverage..)
non-sequitur point. The germany economy was able to be developed to a point where they became a military threat. Nationalism or not, if you just consider economic recovery, it disproves the fact that damage to the economy can ever be permanent. People are going to find ways to live, and in doing so, produce goods and services, and become increasingly efficient.
Yes, we are. But we come with navigational guides.
Quantitative easing was born out of Bernanke's deep study of the Great Depression, where exogenous events prompted a liquidity crisis that kept causing pain long after its cause had subsided.
The demand destruction we're seeing today, as a result of the novel coronavirus, is unprecedented in the modern era. We don't want to spend decades after the infection has passed rebuilding productive capital destroyed for lack of liquidity. That's what these measures aim to prevent.
> Quantitative easing was born out of Bernanke's deep study of the Great Depression
But the Great Depression was caused by a financial crisis, that led to a ‘real’ crisis. This is the opposite, a real crisis that will lead to a financial one.
And during the Great Depression, people could still have worked - if there were any jobs. This is not true now. People simply can’t work.
It’s all very well being able to get easy money, but if you can’t get any workers, you still can’t start a business.
A lot of money chasing fewer goods can only have one consequence in the long term.
> It seems reasonable to predict the current restrictions won’t exist in perpetuity.
And even if they do linger on for a long time (years) then businesses will also need sufficient liquidity to adapt to a new normal. Startups created to fulfill any new or newly important needs.
Additionally, the Fed is sticking to its mission: support the currency within a reasonable inflation band while also supporting a target unemployment rate. Debasing the currency right now is exactly the right thing to do. Later, the Fed will unwind these supports as it did long after the great recession ended.
The Fed only unwound about $600B of $5T in support they provided before this event occurred (post GFC to pre pandemic response). It’s in the same FRED citation in this subthread [1].
I don’t think there’s any merit to the idea the Fed will be able to unwind this support in the future, if that’s as far as they got in one of the longest expansionary periods in history.
EDIT: /u/adventured has an excellent comment [2] down thread you must read that explains the situation succintly; TLDR The Fed is incinerating 1-3% of total wealth (through devaluation) to keep the economy pilot light on until we can start the economic engine back up, monetary policy be damned. Whether these efforts can be "unwound" seems to be immaterial.
It doesn't actually need to unwind absolutely (though if monetary policy conditions allow/demand it, it could), unwinding in effect can come just through aggregate economic growth.
> monetary policy be damned.
No, this is monetary policy, aimed directly at what the Fed is chartered to aim monetary policy at.
The Fed did end the short-term targeted lending programs once markets stabilized and alternative financing become more available. Not really enough to dent the balance sheet though due to the size of the govt. bond and MBS purchases from QE.
I imagine there's a lot of 'invisible supply destruction' as well, as all those businesses that have let go around 17 million people over the past three weeks[a] are shutting down entire groups and divisions, canceling investment plans, walking away from leases, etc. Not pretty.
> shutting down entire groups and divisions, canceling investment plans, walking away from leases, etc.
Agree completely.
There's been this naive bit of internet "wisdom" running about assuming plants and planes are the only assets in the world. That after all is said and done, and bankruptcies re-assign that capital, the world can continue as before, with ownership only shuffled.
That isn't how modern economies work. Tremendous capital is in the intangible nature of firms. Apple, Tesla, SpaceX and your neighborhood restaurant are worth less in parts than as a whole.
> Apple, Tesla, SpaceX and your neighborhood restaurant are worth less in parts than as a whole.
Well, of course they are. If they weren’t, they could make more money by liquidating themselves, which means they most likely would liquidate themselves.
Are they? Do you have some magical economic clairvoyance about asset valuation?
See, the thing about a market economy is that the value of assets is difficult to ascertain but can be "discovered" through the actions of market participants. Sometimes, a whole bunch of assets are tied up in a company that seems to be using them well enough, and might even be generating a profit (on paper), but in fact those assets could be used even more profitably in some other productive capacity.
Note that this doesn't restrict assets to PPE (property, plant and equipment). I'm pretty sure anyone who has ever been an employee can attest that human capital can be just as unproductively employed as physical capital, but still show a profit on paper.
So no, you can't make some blanket statement that all companies are worth more than the sum of their parts. Some might be, but I believe the main reason we are a capitalist society is because allowing markets to freely discover the prices of assets results in a much more productive allocation of capital than the alternatives.
