Another week, another couple trillion dollars.
What the heck is going on here?
Is the Fed trying to prop up the stock market? Are they interested in generating inflation?
The answer is neither of these.
Right now, the Fed is doing what it can to try and stop the economy from totally collapsing. They are pulling out all the stops, stepping into markets such as commercial real estate to stop a disaster.
Unfortunately, it is not likely to help too much.
The U.S. economy is roughly $19 trillion per year. That is about $1.6 trillion per month.
With most of the economy shut down since people are locked down in their homes, we are seeing only a portion of the productivity that was the norm. We are already 4 weeks into the coronavirus situation in the United States with another 3 on tap. So far, the most optimistic outlook is the end of April before anything starts opening back up.
If the economy is operating at 1/3 capacity, we see about a $1 trillion loss each month. This is probably what was lost so far with near that coming over the next 4 weeks.
Of course, when this does end, things will not instantly return to "normal". Certain industries are going to feel the effects for a long time. Airlines, for example, could be affected throughout the rest of the year. The same holds true for anything related to the travel industry.
On another note, if things do start to reopen, are people suddenly going to run out and buy new cars? Will they make large capital expenditures? What about businesses? Those that are return will be starting over again, having to rebuild their customer base.
The other day I wrote how this entire situation could end up costing the United States economy $5-$6 trillion.
This is causing a major confidence crisis. Under these circumstances, banks aren't going to lend so any money put in their coffers end up in their excess reserve fund. This matters little since strong companies are not going to borrow under these conditions. Neither are well-off individuals.
Only the desperate are going to want the money which is only delaying the inevitable. We saw a lot of zombie companies before this crisis.
Quite frankly, they need to find their final resting place.
Nevertheless, it looks like the playbook is to try and keep anything and everything from going under.
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