No, We Didn’t Give Wall Street $1.5 Trillion
People who should know better are making ridiculous claims.
Yesterday, the Fed pumped a whole bunch of money into the economy in hopes that it would allay panic in the markets arising from the combination of a global pandemic and a crash in oil prices.
I’m seeing a lot of reactions, including from people who really ought know better, along the lines of “With that kind of money, we could wipe out student loan debt . . . .”
I’ll just drop a couple of tweets from well-regarded, left-of-center economists here:
“Horseshit,” of course, is a technical term.
The reporting on this has been drowned out by coronavirus scare. I couldn’t even find a good report on this from NYT or WaPo and WSJ’s, naturally, is paywalled.
The Hill (“Fed to spend $1.5T to pump liquidity into financial markets amid coronavirus panic“):
The New York Fed said in a Thursday statement it will drastically increase the scale of its repurchase (repo) agreements, during which it buys Treasury bonds and other securities from banks and traders with an agreement to sell the product back with interest the following day or soon after.
It will offer $500 billion in repo operations on Thursday followed by $1 trillion in repo agreements Friday “to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.”
The decision to dramatically increase the scale of Fed repo operations came “pursuant to instruction” from Federal Reserve Chairman Jerome Powell, the New York Fed said in a statement.
The Fed’s bid to refuel financial markets comes amid spiking anxiety among economists and investors about the potential economic toll of the coronavirus outbreak, which the World Health Organization formally designated a pandemic on Thursday.
Business Insider (“Fed announces $1.5 trillion in capital injections to combat coronavirus fallout and ‘highly unusual disruptions’“) gives a more technical breakdown:
The extraordinary funding measure first involves a $500 billion injection at 1:30 p.m. ET on Thursday, the bank said. The cash will be added to money markets through a three-month market repurchase agreement, or repo operation.
One-month and three-month repos for $500 billion each will be conducted on Friday and continue to be offered weekly through the calendar month, the bank added.
The central bank said it would also expand its $60 billion reserve-management purchases to buy up “a range of maturities” roughly matching that seen in Treasury assets outstanding. Securities targeted include Treasury bills, floating-rate notes, and nominal coupons. The first such purchase will begin Friday, the bank said.
The Fed’s previously scheduled daily overnight and two-week repos will still take place through the end of the week, adding as much as $220 billion to money markets.
The massive stimulus measure was made in accordance with the Federal Open Market Committee and in response to unprecedented liquidity issues in the Treasury-bond market, the New York Fed said.
“These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the bank said.
There’s not much more the Fed can do on the monetary end to stave off crisis. Which means that we’re relying on the Trump Administration and Congress to work together to come up with something on the monetary side.