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OpEdNews Op Eds    H4'ed 3/26/20

Socialism at Its Finest after Fed's Bazooka Fails

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The Federal Reserve
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In what is being called the worst financial crisis since 1929, the US stock market has lost a third of its value in the space of a month, wiping out all of its gains of the last three years. When the Federal Reserve tried to ride to the rescue, it only succeeded in making matters worse. The government then pulled out all the stops. To our staunchly capitalist leaders, socialism is suddenly looking good.

The financial crisis began in late February, when the World Health Organization announced that it was time to prepare for a global pandemic. The Russia-Saudi oil price war added fuel to the flames, causing all three Wall Street indices to fall more than 7 percent on March 9. It was called Black Monday, the worst drop since the Great Recession in 2008; but it would get worse.

On March 12, the Fed announced new capital injections totaling an unprecedented $1.5 trillion in the repo market, where banks now borrow to stay afloat. The market responded by driving stocks 8% lower.

On Sunday, March 15, the Fed emptied its bazooka by lowering the fed funds rate nearly to zero and announcing that it would be purchasing $700 billion in assets, including federal securities of all maturities, restarting its quantitative easing program. It also eliminated bank reserve requirements and slashed Interest on Excess Reserves (the interest it pays to banks for parking their cash at the Fed) to 0.10%. The result was to cause the stock market to open on Monday nearly 10% lower. Rather than projecting confidence, the Fed's measures were generating panic.

As financial analyst George Gammon observes, the Fed's massive $1.5 trillion in expanded repo operations had few takers. Why? He says the shortage in the repo market was not in "liquidity" (money available to lend) but in "pristine collateral" (the securities that must be put up for the loans). Pristine collateral consists mainly of short-term Treasury bills. The Fed can inject as much liquidity as it likes, but it cannot create T-bills, something only the Treasury can do. That means the government (which is already $23 trillion in debt) must add yet more debt to its balance sheet in order to rescue the repo market that now funds the banks.

The Fed's tools alone are obviously incapable of stemming the bloodletting from the forced shutdown of businesses across the country. Fed chair Jerome Powell admitted as much at his March 15 press conference, stating, "[W]e don't have the tools to reach individuals and particularly small businesses and other businesses and people who may be out of work ... We do think fiscal response is critical." "Fiscal policy" means the administration and Congress must step up to the plate.

What about using the Fed's "nuclear option" a "helicopter drop" of money to support people directly? A March 16 article in Axios quoted former Fed senior economist Claudia Sahm:

"The political ramifications of the Fed essentially printing money and giving it to people there are ways to do it, but the problem is if the Fed does this and Congress still has not passed anything ...that would mean the Fed has stepped in and done something that Congress didn't want to do. If they did helicopter money without congressional approval, Congress could, and rightly so, end the Fed."

The government must act first, before the Fed can use its money-printing machine to benefit the people and the economy directly.

The Fed, Congress and the Administration Need to Work as a Team

On March 13, President Trump did act, declaring a national emergency that opened access to as much as $50 billion "for states and territories and localities in our shared fight against this disease." The Dow Jones Industrial Average responded by ending the day up nearly 2,000 points, or 9.4 percent.

The same day, Democratic presidential candidate Rep. Tulsi Gabbard proposed a universal basic income of $1,000 per month for every American for the duration of the crisis. She said, "Too much attention has been focused here in Washington on bailing out Wall Street banks and corporate industries as people are making the same old tired argument of how trickle-down economics will eventually help the American people." Meanwhile the American taxpayer "gets left holding the bag, struggling and getting no help during a time of crisis." H.R. 897, her bill for an emergency UBI, she said was the most simple, direct form of assistance to help weather the storm.

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)
 

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6 people are discussing this page, with 7 comments  Post Comment


Don Smith

Become a Fan (Member since Feb 25, 2009), 22 fans, 146 articles, 599 quicklinks, 1921 comments, 45 diaries (How many times has this commenter been recommended?)
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Brown writes with authority. I never completely understand the financial details.

Submitted on Thursday, Mar 26, 2020 at 1:52:55 AM

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Lance Ciepiela

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'Of course, besides taking the required measures to prevent the virus crisis from spreading and preventing panics, governments must take, on the economic and financial fronts, some fiscal, regulatory and monetary steps to prevent a deflationary downward spiral of economic activity and to stabilize the financial system'. #DebtJubilee. #NationaliseTheFed? - the national 'debt would be cancelled as it becomes a bookkeeping entry with nationalization'.

Submitted on Thursday, Mar 26, 2020 at 2:08:37 AM

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molly cruz

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If we are a body, and money is our blood, it is only functional when it is moving around. When money is hoarded, channeled exclusively to particular parts of the body, it pools and creates something akin to elephantiasis, swollen useless body parts that eventually lead to the death of the body.

When the wealthy, who seem to be angling for special support along with those truly in need, exhibit ignorance of the larger truth: that they need the struggling lower classes to survive, they work against the health of the whole body.

Put a rubber band around your wrist and see how long your hand lasts. The kind of perspective needed to understand what a society is, and what part the circulation of wealth plays in its health isn't given to everybody. We must listen to the cool heads that prevail, those that don't have a dog in the race to see who has the most yachts; before the body sickens and dies of one of the seven deadlies: greed.

Greed is the illusion that we are separate entities, and the basis of vanity. We want to be more than scum on a ball. But if we don't get back for a good look at the beautiful blue marble we merely decorate, we lose that perspective, and our footing along with it.

Submitted on Thursday, Mar 26, 2020 at 2:21:20 AM

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Ellen Brown

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Reply to molly cruz:   New Content

Reminds me of what's happening with the hording of goods. Suddenly there isn't enough toilet paper, milk, eggs, etc. But the stores are still open. If everyone just took what they needed, all would be well. It's the same with our financialized money system. There are huge stagnant pools of money off the market not being used.

Submitted on Thursday, Mar 26, 2020 at 6:13:40 PM

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911TRUTH

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Corporate bailout after bailout, yet they keep telling us there's no money for universal healthcare, tuition, etc.

I call "BS!"

Submitted on Thursday, Mar 26, 2020 at 4:40:26 PM

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Alexander Kershaw

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The next logical step is to sell the failed businesses to the employees. That should have been done with GM. There are many ways that can be done.

Submitted on Thursday, Mar 26, 2020 at 5:25:08 PM

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Ellen Brown

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Good idea.

Submitted on Thursday, Mar 26, 2020 at 6:10:37 PM

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