Monday, March 16, 2020

Federal Reserve makes $2 trillion available to try and calm markets


AMERICAN PUNDITS LIBERAL AND CONSERVATIVE SAY A TRILLION DOLLARS FOR  MEDICARE FOR ALL IS NOT AFFORDABLE, A TRILLION FOR STUDENT LOAN DEBT IS NOT AFFORDABLE ,  SHOULD EXPLAIN THIS: 

Federal Reserve makes $2 trillion available to try and calm markets

Updated Mar 12, 2020; 


The Federal Reserve moved Thursday to try to ease disruptions in the financial markets stemming from the coronavirus by announcing that it will sharply increase its purchases of short-term Treasury bonds.


The Fed said it's making available at least $2 trillion in short-term lending as a way to ensure that the Treasury bond market can function smoothly. It's also broadening its ongoing $60 billion-a-month purchases of Treasurys to include longer-term bonds.

Thursday's central bank action, being led by the New York Fed, is intended to keep credit markets functioning and ensure that banks can continue to provide loans to businesses and other borrowers across the economy.

 And it's an uphill struggle. Even a surprise half-percentage point rate cut by the  Federal Reserve only halted the stock selloff for a few hours. The ability to shock and awe is clearly diminished.

Marcel Fratscher, head of the German Institute for Economic Research in Berlin, told the dpa news agency that “unlike during the global financial crisis, the central banks will only be able to help a little in combating the economic damage from the coronavirus.”

 https://www.syracuse.com/business/2020/03/federal-reserve-makes-2-trillion-available-to-try-and-calm-markets.html


A TRILLION HERE A TRILLION THERE ITS NO MATTER IF ITS TO BAIL OUT CAPITALISM BUT TO PAY FOR MEDICARE 4 ALL, STUDENT LOANS, A LIVING WAGE AND A UNIVERSAL BASIC INCOME WELL OMG THE SKY IS FALLING
As central banks intervene to calm markets, few see solution
Christopher Rugaber / The Associated Press

MARCH 12, 2020 11:14 AM

WASHINGTON — The Federal Reserve and the European Central Bank moved Thursday to try to calm financial markets and restore some degree of confidence. It didn't quite work. The central banks are facing a crisis only partly responsive to the medicine they can provide.

The Fed sought to ensure that the U.S. Treasury bond market — the world's largest — can operate smoothly as demand for bonds spikes with investors desperately seek safe assets amid the carnage in stocks. The ECB sought to stimulate the European economy, which the coronavirus outbreak appears on the verge of sending into recession

Decidedly unimpressed, traders sent the stock market into its worst plunge Thursday in more than three decades.


The primary tools of central banks — lower interest rates and easier access to credit — aren't well-suited to address a crisis caused by a pandemic that
 has frightened consumers away from travelling, shopping or gathering in group settings. Economists are increasingly calling for governments to take the lead, through targeted loans to businesses, greater help for cash-strapped workers — particularly Americans without access to sick leave — and support for virus testing and other health measures.

On Thursday, the Fed unveiled a massive short-term lending program to try to help smooth trading in U.S. Treasurys. Through the Federal Reserve Bank of New York, it will provide at least $1.5 trillion on Thursday and Friday for banks that are willing to swap short-term Treasury securities for cash. An additional $500 billion will be made available Monday.

The program will continue at about $1 trillion per week after that. The lending won't all be cumulative. The loans will be paid back after one and three months.


And not all the money will necessarily be lent. It depends how much banks decide to borrow against the available funds.

The Fed also said it will broaden its $60 billion Treasury purchase program, launched last fall, from just short-term bills to all maturities, including 30-year bonds.

Both moves were a response to signs that the bond market was buckling under the strain of skyrocketing demand for Treasuries, which are widely considered the safest assets in the world. The jump in demand appeared to be outpacing supply. That pressure boosted the yield on the 10-year Treasury to 0.79% by Thursday afternoon, up from 0.68% two days earlier. Normally when stock markets plunge, bond yields also fall as investors buy more of them. Yields move in the opposite direction of prices.

The market for the 10-year bond affects the broader economy because it influences borrowing rates for homes, credit cards, and other interest rates in the U.S. and overseas. Because investors are confident the U.S. government would never default on its debt, the bonds issued by the government are used to price every other asset. The U.S. government debt market is the largest single pool of investment assets in the world.
"When that has some disruptions, watch out, that's really worrisome," said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.

Given the scope of the Fed's action Thursday, many economists now expect the Fed to slash its benchmark interest rate by a full percentage point, to nearly zero, at its policy meeting next week. It may even launch a large bond-buying program intended to further lower interest rates. This would be similar to programs the Fed undertook during and after the financial crisis that were dubbed "quantitative easing."

Still, the reaction in the markets suggested little faith that the Fed's moves would do much to restore the confidence of investors and consumers in the face of travel disruptions, event cancellations and business closures. Some analysts said that governments in the U.S. and Europe needed to do more through tax and spending policies.


"What the Fed did today is not enough — it needs a partner," said Diane Swonk, chief economist at Grant Thornton. "The Fed cannot do this alone."

Earlier in the day, the ECB deployed targeted new stimulus measures to cushion the shock to the economy from the virus outbreak. But Christine Lagarde, the ECB's president, said that monetary policy couldn't do it alone and called for a "decisive and determined" response from governments. Lagarde said the economy was facing a "major shock" and that the central bank measures unveiled Thursday were "almost surgically" aimed only at areas where monetary policy might help.

More than a decade ago, central banks around the world slashed rates and began pumping trillions of dollars into banks to combat a global financial crisis. The coronavirus is presenting them with a very different challenge. The central banks in the U.S., the eurozone, Canada and Britain have all deployed stimulus. The Bank of Japan is signalling it is ready to act and monetary authorities in Australia, Indonesia and Malaysia have cut rates.

Authorities are putting major economies, businesses and travel on lock down around the world, dimming prospects for the global economy. Consumers are starting to cut back on their spending in the U.S. and around the world.

Europe's top monetary authority didn't cut rates as investors had hoped — evidence that monetary policy is running low on ammunition with rates already very low. The ECB's key policy rate on bank deposits is already at a record-low minus 0.6%.

___

AP Business Writers David McHugh in Frankfurt, Germany, and Ken Sweet in New York contributed to this report.


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