...another exercise that isn't difficult, how long can you shut down the global economy and not expect serious consequences?
We're already there. As I noted weeks ago, the grand economic policy objective is to avoid a cascading debt crisis on top of a medical crisis.
The $2.2 trillion in fiscal injections is just a start. 500,000 requests for small business loans has already swamped the Treasury. There will be trillions more in relief funds before it is over. Behind businesses requesting loans, small and large, are their leveraged balance sheets. Loans (which will become handouts for some under certain conditions) are needed to pay prior loans and other obligations. And you can take that down to the household level where $600 weekly unemployment checks are supposed to cover rents and mortgages. Landlords, perhaps more than anybody, have loans to pay.
Before this crisis even started there was a short term liquidity issue where banks were pulling back on short term lending to fellow banks and businesses, a lack of the essential grease for the day-to-day economic machinery, which happened to be the canary in the coal mine for the financial crisis. The Fed recently stepped in, starting last August, with lending facilities and backstopping money market funds. At the same time they were cutting interest rates in the face of slowing growth. Trump's "greatest economy ever" claim was always ridiculous, more so as it was looking pretty shaky going into this crisis.
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
See that first $500 billion increase from August in the above chart? That was the short term liquidity facilities. Now, during this pandemic, the Fed exploded the balance sheet by nearly $2 trillion to sop up primarily government debt from the relief package to keep interest rates low (more debt crisis containment). Now they are going to be buying another $2 trillion, including for the first time in history corporate bonds, fallen angels no less, low investment grade BBBs that have fallen to junk on downgrades during this crisis. The Democrats are pressing the Fed to add municipal bonds to their balance sheet to help keep those entities afloat, another first. There's nothing worse than people and businessness struggling to cover their debts while interest rates are going up.
The Fed's ability to buy debt is limitless. However, the more debt they monetize, the riskier the inflation outlook will be coming out of this mess. Further, by statute, the Fed is not allowed to lose money on their balance sheet. That's why they have always bought Treasuries and mortgage-backed securities with an implicit Federal guarantee and held them to maturity. Now they're buying junk bonds? We could have the first instance in Fed history of loan on their balance sheet going into default. King Dollar is not a categorical imperative.
No matter what, it's hard to see a V bottom recovery as people and businesses catch up on paying their bills. It's more like a climb out of the mud. There could be stagflation if enough businesses bite the dust constraining supply capacity.
Given the amounts of money thrown at this thing and the debt sopped up by the Fed in so short of time, the financial crisis is starting to look like a walk in the park. Back then a "paltry" $1 trillion bailout package was a matter for prolonged and agonized debate. Now it's $2 trillion at the drop of a hat, with more to come. The Fed took 4 years to add nearly $4 tillion to their balance sheet in recovery mode into 2014. That's going to happen now in a matter of weeks.
Pardon the interruption. Resume normal programming, how football fits into the picture. Start with it being an idle distraction. It will come back sooner or later.
