Posted 10 апреля 2020,, 14:17
Published 10 апреля 2020,, 14:17
Modified 24 декабря 2022,, 22:36
Updated 24 декабря 2022,, 22:36
A dramatic picture of how a pandemic will complete the transformation of the American economy from a leading one into an ordinary one was drawn up by network analyst Pavel Spider on his blog .
“April 9th will turn out to be about the same important day for the Fed as the day the Fed was established (December 13, 1913), with the difference that now it’s the start of the process of breaking all those rules by which the world has existed for a hundred years. They completely broke down the most important skeleton on which the existence of the United States was based, as the leading global economy.
Capitalism in the USA was built on a debt paradigm and these are not just words, this is a credo, a philosophy. Unconditional fulfillment of obligations to creditors and counterparties was a marker separating the successful links of the chain over the unsuccessful. Anyone with a high credit rating, backed by a long history of positive relationships with counterparties, received preferences in the form of preferential funding rates and an open capital market. In fact, the entire US legal system in the field of finance and economics was based on the protection of the rights of two parties to transactions and, if someone violated the rules of the game, he flew out of the system through the prescribed bankruptcy procedures, losing assets and privileges.
Competition, aggressive natural selection and adventurism have made the United States what it is - the dominant economic force and technological leader. Jewelery-tuned feedbacks made it possible to throw ineffective elements overboard on time, extolling genuine leaders. All this provided the dollar with reserve status and the ability of the United States to issue currency against debts, in fact, against the expectations of future income, successfully covering even the double deficit. It was in the 20th century. Since then, the United States has degraded - slowly but consistently.
The first phase of disconnecting feedbacks occurred in 2008, and the subsequent period is called the “new normality”, where stray leads to the asset market were so significant that by 2020 they managed to inflate one of the most ambitious stock market bubbles ever created.
But all that has happened over the past month turns the idea of this world. The unprecedented and absolutely prohibitive rates of emissions are known, but they are still surprising. In a month, they created $ 2 trillion from the air, 2/3 of which was to buy assets. Why are 2 trillion so significant? This is the combined program QE2 + QE3, which became legendary in their time, about which they wrote and made films, but then it took them 187 weeks from November 2010 to June 2014 to increase the balance by 2 trillion, this time they managed in 4 weeks - it's 47 times faster!
The current rate of emission is faster (!) Than the rate of generation of all US GDP in the best years. They went far beyond lowering rates, zeroing reserves, hyperdynamic QE, traditional repos and swap lines. They began to interfere in the corporate market with admission to the purchase of corporate bonds, created a whole pool of credit programs for business, becoming the lender of last resort, removing the risk factor from the financial sector. All this is unthinkable and unbelievable, but yesterday they still expanded the idea of insanity.
The volume of the loan program has been expanded to 4 trillion with an additional 2.3 trillion, while it is directly indicated that now the Fed buys not only high-quality assets, but pre-default trash rated BBB- / Baa3. Apart from junk bonds, they entered the municipal market by directly funding the states and local governments for at least $ 500 billion. They did not stop there and initiated unsecured lending to small and medium-sized businesses for $ 600 billion, at least not counting previously announced programs. You need to understand that lending to small and medium-sized businesses is on an unsecured basis so that the Fed does not say so. the pledge of this business is only pissed rags and a bin.
There is a whole spectrum of idiocy: PMCFF / SMCFF, PMCCF and SMCCF, PPPLF, previously known TALF and much more. In order not to go into the hieroglyphics of credit and money markets and programs, I’ll try to explain on my fingers the essence of what the Fed and the Treasury are now doing.
Imagine a certain John who owns a small restaurant business with an average revenue of $ 1 million per month. Let it be a respectable businessman who acted within the framework of the old credit paradigm. If there is a cash gap, then the business is looking for funding sources and cuts caps, operating expenses, dismisses staff and so on. Until bankruptcy. At the very least, it implements business optimization to the extent that it is possible on the market and in the legal field. This is how the economy worked, and so the United States has become a great country with competitive, efficient business.
