Iran Asks IMF For $5BN Emergency Loan As Death Toll Soars Near 500
Citing vast shortages of medical supplies and pharmaceuticals due to US-led sanctions, Iran is urging IMF relief as it battles coronavirus to the tune of $5 billion.
Days ago Iranian Foreign Minister Javad Zarif accused President Trump on Twitter of“maliciously tightening US’ illegal sanctions with aim of draining Iran’s resources needed in the fight against Covid-19 — while our citizens are dying from it.” Now he’s urging immediate emergency aid:
Iran has asked the International Monetary Fund (IMF) for emergency funding to help it fight the coronavirus outbreak, which has hit the Islamic Republic hard, Foreign Minister Mohammad Javad Zarif said in a tweet on Thursday.
Iranian cabinet members wearing face masks attend their meeting in Tehran, Iran. Source: Iranian Presidency via AP
As Reuters reports Thursday, Iran’s Central Bank chief Abdolnaser Hemmati revealed in a social media post that “in a letter addressed to the head of IMF, I have requested five billion U.S. dollar from the RFI emergency fund to help our fight against the coronavirus”.
And Zarif in a follow-up message noted that IMF managing director, Kristalina Georgieva, “has stated that countries affected by #COVID19 will be supported via Rapid Financial Instrument. Our Central Bank requested access to this facility immediately.”
URGENT
Iranian care personnel are courageously battling #COVID19 on frontlines
Their efforts are stymied by vast shortages caused by restrictions on our people’s access to medicine/equipment
A slew of new coronavirus infections pushed the number of cases in the Middle East well past 10,000 on Thursday – and many of those infected are linked to Iran.
The Islamic Republic government, which said more than 360 people have died and about 9,000 are infected by the virus, has increasingly come under fire, accused of underrepresenting the impact of the virus on its people.
Per the AP, the death toll has reached429 as of later in the day Thursday and is expected to climb further.
But at this point the true numbers of infected in Iran are widely believed to be well into the multiple tens of thousands, as the country’s ill-prepared and severely short-on-supplies health system is overwhelmed.
Zarif concluded his latest appeal for emergency IMF aid by saying, “Viruses don’t discriminate. Nor should humankind.”
Is South Korea About To Unleash A Neutron Bomb Across Global Stock Markets
Last June, when stocks were merrily grinding higher without a care in the world, and certainly oblivious of the crash that was about to slam global markets half a year later, we explained why South Korea’s massive autocallable issuance could be “ground zero” of the next vol catastrophe.
In retrospect it wasn’t: the proverbial “black swan” of the next crisis turned out to be a Chinese black bat, but that doesn’t mean that the world is now safe from what could be a potential volatility tsunami, triggered in South Korea and which sends global markets far lower than where they are now.
But before we go any further, put your hand up if you know what an autocallable is, and since there are barely any hands in the air, let’s back up.
As the “world’s most bearish hedge fund manager”, Horseman Global’s Russell Clark explained in January 2019, autocallables, which are fundmentally structured products that are extremely popular with South Korean traders, are best thought of as a service. A bank will offer to sell insurance on the stock market on your behalf, so that you can generate an income from the premiums received. So rather than buying an autocallable, it’s better to think of an investor as posting collateral for a bank to sell puts on their behalf. Typically, the bank will tell the investor what sort of yield they can generate, for a certain level of insurance. For example, a 5% return as long as the S&P 500 does not fall to 2000, from roughly 2900 today.
Typically, when markets fall, the price of insurance rises, and the bank does not need to sell that much insurance to meet a 5% yield target for an investor. Conversely, when markets rise, insurance prices fall, and banks would need to sell more insurance to meet the target yield. Hence, in normal markets, the risk to clients is balanced. More insurance is sold when market rise as insurance prices are low, and less insurance is sold when market fall as insurance prices rise.
However, when there are times when this process goes haywire: i) either when a negative gamma feedback loop emerges, similar to what happened in February 2018 with the VIX complex in the US that liquidated 3x levered inverse vol ETNs, or ii) when the market drop is so precipitous that there is a step function lower in the value of the collateral, and local banks flood clients with margin calls, which in turn prompt a forced liquidation of more risk assets, triggering a feedback loop cascade where selling begets more selling, and not just of South Korean assets, but global, as most of the risk assets collateralizing the autocallables universe are not domestic to South Korea.