In fewer words, let the invisible hand of the market conduct economic darwinism and let the chips fall where they may.
I would agree with that - except that would also cause collateral damage to people's livelihoods.
if the gov't bailout is more a societal bailout - good unemployment benefits, good socialized healthcare, and effective tax collection of income - then they won't need to do any corporate bail outs, or inject liquidity.
The fact that loans can easily be had, means that a company's investment hurdle rate is artificially lowered. And companies take more risks. I believe japan's lost decade is a prime example, and the bank of japan has held all the assets as their purchase program failed to bring any real economic prosperity (https://www.reuters.com/article/us-japan-economy-boj/bank-of...). I sincerely hope the USA isn't gonna fall to that.
I think people are picturing chapter 11 bankruptcy, not 7 or 13. The firms stay intact, but the shareholders lose everything and the bond holders come to a new agreement.
What happens if liquidity still isn't there? Can't see people being comfortable with life as normal at 30% unemployment. Seems like leisure industry will be non existent for at least the next year and that will have further consequences.
Navigational guides and models only help in charted territory.
Then the Fed’s actions will soften the blow. They will have decoupled the spectre of deflation from the underlying destruction. It certainly won’t have caused more harm than would have otherwise occurred.
That said, no democracy survives 30%+ unemployment for long.
loss of liquidity is a loss of confidence by those holding the wealth/capital.
I think the FEDs doing these injections will distort the price of money in such a way that risky activities would be seen as less risky, and so spirals into further illiquidity when something bad hits the fan (again), and the FEDs will need to inject again.
The businesses failing needs to happen. The capital losses needs to happen. Like a forest fire - new growth can't come if the old capital doesn't die (i.e., those controlling the old capital is constantly being protected from downsides, which this illiquidity represent).
We are not in a period of moderate correction, trimming non-viable deadweight. We are in a mass economic extinction of healthy and successful businesses.
The Fed can inject liquidity, but it falls to Congress to generate demand when the economy cannot. The Fed's best move would be to commit to backing any level of spending passed by Congress and signed by the President.
"Quantitative easing was born out of Bernanke's deep study of the Great Depression"
QE was born out of the seigniorage, the ability for the FED to now print endless money at no cost. This is a cycle that repeats every 50-100 years for the last 1,000. A governing body slowly fights for more and more power until it has enough to simple declare what is or is not money. Then uses that power to print as much as it can before runaway inflation takes hold.
Bernanke's insight was nothing more than that of previous King's, coin as much money as you can before people catch on to what you are doing.
You project intentions onto Bernanke. You might very well be right about the consequences, but that says nothing about his motivation to do what he did.
Some not so random related thoughts:
- It's not always inflation by the way that eats away at money's value. Often it's replacement with something else, by force. Much of nazi occupied Europe has experienced this after WW II. Much of eastern Europe has experienced similar things after the fall of communism.
- Inhabitants of the US have not really experienced their money losing the majority of its value over the past ~200 years. In that way, the US have been more unique than many people realise.
- I've found David Graeber's "Debt: The First 5000 Years" [0] very interesting. He makes the point that we should think of at money as debt. Whether you agree or not, it's an enriching point of view.
- The biblical concept of the Jubilee [1] is fascinating. It demonstrates how debt forgiveness cycles were deeply embedded in some ancient Middle Eastern cultures.
Yes. Money is debt. When I receive money in my paycheck, I've exchanged real resources--my time and labor--for something which, in and of itself, provides no use value whatsoever. It is a debt that I can call in on anyone else in society, to receive the product of their labor in exchange for a token.
> Often it's replacement with something else, by force. Much of nazi occupied Europe has experienced this after WW II. Much of eastern Europe has experienced similar things after the fall of communism.
that is a single data point, and also a fairly unique situation. I don't foresee nazi like regimes in the west rising up any time soon (tho, given how trump's been going as of late, may be i m too optimistic?!).
The problem with inflation is that it's it eats away at money differently for the poor vs the rich. And i do believe the rich benefit much more from inflation than the poor does. But the poor make up a majority of the population.
I fail to believe that (low) deflation is actually as bad as the central bank economists claim. Inflation encourages investment, but also encourages more risk taking. I understand that high deflation has negative detrimental effects on an economy, but so does high inflation!
Low deflation encourages saving, and encourages prudent investment. I think such deflation will stop cyclical credit-induced recessions, and make the economy grow at the rate of technological improvement.
