Over the course of 13 years as a media commentator and nine years as a bestselling author, I’ve had frequent occasion to state the following:
“In 1998, Wall Street came together to bail out a hedge fund. In 2008, the Federal Reserve stepped forward to bail out Wall Street. Each crisis was worse than the one before. In the next crisis, who will bail out the Fed?”
This was more than just rhetoric. It was a clinical description of a pattern of worsening crises on an approximately 10-year tempo, along with escalating bailouts.
Now the worst economic crisis in U.S. history is here and the Fed itself is in need of a bailout.
But what is the source of that bailout?
We now know part of the answer. A few weeks ago, the U.S. Congress passed a $2.2 trillion bailout bill called the CARES Act. This is the law that provided $349 billion in small-business loans, which are forgivable if the employer does not lay off its employees.
That fund has dried up already with most businesses getting either no money or not enough to survive more than a few weeks. Also buried in that law was a $425 billion bailout fund for the Treasury to recapitalize the Fed. Since the Fed operates like a bank, they will leverage that $425 billion of new capital into $4.25 trillion of new money printing to buy corporate debt, municipal bonds, mortgages and other assets in order to keep liquidity in the system.
Still, that’s also a temporary solution when many more trillions of dollars of new money will be needed.
U.S. GDP is expected to lose an annualized $6 trillion or more in output in the second quarter. I estimate that 50% of retail and 90% of office rents aren’t being paid right now. Many small businesses will fail and probably never reopen.
I had always suggested that the IMF has the only clean balance sheet and would be the only source of liquidity in the world once the Fed was tapped out.
That’s exactly what we’re seeing now. The world is turning to the IMF for help. And that means printing the world money called special drawing rights (SDRs) to bail out the global financial system in the current economic and financial crisis.
SDRs were used in a small way during the 2008 financial crisis. They did not have much impact because the quantity was relatively small (about $250 billion equivalent) and it took a long time to get done. The SDRs were issued in August 2009, almost a year after the acute phase of the crisis and after a recovery had already begun.
Still, the 2009 issuance was a good dry run in preparation for the next crisis. Now the next crisis is here. Full Story - James Rickards - Daily Reckoning
Blank checks, taboos and bazookas: Inside the global battle to prevent another depression
Officials in the world’s leading economies are quickly rewriting old playbooks and trying to imagine new ones to fight a synchronized global downturn
Economic firefighters around the world have a problem they’ve never seen before: a lightning-fast economic collapse strapped to a virulent global pandemic and wild, whipsawing financial markets threatening to amplify the damage.
From Washington to Brussels to Frankfurt to Berlin and beyond, officials in advanced economies are rolling out the biggest fiscal and monetary policy bazookas they’ve ever imagined. Some of the players, notably Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin, have forged a close fire-fighting partnership echoing their predecessors’ during the 2008 financial crisis. Officials who confronted the brink of economic calamity during a European debt crisis that began a decade ago — such as German Chancellor Angela Merkel and the new European Central Bank president, Christine Lagarde — are revising their playbooks and trying to avoid renewing the divides of that conflict. Read More