We are now deep in scenario II, because shortly after the US suffered its biggest drop since Black Monday 1987, South Korea’s Kospi entered a bear market Friday, while the Kosdaq was halted limit down after tumbling 8%. Furthermore, the Kospi broke below its 200-month average near 1,750 – that’, according to Bloomberg, is a marker that served as a support level during the global financial crisis.
The drop was so big that the Bank of Korea reportedly was discussing the need for a special meeting, and would consider “appropriate steps” to stabilize markets, including open-market operations if needed, while closely monitoring bond markets, according to a Bloomberg update.
However, if Horseman is right, the pain may just be getting started for both retail and institution linvestors facing massive margin calls. Worse, if the long awaited autocallable liquidation cascade is finally triggered, the shockwave that is unleashed in Seoul could rattles global stock markets, resulting in another – potentially even more dire – selling avalanche.
In a note published today, Horseman’s resurgent CIO, Russell Clarke, also known as the world’s biggest bear whose fund returned a whopping 20% during February’s rout warns that “the continued issuance from Korea suggests that autocallables have not yet been knocked in, and in fact investors are taking advantage of higher volatility to get higher yields.”
However, there is a limit to everything, and today violent liquidation in South Korea may be just the trigger.
Below we lay out the latest thoughts and observations from Clark, who waited patiently for years to be proven right on his doomsday predictions, and which are now being validated courtesy of the biggest weekly crash in global stocks since the financial crisis.
* * *
Korea and the KOSPI 200 are the spiritual home of autocallables. Historically, the KOSPI 200 was a highly volatile market but the long bull market in semiconductors, combined with rampant volatility selling, caused market volatility in the KOSPI 200 to collapse. Even the collapse in memory prices had little effect on KOSPI 200 volatility in 2019. However, the KOSPI volatility has recently broken out to levels not seen since 2011. (Price as at 10.00 GMT – 12 March 2020)
Despite the breakout in volatility there has been no reduction in the issuance of autocallables. In 2015, HSCEI based autocallables were knocked in causing issuance to collapse. The continued issuance from Korea suggests that autocallables have not yet been knocked in, and in fact investors are taking advantage of higher volatility to get higher yields.
Meanwhile, the KOSPI 200 is still above levels that have held since 2011. It is likely the most KOSPI 200 strike prices are set somewhere below the 230 price that has held since 2011.
Autocallables issued in Korea will often include Euro Stoxx 50 in a “worst-of structures” market. A good proxy for the performance of this strategy is the Euro Stoxx 50 PutWrite Strategy. This has recently deteriorated sharply.
The spike in volatility has coincided with a steep decline in the share prices of French banks that structure many of the autocallable products.
If autocallables are triggered, then implied volatility should move even higher from current levels. For clearinghouses, the high level of both implied and realised volatility should lead to increased in margins. As a reminder, LCH as per its Q3 2019 disclosures was still running at initial margins at very low levels to variation margins, although both rose significantly. During the strains of Brexit initial margin rose to be multiples of variation margin.
One more timely way to monitor margins is to look at initial margins for large index futures. With rising volatility, margins have been increasing even as the S&P falls. To normalise over time we divide the amount of margin for trading the future by contract value. Cost of trading has recently risen to 6.4%, the highest level since 2011.
For OTC options, we can use BIS data to get an idea of initial margins. Taking the gross value of margins and dividing it by outstanding notional we can see that values were at a level seen before the global financial crisis and the dot com bubble.
Clark’s ominous conclusion: “Market volatility has risen significantly, but margin and collateral in the system still looks too low. Should autocallables break barriers in the KOSPI 200 or the Euro Stoxx 50, then the structurers will turn into volatility buyers, not sellers. Higher volatility leading to margin calls look likely, which could drive the market lower.“
The ruler of Dubai conducted a campaign of fear and intimidation against his estranged wife and ordered the abduction of two of his daughters, a British judge ruled in documents that were unsealed [last week].
A judge at the High Court in London found that Sheikh Mohammed bin Rashid Al Maktoum, 70, “acted in a manner from the end of 2018 which has been aimed at intimidating and frightening” his ex-wife Princess Haya, 45.
Judge Andrew McFarlane also said the Sheikh “ordered and orchestrated” the abductions and forced return to Dubai of two of his adult daughters from another marriage: Sheikha Shamsa in August 2000, and Sheikha Latifa in 2002 and again in 2018.
The judge made rulings in December and January after a battle between the estranged spouses over the welfare of their two children, but the Sheikh fought to prevent them from being made public. The U.K Supreme Court quashed that attempt ….