Supply side economic policies (Reaganomics) was a defensible policy for the 70s. While plenty of people thought it was voodoo economics (eg Bush Sr), we needed some kind of course correction.
We're now faced with the exact opposite situation. So we'll need appropriate remedies.
> And all of this is urgently necessary to prevent economic collapse in the US. Urgently necessary.
The fed buying crap bonds isn't even doing anything to prevent economic collapse. The economy has already collapsed, due to to the shutdowns. This is nothing but a transfer of wealth from people who own US dollars, to people who own US equities.
All it does, is prop up the stock market. The real economy could go to zero, but as long as the Fed is buying assets, the stock market will keep looking green.
The signal the Fed is sending to everyone in the market is: don't worry about risk or bad decisions! As long as you are in the same boat as other financial institutions, the Fed will rescue you. Even if we survive this new crash (I still remember 2008), the economy seems to be headed to destruction in not such a long term.
If businesses had to run at all times with the contingent risk of a pandemic built into their cash flow model, virtually no business in the travel, tourism, or entertainment sectors would ever be funded.
How would you operate, say, a restaurant with the pandemic risk on your balance sheet? You’d need, what, twelve months of cash available for a rainy day?
All of the dynamism of the marketplace would evaporate and we would have Soviet-style restaurants.
You could buy insurance for it. Wimbledon is getting a $140 million payout from their pandemic insurance because they had to cancel.
That said, one could also say the taxes businesses pay to the government are like insurance premiums for acts of God and at that point the government can step in...
Order of magnitude = 10. Binary order of magnitude = twofold = 2x.
Mixing terminology as it suits oneself is considered deceitful and/or manipulative. Making excuses for someone who does this and doesn't restate/recant is also bad form.
Maybe he was talking rate? 2T seems off the charts if you're talking the normal events, looks like 2008 made it jump 1T to 2T in 2 months. This jumping 2T in 1 week is a little off the charts.
This misunderstanding gets a lot of people upset. Printing money creates inflationary pressure, yes, but there are a lot of _deflationary_ pressures right now, so if they get it right, things will balance. It also creates moral hazard, though (despite what many people believe) the fed is only buying bonds that were investment grade until just before the fed starting intervening in the system — it will also be buying junk bonds etfs (probably hyg and jnk), but these are better described as high-yield corporate bonds. This more serves to protect the liquidity of ongoing concerns ability to raise debt (necessary for the economic machine to keep running) than it does to put money in the pocket of greedy people (it will — at best — maintain the value of those bonds, and more likely soften the blow.)
Disclaimer: recently sold my JNK holdings after fed’s announcement today.
Prediction: we will end up with full Japanification and/or MMT.
> there are a lot of _deflationary_ pressures right now, so if they get it right, things will balance
Inflation and deflation are not so one-dimensional that they can simply "balance out". When the Fed issues money that money isn't distributed to everyone equally. And when money gets removed from the economy, that doesn't affect everyone equally either—nor does it impact the same people to whom new money is being distributed. Even if the total money in circulation stays the same, there's still a massive redistribution of wealth going on behind the scenes.
Agreed, but that is their job. The Fed frequently plays the role of buyer/lender of last resort. They are trying to prevent a collapse and will worry about unwinding later.
Whoever came up with the name “junk bonds” for high-yield corporate debt was a master of propaganda. The truth is, the bonds the Fed is buying are more like what Ben Graham would call “senior securities with speculative features” (although classically that referred to preferred stock) and really aren’t that different from the BBB-rated bonds they were buying last week. (Indeed, they’re buying bonds that were investment-grade until a couple weeks ago.) These aren’t contingent claims on a company’s assets, like Alphabet stock or a S&P 500 index fund, they’re senior claims, which are structurally and legally less risky than equities, if not actually less risky than every equity security.
Personally, it seems to me that if you’re not willing to let capitalism work itself out in a crisis, you should stop pretending to have a capitalist system at all; Norway is a pretty entrepreneurial country despite being a certain shade of pink. But the arbitrary dividing line between “investment grade” bonds and “junk” bonds is not some Platonic boundary between “safe securities” and “crap.” It’s there for complicated historical reasons which are perfectly reasonable to ignore during a crisis caused by an unforeseen and unprecedented economic slowdown.
No. For example, TARP was completely unwound after about 6 years (and ended up making a small profit too).
