Fed steps in once again to try to smooth out lending markets

[Omaha Steve]

Source: AP

By CHRISTOPHER RUGABER

WASHINGTON (AP) — The Federal Reserve is intervening once again to try to smooth out the world’s lending markets, this time by lending dollars to other central banks in exchange for Treasurys.

The Fed’s move Tuesday marks its latest aggressive effort to keep borrowing rates down and ensure that financial markets can still function in the face of the coronavirus outbreak. The virus has caused a near-shutdown of economic activity in the United States and abroad and made it harder for some banks and companies to borrow. The Fed is trying to facilitate lending and boost confidence that it will do all it can to support the global financial system.

The new lending program will allow other central banks to access dollars without having to sell Treasury securities. Excessive selling of Treasurys typically causes their interest rates, or yields, to rise, and that makes borrowing more expensive. The Fed is trying to prevent this.

“This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market,” it said in a statement.



FILE - In this Tuesday, March 3, 2020 file photo, Federal Reserve Chair Jerome Powell pauses during a news conference to discuss an announcement from the Federal Open Market Committee, in Washington. In a series of sweeping steps, the U.S. Federal Reserve will lend to small and large businesses and local governments as well as extend its bond buying programs. The announcement Monday, March 23 is part of the Fed's ongoing efforts to support the flow of credit through an economy ravaged by the viral outbreak. (AP Photo/Jacquelyn Martin, File)


Read more: https://apnews.com/a4cc645593399f889e59cdec2ce63112

[bucolic_frolic]

1. Repo and overnight lending have kept YouTube financial gurus abuzz for weeks

[Chainfire]

2. To a plumber

It all sounds like a con game. A government Ponzi scheme writ large. Swapping piece of paper (or a handful of electrons) for another and acting like it is increasing wealth. Before this is all over, it is going to be apparent that the people who never saved a dime will have been the smart ones all along; they will still have their big screens and jet skies while my savings will disappear in a flood of inflation.

I study history, one thing I am fairly certain of is when this health crisis is over, the rich will be richer and the workers and the poor will be poorer.

[gab13by13]

3. I haven't heard any experts

use the "D" word; deflation. Maybe nobody will be able to afford anything?

[Chainfire]

4. I don't know why you might expect deflation

I do not claim to have any knowledge of macro economics, but I know, that when a market is flooded with anything, the price goes down. The under $2.00 gallon gas I bought yesterday is a good example. The Feds are flooding the market with money in amounts never dreamed of before.

Here are some brief explanations as to why I would suggest the opposite; inflation. If someone here has a more learned explanation, I would appreciate it. (The last time I studied economics was in the 9th grade)

Search Results
Web results
Flooded with Fed money, but no inflation in sight - Marketplace
https://www.marketplace.org › 2013/09/17 › flooded-fed-money-no-inflati...
Sep 17, 2013 - You might remember from Econ 101 that when the government prints money willy-nilly and the money supply increases, it can cause inflation. (Take the case of Zimbabwe, though there are also other causes of inflation.) Some critics warn that the Fed is playing with fire by flooding the system with easy money.

Deflation Definition - Investopedia
https://www.investopedia.com › Economy › Fiscal Policy
Aug 29, 2019 - Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit in the economy. During deflation, the purchasing power of currency rises over time.

What Is Inflation? (same source)
Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time. It is the rise in the general level of prices where a unit of currency effectively buys less than it did in prior periods. Often expressed as a percentage, inflation thus indicates a decrease in the purchasing power of a nation’s currency.

[AtheistCrusader]

7. Gas price is a bad example.

Gas has been whammied by two issues; Russia opened the taps in defiance of OPEC to release cheap oil on the market. That crunched the price of oil on the unrefined side, before Covid related impacts hit. On the consumption side, well.. people aren't doing stuff. An enormous number of people are staying home in droves, consumption is through the floor. So, gas prices on the refined and distributed side plunge too.

That is not to say Inflation isn't and won't be an issue, but that gas price market is so muddied right now by other factors, we can only guess as to the impact of inflation on it. Fed money isn't the driver, that's for sure. Maybe in 6 months it will be. I don't expect gas consumption to fully recover by then, however.

Edit: Sorry, DEflation may arise as well. But it's also not clear if that is occurring by way of looking at gas prices.

[IronLionZion]

5. They've been doing this long before COVID19

since Trump's economy is so strong it needed constant stimulus.

[roamer65]

6. This is unlimited quantitative easing.

They promised it a week ago. It’s now reality.

The Fed is also buying mortgage backed securities and high grade corporate bonds.

It’s an Aldrich-Vreeland Act on steroids.

[paleotn]

8. Uncharted territory...

No one knows for sure how this will all play out. A mad scientist experiment on an scale never dreamed of.