Some court documents, which gives much more detail:
The ruler of Dubai conducted a campaign of fear and intimidation against his estranged wife and ordered the abduction of two of his daughters, a British judge ruled in documents that were unsealed [last week].
A judge at the High Court in London found that Sheikh Mohammed bin Rashid Al Maktoum, 70, “acted in a manner from the end of 2018 which has been aimed at intimidating and frightening” his ex-wife Princess Haya, 45.
Judge Andrew McFarlane also said the Sheikh “ordered and orchestrated” the abductions and forced return to Dubai of two of his adult daughters from another marriage: Sheikha Shamsa in August 2000, and Sheikha Latifa in 2002 and again in 2018.
The judge made rulings in December and January after a battle between the estranged spouses over the welfare of their two children, but the Sheikh fought to prevent them from being made public. The U.K Supreme Court quashed that attempt ….
Some court documents, which gives much more detail:
The decline phase of the S-Curve is just beginning…
Globalization and Imperial Pretensions have been decaying for years; now the tide has turned definitively against them. The Covid-19 pandemic didn’t cause the demise of globalization and Imperial Pretensions; it merely pushed the rickety structures over the edge.
It’s human nature to reckon the current trend will continue running more or less forever, and that temporal, contingent structures are permanent. Globalization flourished because a unique set of conditions created fertile ground for the transfer of production to China and other emerging economies and the global expansion of the magic elixir of skyrocketing consumption, credit.
Credit-starved economies which are suddenly flooded with credit (for example, China) experience an explosion of investment in production, infrastructure and in business and household consumption.
In this boost phase of globalization, capital flows from stagnant developed economies to emerging economies to earn higher returns, and production moves to these low-cost economies to take advantage of low labor costs and lax environmental standards.
It’s a win-win dynamic for credit-starved emerging economies and stagnant developed economies, as the emerging economies get investment capital, jobs and technology transfers while the developed economies get higher profits due to the lower production costs and lower-priced goods and services.
Put another way: globalization is simply one manifestation of the financialization of the global economy. Developed-world central and private banks create trillions of dollars in fiat currencies that then slosh around the world, seeking the highest return. Whatever can be exploited in the short-term is exploited and then capital moves on, leaving environmental destruction and distorted economies in its wake.
Alas, the virtuous-cycle boost phase financialization soon burns through all the easy gains and then speculative gains replace productive gains: since over-investment in production has led to over-capacity and near-zero profits, capital flows into speculative gambles and money-pit bridges to nowhere that do little to actually boost the productivity of the real-world economy.
This transition from investing in higher productivity to pouring money into speculative bets is so gradual that few even recognize the transition until it’s too late. All too quickly the economy becomes dependent not on gains in productivity–the only enduring source of wealth creation– but on speculative gambles paying off.
Once the economy becomes dependent on speculative bets paying off, central banks and governments rig the roulette wheel to insure the big gamblers always win. This rigging of speculative markets further distorts the economy and society by destroying price discovery and exacerbating soaring wealth inequality.
As the financial elites become accustomed to “winning” the rigged games, they increase their high-risk gambling, confident that even the highest-risk bets will always pay off. In this universe of moral hazard, it makes sense to borrow as much as possible to plow into the highest-risk bets. Why not maximize one’s gains at the rigged tables?
This institutionalization of financial folly created an extremely risky structure that is now breaking down. Bets placed with borrowed money are no longer paying off, and so whatever collateral remains must be liquidated to meet margin calls and pay down debt.
In the boost phase of globalization, it made sense to maximize profits by optimizing the global supply chain for the lowest cost of production and shipping via distant production and just-in-time delivery. The risks of this extreme optimization for profits above all else is now apparent as dependence on production in distant lands is not within our control.
The apparently risk-free paradise of globalization is actually riddled with potentially catastrophic risks. Every node in this complex network is a potential point of failure, and since redundancy and less tightly bound systems were sacrificed to maximize profits, there is no way to restore the supply chain with a few nips and tucks.
As for the Imperial Pretensions of both China and the U.S.–these were as dependent on financialization and globalization as global supply chains. China’s Belt and Road Initiative (BRI) exemplifies an era that has already turned to dust, and American pretensions of being able to afford large-scale global meddling are equally embedded in a zeitgeist that has lost its coherence and relevancy.
The decline phase of the S-Curve is just beginning. Much of what we’ve taken as permanent will melt into air, and that’s far from a negative development.
War-torn regions of the Middle East remain hugely vulnerable for the spread of Covid-19 due to hundreds of thousands of families packed into often filthy temporary settlements already running low on basic staples for survival.
