US spending “Trillions” fighting coronavirus?

https://news.ycombinator.com/item?id=23217122

by libria • 6 years ago

4 8 6 years ago

news.ycombinator.com

I see articles like this [1] claiming trillions being spent. I also see high unemployment rates in the US so a lot of people are getting poorer. But somebody must be getting filthy rich.

Who?

This is kind of an investment question.

[1] https://www.marketwatch.com/story/trillions-in-coronavirus-spending-could-explode-deficits-to-world-war-two-levels-2020-03-31

arcticbull2• 6 years ago

I may be totally wrong here, but my read on it isn't that a specific individual is becoming filthy rich but rather the Fed is pushing up asset prices, effectively looking to justify the existing market cap assets and asset classes.

It's more that people who had "paper money" (i.e. shares) are being "kept whole" through the purchase of assets at pre-COVID prices.

Just because you own 1 share of AAPL (out of 4.334 million) at $310 in notional value doesn't mean that there's $1.34 trillion dollars of liquidity in the market. If shareholder all tried to exit at once that would quickly evaporate. So the fed is picking up the slack of folks existing out of panic, to keep more people from exiting out of panic, to preserve the value that society has as a whole in assets.

The Fed then plans to exit its positions once the market stabilizes, and cancels out the newly created money, net of any profits they may or may not have earned.

tl;dr: The investor class retains its net worth through the addition of liquidity. People aren't really "gaining" anything, not for as long as assets broadly remain below their pre-COVID levels.

johng• 6 years ago

The stimulus check going to millions of people is also part of the Trillions they are spending. They are printing money at an unbelievable pace and handing it out willy nilly right now it seems.

arcticbull2• 6 years ago

They aren't really "printing" money, for each dollar created a dollar of liabilities is created. Eventually, the positions will be exited, the liabilities will be closed out and the money 'created' will be destroyed. At least, that's the theory.

The stimulus checks are probably the most effective weapon they have in their war chests, as people at the bottom of the food chain are the most likely to spend that money immediately on essentials. This induces economic activity, it increases the velocity of money, and it helps to counteract the natural deflationary pressures a recession creates.

jklein11• 6 years ago

I keep hearing that the fed is directly intervening in equities markets but I'm having a hard time finding a source that goes into any detail. Any chance you have a source?

marto1• 6 years ago

The Fed then plans to exit its positions once the market stabilizes

They were supposed to do exactly that after 2008, too. Somehow didn't ever come to be.

mcintyre1994• 6 years ago

Part of the trillions being spent is an increase by $600/week in unemployment. This article has a state-by-state breakdown of the replacement rate of unemployment before and after: https://www.nytimes.com/interactive/2020/04/23/business/econ... So while unemployment is obviously bad in lots of ways, I don’t think it’s currently a given that unemployed people are getting poorer, yet.

If you’re wondering who’s getting filthy rich, there’s a half trillion dollar fund being distributed to businesses. Trump has already said he won’t comply with oversight around that: https://www.vox.com/policy-and-politics/2020/3/28/21197995/c... and https://en.m.wikipedia.org/wiki/Special_Inspector_General_fo...

US spending “Trillions” fighting coronavirus?

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