‘We’re About To Find Out If It’s Enough’: Everything Policymakers Have Done To Bail Out A Sick World
With global COVID-19 cases approaching three-quarters of a million, policymakers the world over have acquiesced to the necessity of drastic stimulus, both monetary and fiscal.
The world is facing a massive demand shock, and that requires government action, even as the very same officials on whom the burden falls to act are also compelled to facilitate the shock by shuttering their economies in order to stop the spread of the pathogen.
For the past two weeks, the financial community has been aw
V-shaped recovery? Looking at all the shuttered mom-and-pops on the UWS (the ones that hadn’t already been killed by amoral price-gouging REITs), I find it hard to believe that 100 percent will be up and running again after this is over. More like 60 -70 percent. The coronavirus is an existential threat to the retail and hospitality sectors — in the u.s. and globally — and will permanently change the landscape for those industries (and many others).
If one believed, before this crisis, that monetary policy and supply-oriented fiscal policy had already reached the point of pushing on a string, how do corporate loan guarantees and such amount to, economically, more than a hill of beans?
Nice post.
A consumer based economy was already struggling with flat wages and higher debt levels. The Great Recession helped household deleverage but then household debt began creeping right back up. At the very least it will seem necessary to let households refinance –reset mortgage and home equity clocks, extend car loans and leases, reduce interest on unsecured debt and extend repayment, the government/Fed assume all payday lending debt, which one would think a no brainer –in short a micro-finance parallel to the corporate measures taken. And it may be Draghi is right –outright cancelation is all that can save us or delay the onset long enough for the Keynesian quip about the long run to become relevant for this generation.
More broadly there is a serious demographic problem in developed countries —one solution would be to raise the limits on legal immigration –tariffs and immigration restrictions, if they are permitted to remain in place, will be a serious drag upon any recovery.
Nice post.
@RStanz It’s either debt cancellation now, or war and debt default/cancellation later.
If local banks had direct backstop from the Fed then they could get out and do intelligent triage on SMEs. Save the healthy enterprise and let the marginal enterprise fail. The local banks can make those local decisions
I know it’s not my job, but nice post.
People talking about V, U and L are forgetting about the fact l exists. We do not get to assume every trajectory is less than 90 degrees especially in the next few years. We will need massive stimulus and massive mobilization of resources to recover. If we do not replace Trump with someone competent in November I expect continuous deterioration. For the next year or two.
Speaking of V-shaped recoveries, this Bloomberg article about stresses in the residential and commercial real estate markets tied to hedges and other derivative products suggests to me that true price discovery in those markets has been broken for a long time. Hate to be a drag, but anyone sitting with a net worth tied to real estate is worth less than they think.
https://www.bloomberg.com/news/articles/2020-03-29/mortgage-bankers-ask-sec-to-save-them-from-wave-of-margin-calls
Take solace that wealth is relative. The trick of this business is to lose less than the other guy.
Ok, I’ve mentioned this fear a couple times, what happens if the Fed starts buying stocks? $1 TR of QE directed to SPY would probably rip the market to new highs. And set the stage for an even worse blowup very quickly, but the well connected and wealthy would have a chance to get out while their government suckers Sally and Joe to lose the rest of their life savings. I can’t imagine we would do such a thing, but I can imagine some in government would want to and unthinkable decisions seem to be made every week.
Congress would have to change the Fed’s legal mandate to permit it to purchase equities. Not likely. Not sure corporations would be wild about the idea of a consortium of private banks owning everything to say nothing of non-Fed banks.
A V shape recovery is laughable if one thinks back to how the last recession dovetailed into a non stop story about skills mismatch and too many untrained humans . Labor demand is not going to be shocked back into high gear, but instead, post virus, we’ll see companies like Boeing, cry about unskilled workers. The virus, might even be seen working hand in hand with the AI robotic boom. The virus essentially is Darwinism and or an invisible market force that will sweep us into a new era where only the strongest survive.