And now a nightmare scenario is unfolding in Iraq as the United Nations has recorded the first suspected coronavirus cases inside an Internally Displaced Persons (IDP) camp.
Refugee camp in northern Iraq, file image via The Telegraph.
The UN Office for the Coordination of Humanitarian Affairs (OCHA) issued an alert in its latest humanitarian report this week, noting also the World Health Organization (WHO) has dispatched additional supplies and medical devices to Iraq amid broader closures of public spaces after at least 71 confirmed cases nationwide.
But with millions of refugees in the region, especially along the Turkish-Syrian border, and after Erdogan has effectively ‘opened the gates’ on waves of migrants headed to Europe, the spark that could erupt an explosion of outbreaks in camps across the Middle East may have started.
NEW: #Iraq has detected its first possible IDP camp #Coronavirus cases — a nightmare development.
There are ~1 million displaced people in #Iraq; camps are overpopulated & lacking in healthcare, sanitation etc. pic.twitter.com/ilqBAgCeHl
The first suspected cases of COVID-19 were documented in an IDP camp in Ninewa; the affected persons were transported to hospital, and a makeshift isolation unit was put in place. Sterilization activities are under way.
Crucially, this region lies along the Syrian border in Iraq’s northwest, and is near Turkey in a broader border area which has over the past years witnessed entire ‘refugee cities’ erected.
Surrounding countries like Kuwait have taken proactive measures for heightened testing along their borders and points of entry, but other regional governments have lagged behind:
Kuwait is testing for #COVID19 every single expat who arrived in the country since 27th Feb 2020.
The WHO previously said it’s especially concerned of an outbreak among refugee populations in war-torn regions of Iraq and Syria.
“Refugees and internally displaced populations across Iraq and Syria have been identified as the most vulnerable groups in the region, should the spread of the virus become a pandemic,”The Guardian reported of recent statements.
“Health officials in both countries remain under-equipped to deal with such a a reality that seems more possible with each passing day,” the report added.
And as Turkey continues to allow and even actively facilitate the passage of refugees and migrants into Greece and other EU states, the Covid-19 crisis currently shutting down entire countries in Europe is set to explode further.
China’s consumer price index (CPI), the main gauge of inflation, grew 5.2 percent year-on-year in February, the National Bureau of Statistics said on Tuesday. The growth, in line with market expectations, was slightly lower than 5.4 percent in January. On a monthly basis, consumer prices edged up 0.8 percent.
Food prices, which account for nearly one-third of weighting in China’s CPI, went up 21.9 percent year-on-year in February, contributing 4.45 percentage points to the rise in the index as the novel coronavirus outbreak disrupted market supplies and demands.
That the CPI has been above 5 percent for two consecutive months has raised fears that China could face high inflation in the long run, which could have a negative impact on people’s livelihoods that have already been affected by the novel coronavirus epidemic.
Bank of China Faces a Real Dilemma with Interest Rates
Hiking rates in the midst of shocks like this are out of the question. There are no preemptive steps to take.
CPI Inflation is at 5% but bank interest rates are only 1.5%.
Food production has collapsed, but lower interest rates to stimulate will stimulate the wrong things while hurting consumer savings.
Lower spreads will hurt bank profits and the Chinese banking system is a basket of nonperforming SOE loans.
Pettis Tweet Thread on China’s Dilemma
It seems to me that the PBoC faces a real dilemma with interest rates. Thanks to still-soaring food costs CPI inflation in February remained above 5%, well above the deposit rate, with 1-year deposits at 1.50% and average deposits much lower. This means…
…that the value of household savings is being eroded by rising food costs, and this effectively represents a wealth transfer away from households, with poorer households being hit harder (both because of limited savings opportunities and because food is a larger share of…
…their consumption basket). This is exactly the opposite of what Beijing needs if it is to reduce its over-reliance on spurious investment to generate growth. If households have to increase their savings rate in order to make up for the inflation tax, they must spend less…
…on consumption, in which case China needs more investment to generate the same amount of growth. This is why the PBoC doesn’t want to lower the deposit rate. But it cannot raise rates either. Unlike in 2000-11, when banks and corporate/government borrowers were the huge…
…beneficiaries from extremely negative real interest rates, they aren’t this time around. With negative PPI inflation, and a 1-year loan prime rate of 4.05%, manufacturers may in fact be borrowing at very high real rates, especially given that all the inflation is showing…
…up in food prices, whereas the prices of the manufactured goods they produce are stable or even trending down. This probably just means that last year’s collapse in meat production – which is the main source of CPI inflation – is being paid for in part by households, in…
…the form of an erosion in the value of their savings, in part by businesses, in the form of high real borrowing costs, and of course in part by farmers. This makes it very difficult for the PBoC either to raise lending rates or lower deposit rates, and of course it can’t…
…narrow the spread because that would effectively force already-undercapitalized banks to absorb the cost. Once food prices drop we might see a very sharp reversal of wealth transfers from the household sector, but until then the PBoC doesn’t have much space for maneuver.