> On December 19, 2014, the U.S. Treasury sold its remaining holdings of Ally Financial, essentially ending the program. TARP recovered funds totalling $441.7 billion from $426.4 billion invested, earning a $15.3 billion profit
some quick math... 15.3 over 6 years, about 2.5b/yr, off of $426 invested... just a bit over 0.5% ROI. Meanwhile in late 2008, 10 yr notes were yielding about 2.6%. So the "profit" was about 80% less than the risk-free rate.
"buying crap" is a wild exaggeration. The Fed is injecting liquidity into markets where credit ratings are creating second and third order effects that will result in liquidity crunches.
To make this clear with an example...many bond funds, active or passive (E.g., ETF, mutual fund, etc.), have strict covenants guiding their investments.
In a simplified system of:
Investment grade: A, B
non-investment grade: C, D
the funds may only be able to purchase A and B rated bonds. Additionally, they may be forced to sell a bond which has a rating change from B to C or below.
Since many ratings agencies are revising ratings lower across the board, there is mass selling of these bonds, just as the companies attempt to raise money to finance their operations. It's also very typical for ratings agencies to essentially trail the capital markets. So as a bond decreases in value, the probability of a credit rating change increases.
This alone could cause manufacturing, energy, or any capital intensive business to fail as their interest payments skyrocket and they lose access to financing.
The probability of default for these companies skyrockets in this scenario. If the fed props these markets up temporarily, it's extremely likely the defaults will be far less severe.
> And all of this is urgently necessary to prevent economic collapse in the US. Urgently necessary.
There are other options. One such option is to let non-essential businesses stay open and stop it with the travel bans. There'd be other benefits besides preventing economic collapse, delayed or otherwise - less domestic violence, people in Africa won't starve because of other countries are hoarding food (and Africa being a net importer a food will suffer), local farmers won't suffer a severe shortage of transient workers, etc.
Do I recommend that? I don't know.
I do know there's a big vacuum in the discussions of COVID-19. We are trying to preserve lives, so why don't we ever talk about the deaths extreme isolation measure will cause? If they pale in comparison to the COVID-19 deaths, fine.
as soon as I try to talk about it, they attack me (not here, work). All I am saying is a total lockdown is not the only answer, and they act like I am talking about government mandating everyone go out and lick railings
Sellers will still be competing to sell to the Fed, and if the Fed openly announces that it's buying then the market knows that the surge of demand isn't introducing any new information about fundamentals.
EDIT: This doesn't mean the price won't rise. The purpose is to cause price rises, i.e. inflation. But they won't be overvalued; the true dollar value will have increased.
The fed is shifting risk from the free market (which the price is set to balance supply and demand) to the tax payer.
> the true dollar value will have increased.
The very definition of inflation is to reduce the value of money. Can you help me understand how they're trying to cause inflation, but also increase the "true dollar value"
I mean the Fed's actions will increase the nominal value of bonds, but this increase will be due to inflation rather than because they're paying more than the rational valuation.
Yeah, but it's evenly distributed across the whole bond market, and in purchases along with market buyers. How does that translate into (any reasonable operationalization of) "wildly overpaying"? I get overpaying, but I'd need to see how it becomes "wildly overpaying".
FWIW, I don't like what the Fed is doing, and am troubled buy it, but I think OP is overstating it.
Is there a list somewhere with all the purchasing going on above the stimulus? It seems from my rather faulty memory we've exceeded the $2 trillion stimulus by a lot.
Can you or someone else tell me what exactly that means for me?
I have my savings in a 401k with a mix of index funds stocks and bonds and to be honest I am quite happy that the government is stepping in and not letting everything go down.
I'm sure there is a downside, but can you make it clear what that is?
I noticed a lot of HN folks just love to be alarmist when it comes to the economy. I am sure this time you are right, but I've been reading HN comments like yours every single week for almost a decade now, always suggesting that we are on the verge of an impending doom...
When federal reserve hold interest rates at 0 for 7 years, and pump 4 trillion in the economy via quantative easing to purchase mortgages, it is fair to say that federal reserve is pumping up assets.
The impending doom has been pushed in the future, but it will come back much stronger. Sometimes in the future, whrn reckoning comes, usd will lose its reserve currency status, there will be massive currency devaluation/hyperinflation/stagflation.
“Pumping up assets” is aka income inequality, since people who own assets derive part of their income from the increasing value of the asset over time. This also makes it harder to go from a worker to an owner.
