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How the Government Pulls Coronavirus Welfare Money Out of Thin Air


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1 hour ago, hegemony said:

 

There's a bent to this article (specifically, a suggestion that the Fed and the Treasury have become one big happy family) that reads very thin to me.   So, I guess it's no surprise to me that the typical "Education" section in the author's Linkedin profile is a void.

 

Don't get me wrong.  From the background that is discussed by the Times and his Linkedin profile, I have no doubt that this guy's earned his chops when it comes to covering finance and the markets.  But I have a suspicion that, at best, this guy's mastered a one-term Macroeconomic theory class and called it quits on that part of his education.  (I'll further allow that he's identified a concern that, at the fringe, bears a watchful eye ... but from his writing alone, I'd be inclined to believe that the Fed has tossed all caution to the wind.)

 

Now, there's no question that I'm going to be "academically-biased" when it comes to the need for a thorough, yet rudimentary, economics education in order to grasp and have a working understanding of the Fed's exact role in the economy.  (I figure I have something like 200+ butt-in-the-seat hours in the subject beyond first year macro and micro, which is a little "overkill" for that need, but not by much.)

 

Still, we live in a time where someone need not be an "expert" in anything in order to find a pulpit from which to pontificate on some of the most complex subjects and find an avid following.  Well, as long as people keep on listening without demanding greater qualification and background, we're collectively going to be bit in our collective butt.

Edited by hdporter
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That's an impressive video and I loved viewing it.

But I hope one suspects that there's a lot of intricacy involved with the operation of the Federal Reserve Bank that the video can't even tip a hat to ...

 

 

For example, let's talk about the bonds being issued by the Treasury to finance the COVID-19 related economic challenges ...

 

There was no discussion in the article that non-US Government investors play in the US Treasury market.  And, to read the above article, one might get the impression that no one wants anything to do with US bonds and that we're dependent upon the Fed and it's purchases to "float" the economy.

 

As of 2018, only 11% of US securities were held by the Federal Reserve.  (another 27% is held be various government entities in the course of their operations, 32% by US investors, and 30% by foreign investors: 

https://www.marketwatch.com/story/heres-who-owns-a-record-2121-trillion-of-us-debt-2018-08-21 )

 

For a number of weeks now, the Fed has been aggressively buying up US debt securities.  But it's not to facilitate all the new debt required to float COVID-19 aid; there's a bevy of buyers biting at the bit to buy up whatever the Treasury puts on the market.  The Fed is actively bidding prices up agsint that interest.

 

So what's that story?  Investors are steering clear of a lot of corporate debt right now, in favor of Treasuries (particularly on the short-term side of the market).  Investors are leery of risks inherent in the current environment.  This has played havoc with corporate financing, especially in the markets that drive the issuance of commercial paper, a market that manufacturer's such as GE and GM are heavily dependent upon.

 

In the interest of national economic policy, the Fed has stepped in as a Treasury security buyer, boosting market demand and prices, with the corresponding impact of lowering the interest rates associated with those securities.  The aim is to drive the investment return sufficiently low that investors start looking back to private company debt securities as a place to park money, helping to resolve the recent liquidity problems in the market.

 

That's a small glimmer of one wrinkle in the complicated story of the Fed.  Unlike the implicit suggestion in the article, the Fed isn't simply an unwitting lapdog of the Treasury, waiting to lap up every drop of debt gravy spilled by deficit spending.

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53 minutes ago, hdporter said:

There was no discussion in the article that non-US Government investors play in the US Treasury market.  And, to read the above article, one might get the impression that no one wants anything to do with US bonds and that we're dependent upon the Fed and it's purchases to "float" the economy.

 

As of 2018, only 11% of US securities were held by the Federal Reserve.  (another 27% is held be various government entities in the course of their operations, 32% by US investors, and 30% by foreign investors: 

https://www.marketwatch.com/story/heres-who-owns-a-record-2121-trillion-of-us-debt-2018-08-21 )

So the Chinese own 20% of that 30% foreign ownership of our debt (as of that chart's making). And I bet the PB&J sandwich I'm having for lunch that China is buying our newly issued debt.

Oh - take a peek at a video on Yoo Toob - I'll PM you the link. Basically says China hired their nationals to buy out goods in stores in parts of Australia and ship it all back to China right before COVID-19 hit.

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49 minutes ago, IndyPoolPlayer said:

So the Chinese own 20% of that 30% foreign ownership of our debt (as of that chart's making). And I bet the PB&J sandwich I'm having for lunch that China is buying our newly issued debt.

Oh - take a peek at a video on Yoo Toob - I'll PM you the link. Basically says China hired their nationals to buy out goods in stores in parts of Australia and ship it all back to China right before COVID-19 hit.

 

Interesting subject matter ... but remind me how it relates to the subject of this thread ...

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2 hours ago, IndyPoolPlayer said:

Oh - take a peek at a video on Yoo Toob - I'll PM you the link. Basically says China hired their nationals to buy out goods in stores in parts of Australia and ship it all back to China right before COVID-19 hit.

 

I don't buy it.

 

The cost of buying stuff retail after all the markups in distribution and taxes would likely cost about 5x more than than what the Chinese sold it for bulk to the downunder buyers.

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17 hours ago, hdporter said:

 

There's a bent to this article (specifically, a suggestion that the Fed and the Treasury have become one big happy family) that reads very thin to me.   So, I guess it's no surprise to me that the typical "Education" section in the author's Linkedin profile is a void.

 

Don't get me wrong.  From the background that is discussed by the Times and his Linkedin profile, I have no doubt that this guy's earned his chops when it comes to covering finance and the markets.  But I have a suspicion that, at best, this guy's mastered a one-term Macroeconomic theory class and called it quits on that part of his education.  (I'll further allow that he's identified a concern that, at the fringe, bears a watchful eye ... but from his writing alone, I'd be inclined to believe that the Fed has tossed all caution to the wind.)

 

Now, there's no question that I'm going to be "academically-biased" when it comes to the need for a thorough, yet rudimentary, economics education in order to grasp and have a working understanding of the Fed's exact role in the economy.  (I figure I have something like 200+ butt-in-the-seat hours in the subject beyond first year macro and micro, which is a little "overkill" for that need, but not by much.)

 

Still, we live in a time where someone need not be an "expert" in anything in order to find a pulpit from which to pontificate on some of the most complex subjects and find an avid following.  Well, as long as people keep on listening without demanding greater qualification and background, we're collectively going to be bit in our collective butt.

 

I'm curious what your thoughts are on this article.

 

https://www.lynalden.com/global-dollar-short-squeeze/

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3 hours ago, oldblue said:

 

I'm curious what your thoughts are on this article.

 

https://www.lynalden.com/global-dollar-short-squeeze/

 

It's not my intent to pose as an arbiter of all things "Economic" on CB ;)

 

I'll comment that the essay is well documented and reasoned.  And I'd hope that no one imagines that we'll perpetually be able to "sell" dollars to fund a negative trade balance, nor trust in a sustained market appetite to hold and reinvest dollars in dollar-denominated securities.  I see the article as accurate in identifying the factors that will see a shift to a weaker dollar.  While seemingly inevitable, that are too many intervening factors to state a timing with any confidence.

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https://voxeu.org/article/some-micromacro-insights-economics-coronavirus-part-1

 

Quote

Economists have long argued that there is a conflict between the need to make individuals and companies accountable on the one hand, and the need to share risks effectively on the other. This column, the first in a three-part series, argues that in the context of COVID-19, the reluctance to share risk based on ‘moral hazard’ has no reason to exist, and discusses how the socialisation of losses could be implemented.

Couple of interesting years ahead.

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