Here is the Lead Tweet if you want to see it all on Twitter.
Inflation or Deflation?
This was the subject of a debate on Twitter. Many see a round of inflation but I generally see it differently.
The collapse in demand will take care of shortages except for critical things like food.
China has a unique problem. Low food production and a soaring CPI in response.
Unless there is a food production problem in the US, the Fed will not face the same dilemma.
Exporters Hit Hardest
The global export powerhouses will get hit the hardest by this.
Prepare for another round of debt deflation, possibly accompanied by a lower CPI especially if one accurately includes home prices instead of rents in the CPI calculation.
Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse
I am not blaming the Fed for the coronavirus and these shocks.
However, I am blaming the Fed for its erroneous inflationary tactics that blew three of the biggest economic bubble in succession: 2000, 2007, 2020.
Bubbles are inherently deflationary. It’s asset asset bubble deflation that is damaging, not routine price deflation
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated a BIS study.
Deflation is not really about prices. It’s about the value of debt on the books of banks that cannot be paid back by zombie corporations and individuals.
75% of Companies Suffer From Coronavirus Supply Chain Disruptions
Massive Monkey Gangs Are Fighting For Food On Thailand Streets As Tourist Food Disappears
Coronavirus isn’t just causing humans to fight in the aisles of Target over toilet paper. Today in “signs of the apocalypse”, hungry monkey gangs are also swarming and fighting – for food – on the streets of Thailand.
Monkeys in the country are usually well fed by tourists who visit Central Thailand, but visitors have plummeted as a result of the coronavirus outbreak, which has hit the Asian region hard.
The animals shown in a video are reported to be two separate “rival gangs” that dwell in the city, according to the Daily Mail.
Half of the monkeys are said to live in the temple areas, while the others live in the city. The two groups don’t usually meet but ended up doing so this past week.
The animals are shown wandering separately looking for food, but once one monkey finds a banana, the chase is on.
The ferocity of the animals shocked even locals, who are used to seeing the monkeys on a daily basis. One onlooker, who captured video, said: “They looked more like wild dogs than monkeys. They went crazy for the single piece of food. I’ve never seen them this aggressive.”
The onlooker explained: “I think the monkeys were very, very hungry. There’s normally a lot of tourists here to feed the monkeys but now there are not as many, because of the coronavirus.”
Hundreds of monkeys are shown in this Daily Mail video fighting over a single banana:
Hundreds of hungry monkeys swarm across Thai street as ‘rival gangs’ fight over food after tourists who normally feed them stay away because of coronavirus https://t.co/lQZ0sOzwDFpic.twitter.com/8TgrCTBrQ8
In an attempt to quell market and banking fears about coronavirus-related downturns, the New York branch of the Federal Reserve announced new plans today:
For the monthly period beginning March 13, 2020 and continuing through April 13, 2020, the Desk will conduct purchases across a range of maturities….
Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020. Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.
These “repo operations” mean that the Federal Reserve will be providing liquidity in the form of cash in exchange for securities, which the entities getting the money are supposed to purchase back later.
For the past few months, the Fed has been on a $60 billion plan of securities purchases, but that was mostly just short-term Treasury bills. It is expanding those schemes, per its statement today, “to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes.”
As the Wall Street Journal tallies, today’s “interventions lifted the overall amount of Fed temporary liquidity $119.1 billion to $361.5 billion, the most outstanding since the Fed began doing repos again in September after a decade-long break.” This is all in reaction to, as the New York Times reports, “reports from trading desks that many assets that are normally liquid—easy to buy and sell—were freezing up, with securities not trading widely. This was true of the bonds issued by municipalities and major corporations but, more curiously, also of Treasury bonds, normally the bedrock of the global financial system.”
In general this week, in everything from stocks to bonds, gold to crypto, the Times notes, “major financial players are experiencing a cash crunch, and are selling whatever they can as a result. That would help explain the seeming contradiction of assets that should go up in value in a time of economic peril instead falling in value.” That both stocks and bonds were falling this week put a big scare into the system.