Yes, pension funds and 401ks own a lot of these assets — but people who have pensions and 401ks are doing better than many many other people in the country.
What the Fed is doing will work very well, at some modest real cost later on (likely to the dollar, represented in the cost of things we import and commodities), if we are able to somewhat restart the economy in the coming months (and we will). The worst of the NY region's situation (which is overwhelmingly the primary problem in the US) will end in the coming weeks (it's ending now, represented in the plunge in hospital and ICU admissions; the deaths will lag though). The Spring and Summer heat will dramatically reduce the virus transmission, combined with practical ongoing measures like heightened rapid testing, distancing and quarantining (along with occasional lockdowns that will spring up due to burst outbreaks; we will likely get far more aggressive with tracking people regarding outbreaks). There's a decent chance we'll combat the virus short term with a serum therapy (might be able to considerably reduce the per case mortality rate over the coming year), and then a vaccine is definite later on.
The tangible cost to what the Fed is doing, is that they will effectively destroy low single digit trillions of dollars in wealth held in US dollars (picture household wealth at $100 trillion for this purpose, and then picture the Fed lighting $1-3 trillion of that on fire as a means to prop up the economy; they're debasing our national wealth in this process, drawing on it via their control of the dollar, to point it as a firehose at the fire; not exact figures, merely a conceptual representation). That damage is likely to be anywhere from one to a few trillion dollars in real losses that they'll see from their programs (only a portion of what they do will result in losses of real value, as in the actions taken by the Fed during the great recession; % losses will be higher in this case, as they're doing some wider, riskier things). They're trading that hit as a cost to prop the whole thing up until the economy can find its legs again.
It's absolutely the right approach. It's the only serious option, other than doing nothing (which isn't reasonable, but it's another option). It will not be without a cost. It will prevent a far, far worse catastrophic outcome. If unemployment peaks at ~14-18% (it's almost guaranteed to hit at least the 15% area somewhere, and soon), without the Fed's actions you could easily double that figure.
The US is incredibly fortunate in this case. The many choices of our ancestors, which made the USD the global reserve currency post WW2, we're cashing in that rainy day benefit right now. We've been irresponsible with our fiscal condition the past 20 years, so our primary fiscal back-stop is the US dollar on such a short notice desperate need (this is far beyond the great recession, in terms of extreme sudden need of dollars); using that is a form of a tax against the assets held in dollars and the productive output of the US economy.
There is a very plausible scenario where the US dollar sees little negative impact despite the trillions of dollars in magic printing the Fed is going to do. And that is: the other major currencies it is competing with globally, are all supported by economies being similarly smashed right now (Eurozone, China, Japan; and the Chinese Yuan has very little global footprint, so it's not very relevant to that context presently, it's really mostly the Euro). The global demand for US dollars right now is extreme, which pushed the dollar to a very high level recently. That dollar demand, for liquidity purposes, will relax later on as some normalcy returns with eg a vaccine (within ~12-18 months sometime probably), and then the dollar will see some fallout from what the Fed is doing now, that's when the long-term cost will begin to be represented in such things as consumer prices, commodity prices (priced in dollars), and so on.
People with assets will benefit tremendously from what the Fed is doing. The stock market would be anywhere from 1/3 to 1/2 lower than it is right now, if the Fed hadn't stepped in in an extreme way (and I don't like where the market is at right now at all, it's not properly pricing in the grinding damage we have to deal with over the coming year, it's temporarily buoyant on the Fed's sugar actions). This is the world's largest bailout for asset holders, and it also happens to be very necessary to preserve the economy until it can return to functioning properly.
The only approach that would have maybe been better, is if a national hold had been placed on all major firings, all mortgages and rents for N months (3 months initially). The Fed would then step in to pay that toll directly (ie prevent the fire, rather than try to put it out afterward), along with the Treasury doing various programs. That could have possibly prevented more damage than what we're doing now. The US system, legally speaking, doesn't allow for that kind of command-economy type action very easily though. So the Fed's moves, which were 'guns at-ready' and made possible by the great recession, were the best choice we had (if this were 2007 and it were happening then, the Fed wouldn't have been able to move as quickly; there was a lot of stumbling around in dark in the initialy days of the great recession, trying to figure out what the Fed was allowed to do and what made sense).