John lost 95% of his revenue due to quarantine, he is crushed and empty, because this is the business of his whole life, and he honestly did business. He has no choice but to switch to standby mode, covering cash gaps from accumulated reserves or optimizing the business. Banks are not too interested in lending to a high-risk business that does not have collateral, reserves and is in danger of bankruptcy. John understands that this is most likely the end and begins to fire staff and then learns about the Fed's fabulous programs. He goes to the bank, say JPM, after having prepared a detailed presentation about how incredible his business is and how regular customers love it.
The JPM loan manager dejectedly listens to John’s story about his incredible business and asks how much John loses for the quarter. John was not hoping for a quarter, he would have to get the money for a month. But the manager with an even more dull physiognomy repeats the question, how much does John lose? After receiving a response of 2.9 million, approves a loan of 5.8 million for zero or so. John in shock and confusion thanks, goes to the exit, and then the manager shouts to him: “Take another 2.9 million from the top as a gift and a little more if necessary” John leaves the bank with a suitcase of money and almost annual revenue and does not understand what occurred. The small print in the contract says that 2.9 million is a gift from the Treasury, as John got into the “affected industry”, and 5.8 million gift from the Fed, because who in their right mind would give the Fed an unsecured loan? The Fed is de facto and considers this as a subsidy, because everything is written in black and white (not directly, indirectly) that these loans are without any expectation of a return.
The sad face of the manager is explained by the fact that people like John are millions and it is uninteresting to listen to piercing stories about what a wonderful next business is to bake rolls or make pillow pillows. JPM does not care about the quality of the borrower; from a bank, JPM turns into a robot ATM, which automatically approves loans to everyone, and this is understandable. At least 95% of the risk is taken by the Fed. No one cares if a business loan is repaid or not. I don’t give a damn to the loan manager, I don’t give a damn to the management of JPM, and the Fed, however, also doesn’t give a damn. And next John, Roberta and Marcus tumbled out of the credit offices of the primary dealers with suitcases of money and greeting cards from the Fed.
The eternal engine, bravo! The government fully covers your losses, as if redeeming all your revenue and two more from the top. Now the Fed says that we will cover all your triple-out income. Nothing is required of you, you can record this in “profit” (after all, the closed John with restaurants, as it was closed, remains so, but got a suitcase of money). The only thing required is to pay the bills as before. Those. they close cash gaps and a cascading effect, pretending to have invented a perpetual motion machine. Therefore, layoffs may not be as expected as a fatal decline in income.
And then the fun begins. From a country in which the debt paradigm is elevated to the absolute, and where the borrower-creditor relationship is spelled out to the smallest detail, the United States is turning into an organization to distribute free food and free money to everyone who cares. Banks were already doing something similar in 2002-2007, when they promoted Subprime mortgages by issuing mortgages to every homeless person with collateral in the form of a Coca-Cola can and Sneakers. Then they distributed risks through the system through CDS, now they distribute risks through the Fed. If earlier the risks and threats were the collapse of the derivatives market, which dragged away the rest (commercial, investment banks, mortgage companies, etc.), now it is believed that the dominance of the Fed and confidence in the dollar will forever and never end.
For every dollar of income that falls out, there is a minimum of three dollars of subsidies from the Treasury and the Fed. This is not so difficult to calculate (the estimated amount of economic losses in dollars to the total "assistance" from the Fed / Treasury). "Help" in quotation marks, since they undermine the very foundation of capitalist America. Current policy will create the effect of "parasitic" debt, i.e. certain obligations, which are, as it were, but, in fact, not (you can not give them away). Previously, your loan = assets and income of the financial system, for which they (banks) will tear three skins. The stricter the system of fulfillment of obligations, the higher the trust and the greater the efficiency.