Cynical populists might note that here, as so often, government’s quick big-money interventions seemed aimed more at comforting the wealthy and high-powered as opposed to easing the problems of the mass of low-income wage-earners, renters, or others who might be devastated by the shutdown in economic activity commensurate with the shutting down of most public gatherings that’s picking up speed this week.
That said, these repurchases function not as cash giveaways, but as loans that should be paid back. As CNBC explains, “Repos are short-term operations in which financial institutions provide high-quality collateral [in this case the wide variety of Treasuries and other securities] in exchange for cash reserves they use to operate.”
As Politico puts it, these new repos are meant to be “a crucial source of overnight funding for brokerage firms, hedge funds and other financial institutions.” The Fed hopes this new repo expansion will “ensure the proper functioning of the market for Treasuries, which influences all other credit markets.”
Scott Sumner of the Mercatus Center, who writes from a “market monetarist” perspective that roughly believes the Fed has been too tight in overall monetary policy since the 2008 crisis, says via email that today’s actions are “reactive, not proactive. Taken in isolation, they are probably beneficial. But the Fed needs to further ease monetary policy to assure that it achieves its policy goals, as set by Congress.”
At his blog, Sumner suggests bold moves for the Fed such as an instant end to paying interest on bank reserves, as that policy is contractionary at a time we don’t want contractionary monetary policy, and to straight-up purchase “as many Treasuries (and MBSs [morgage-backed securities]) right NOW as required to raised the expected price level two years from today to a level 4% higher than today. Not gradually; buy them NOW.” (Emphasis his.)
As Cato Institute monetary policy maven George Selgin says in an email today, despite the total amounts of money involved in the repos, it is properly seen as a series of “temporary short-term loan allotments [that] aren’t cumulative. It’s like me offering you $5 to be repaid next Thursday, and then offering to lend you the same amount then, and again the following week. At no point am I lending more than $5, and always for a short term.”
That said, Selgin also writes: “The question that remains to be answered is whether the Fed will also find it necessary to increase either the size or the duration of its ongoing, outright security purchases, which it so far plans to continue only through April. I should not be at all surprised to see an announcement sometime soon concerning such a decision.” Selgin’s larger-scale critique of the Fed’s ways of managing monetary policy over the past few years can be found here.
This means that any possible wind-down of assets the Fed owns since the quantitative easing days post-2008 crisis seems over. That failure to wind-down is criticized today from a Misesian perspective for “constantly favoring and bailing out bankers and other parts of the financial sector, [which means] the Fed has put all other sectors and industries at a disadvantage. As a nonfinancial enterprise, it’s hard to compete for investors and capital when the Fed has guaranteed that the financial sector will be bailed out no matter what.”
The Fed’s announcement had no immediate positive effects on stock market price plunges, with the Dow Jones Industrial Average down nearly 10 percent today.
For more background on the Fed’s asset holdings, see this 2014 Reason feature by Jeffrey Hummel, “How the Fed Got Huge,” assessing the economic dangers of the Federal Reserve being such a huge holder of financial assets.
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On March 3, 2020, a Twitter user posted a message that claimed former New York City Mayor Michael Bloomberg could have given each American $1 million for the amount he spent on advertisements during his failed 2020 U.S. presidential candidacy:
The tweet reached a much larger audience a few days later when it was uncritically presented by MSNBC anchor Brian Williams and Mara Gay, a member of the The New York Times editorial board:
The problem, it seems to me, isn’t just that Williams and Gay made an arithmetical mistake; mistakes happen.
It’s that they didn’t have the basic math sense to realize that something was off. Agreeing with an assertion that $500 million split among 327 million Americans would be, say, $3 per person would be an arithmetical mistake; it shouldn’t be that hard to quickly realize that 500/327 is about 1.5 rather than about 3, but one can easily flub that.
But $1 million for each American should obviously be vastly more than $500 million. Likewise, $500 million split among 327 million should obviously be vastly less than $1 million. More broadly, just as a matter of common sense, given that the average American’s yearly income is somewhere under $100,000 (all of us should have a sense of that from ordinary life, even if we don’t know the exact number off the top of our heads), no one American is going to spend ten times the national GNP on a political campaign.
The point of basic numeracy, I think, isn’t that people should know their multiplication table or be able to do long division. It’s that people should have a rough understanding of numbers that they can drawn on in situations like this, to know what makes sense and what doesn’t. Sad to see that lacking here.
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