Long story short, the Fed is eating some of our national wealth to do what it's doing, that's the tax we're paying (and some of that is being paid by the rest of the world, as the dollar is the reserve currency and widely held). Instead of everyone selling off 1-3% of their wealth and handing that cash to a central authority to take bold actions, the Fed is doing a conceptually similar thing via 'stealth taxation' (aka inflation (which won't register near-term due to very slack demand), aka dollar debasement, aka printing).
I think you are a little too aggressive about inflation in terms of consumer prices and underselling the impact to wealth inequality. Hopefully we will be able to have interest rates rise.
I'm saying the inflation will show up over a long period of time, not in the form of 7% or 10% annualized traditional consumer inflation (eg in milk prices). We don't have enough economic / population growth to press the demand line enough to spur high inflation, and our debt maintenance requirements are perpetually throwing cold water on large amounts of loose money entering the economy (it absorbs extraordinary sums of capital that would otherwise be sloshing around, impacting the real economy; it puts all that capital into a deep freeze; I refer to it as an economic heat death, which Japan has experienced due to their debt robbing their economy of dynamism).
We'll likely see it show up aggressively in asset inflation. Every dollar the Fed puts toward artificially propping up asset prices, is going to gradually leak inflation into the economy as asset holders unlock those assets and convert them into dollars that touch the real economy. Some might ask: if that's true, why isn't consumer inflation far higher (eg in the post great recession era); consider that inflation might be even lower if they didn't do it. That's a very difficult speculation to make either direction, the fact is the best we can do is guess on the what-ifs (would inflation be that much lower otherwise). If the Fed props up the housing market (0% interest rates, buying junk mortgages to take them off the market to prop up values, keeping the lenders solvent, etc), enabling a homeowner to take out a big home equity line at cheap rates and then inject that cash into the real economy, we get some little jolt of inflation from it. The Fed helping to prop up the stock market, enabling millions of people to extract more value out of the market at higher prices, shoots inflation into the economy to the extent that it's abnormal to what would otherwise exist in the absence of the Fed actions. The interesting question is: how low would inflation be without that happening (now and in the recent past)?
The first paragraph clarifies my point and I believe we are largely in agreement. The difference I see in our views is that I don't consider asset price increase without CPI increases as inflation -- it is a materially different beast (it doesn't increase commodity prices or depress buying power of wage earners for day-to-day needs.)
Your second paragraph is exactly what I meant by wealth inequality. I don't think rich people buying things will increase CPI, but it does impact positional goods like college and real estate.
So far, the Fed has been providing liquidity to MBS but not enough to prevent real mortgage rates from _rising_ currently. I believe unemployment will remain high enough for long enough to stave off a housing price increase.
The sell-off of equities as boomers retire and live off their stock portfolios is also something to consider as counterbalancing equity prices over the medium to long-term.
I believe the prevailing belief is that we'd be in a deflationary period without Fed intervention.
Great comment, thank you very much. As the Fed is not actually buying stocks, can you explain the mechanism by which its actions are preventing the stock market dipping by another 1/3 or 1/2?
> print money and then make the rest of the world pay the bill
It is true that it's a benefit of US hegemony. The rest of the world will pay a minority fraction of the direct monetary bill (they'll take a minority share of the debasement hit over time). The vast majority of the wealth and productivity held/represented in US dollars, is in the US economy.
The worst of what the rest of the world sees isn't actually a direct financial cost in the manner the US will see that bill. The worst part is the risk of commodity prices increasing in a disorderly manner, as they did when the Bush Administration tanked the US dollar with spending + deficits + tax cuts and the wars, along with the Fed's over aggressive actions to try to dodge a recession after 9/11 (which then helped to cause the housing bubble afterward). The world got food turmoil [1] out of that dollar-inspired commodity bubble, which caused vast civil unrest around the world, primarily in less stable and poorer nations.
The motions of the dollar cause wild effects all over the planet, from food to banking/finance to energy. That's a much worse risk than the world eating 15% of the bill for what the Fed does here. Granted, that is indeed a form of paying the bill (so to speak), it's a different kind of bill than the one the US will likely be paying.
how much money disappeared from the stock market in the past few weeks? i wonder if the numbers that we're talking about match up. there might be little actual printing involved, just using that idle money parked at bank accounts instead of stocks.
My read is that velocity of money has decreased (leading to decreases in nominal prices), and they are printing money to increase M2 (sometimes described as the money supply). This will reduce/prevent immediate deflation, but could lead to inflation when the velocity increases again.
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
[b] You'll see it here: https://fred.stlouisfed.org/series/GFDEGDQ188S