If there is no way to get away from debt dumping, it is necessary to repay it, and you can repay it only by increasing the efficiency and competitiveness of the economy. By distributing money to everyone in a row with a coefficient of 1 to 3 (for every dollar lost three dollars as a gift), it creates not only monstrous inflation markets, undermining the status of the dollar and the treasury market, but also causes fundamental damage to economic efficiency, reducing productivity and efficiency.
All these Jones, having received suitcases of money, will inevitably reduce productivity and efficiency, since money, like credit, is first of all coercion. Having received something without risks and coverage, most will simply try to withdraw money from the business, including bankrupt main business, while others will fail. By reducing the productivity of the economy, a disproportion is created between the available cache and output volume, which in the medium term creates powerful inflationary pressures.
It seems already ... They have there not only the Fed's balance is growing exponentially, there the money supply M2 is growing at a record pace in history - more than in the past inflation peaks of the 70-80s in the United States, when inflation was double-digit. Now it is almost 16% per annum. this never happened before!
This is at the end of March, and started distributing money in April. Earlier, I wrote in January about the inflation shock, which could cause markets to collapse and the bubble to burst through a forced emergency liquidity pumping procedure. Formally, the trigger was viral hype and the closure of economies, but the problem of excessive growth in the money supply did not go away, but became even more pronounced. The main effect of the money supply growth in March is concentrated in the cache entry of the top 20% of the population by income. Now they have strengthened this effect by distributing money from the helicopter to the remaining 80%
And what is most striking - helicopter bombing by cache bags occurs in conditions of violation of domestic and international logistics with stopped production. At one point, there was a convergence of all accelerating factors of inflation. In 2008, this could be offset by deflationary processes among the poor and middle class due to loss of income. But now the Fed is compensating for all revenue losses, both among businesses and the public.
Free markets are dead. The second important point is the breakdown of markets, the violation of feedbacks and natural pricing mechanisms. The Fed buys everything and blows that the floor is not pinned. There are practically no assets on the market that are not covered by the rabid monetary machine of the Fed. They even redeem shares indirectly through primary dealers for money from QE.
The market in normal conditions, especially before 2009, was not ideal (markets are never ideal and are often destabilized in both directions by side processes), but the market remains the best mechanism for assessing cost and risk measures. This in turn determines the effectiveness of the reproduction process in the economy, cost control, risk management and decision making tools. Induced by the market by secondary artificial processes / manipulations and distortion of feedbacks creates a false, fake balance sheet, which in turn leads to erroneous decisions of counterparties, not counting the permanent buildup of assets.
In less than 3 weeks, they compensated for more than half of the fall by 2 trillion Fed and with such a fuse, they can be slammed from below into the overhead by May indices. Have you noticed that the last 3 weeks on the monstrous depressing data on unemployment benefits there is a record hyperdynamic rally on average more than 4% (immediately after the reports)? Intraday is a very rare growth rate. It’s a hint, it’s a piercing laugh of the trading desk of primary dealers for several quarters of how they managed to get everyone jewelry-wise with this viral flash drive, getting 50x QE for download speed.
The fierce Lockdown and the March panic are the only way to receive such unprecedented financial injections from the world Central Banks. The only thing that matters now on the market is the narcotic delusion from the next dose of Fed liquidity. Buybacks and dividends are now of no interest to anyone; the Fed is printing more in a week than the entire annual loss of buybacks. The entire aggregated cash flow from the economy to the market in the best of times is much less than what the Fed created in a month. Business incomes are of no interest to anyone, and moreover, the more unemployment and deaths - the better, so the Fed will still have gifts. The market is incredibly addicted to monetary dope, but it can end so quickly than many realize. The inflation shock (on the path of quarantine exit) will create unprecedented pressure on regulators who will be forced to pump out liquidity and tighten policies. And now this second wave will cover already in full, destroying everything in its path (there will be no support from anyone already). Meanwhile, they updated not only the 3-week growth record, but also reached a new maximum in financial ratios (i.e., the market is now more expensive than in February at 3400). The second wave of collapse is inevitable and it will be more painful than the first.
A lot more painful”