President Ronald Reagan famously said, “The nine most terrifying words
in the English language are “I'm from the government, and I'm here to
help.”
The Fed will now increase its Repo Operations to at least $1.5 trillion:
NY FED SAYS : 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.
The problem is that the banks are not being forced to buy stocks with this money. So it might not work at all. The only tool the Fed has left is to buy corporate bonds and stocks, but there is another problem here.
Currently, the Fed is only legally allowed to purchase U.S. Treasury bonds, and mortgage-backed securities issued by government-backed agencies liked Fannie Mae and Freddie Mac. Such a move beyond that would require Congressional approval.
Update: Emergency FOMC meeting:
On Sunday 15 March, the Fed officially started QE of 700 billion (500 billion treasuries and 200 billion MBS). Cut rates to 0%. Reduced reserve requirements to 0. Initiated swap lines. This is the real bazooka.
Update 2: Mnuchin announces to add even more QE:
Update 3: The Fed can now also buy up stocks and corporate bonds:
Update 4: The ECB is firing a 750 billion bazooka as well.
The Governing Council decided the following:
(1) To launch a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19.
This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP).
For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.
A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP.
The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of the year.
(2) To expand the range of eligible assets under the corporate sector purchase programme (CSPP) to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under CSPP.
(3) To ease the collateral standards by adjusting the main risk parameters of the collateral framework. In particular, we will expand the scope of Additional Credit Claims (ACC) to include claims related to the financing of the corporate sector. This will ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations.
The Governing Council of the ECB is committed to playing its role in supporting all citizens of the euro area through this extremely challenging time. To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments.
The Governing Council will do everything necessary within its mandate. The Governing Council is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock.
To the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks that we face. The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.
Update 5: The Fed opens swap lines with following central banks, which will flood the world with dollars. Note that Russia and China are not in the list:
On Sunday, the Board of Governors enhanced the standing USD liquidity swap line arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the ECB and the Swiss National Bank by offering 84-day maturity, in addition to the 1-week maturity operations currently offered, and by reducing the pricing by 25 bps to OIS+25bps.
On Thursday, in response to the global need for USD liquidity, the Fed reopened the swap lines they closed in 2010 with a range of central banks of non-G7 countries: the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, and the Sveriges Riksbank. These USD liquidity arrangements will be in place for at least 6 months.
Some of the world’s largest economies are not covered by these arrangements, among them Argentina, China, India, Indonesia, Russia, Saudi Arabia, South Africa, and Turkey
Update 6: The stimulus package is now 4 trillion.
Update 7: The QE program is now infinity since 23-Mar-2020 (MBS and Treasuries).
The Fed will now increase its Repo Operations to at least $1.5 trillion:
NY FED SAYS : 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.
The problem is that the banks are not being forced to buy stocks with this money. So it might not work at all. The only tool the Fed has left is to buy corporate bonds and stocks, but there is another problem here.
Currently, the Fed is only legally allowed to purchase U.S. Treasury bonds, and mortgage-backed securities issued by government-backed agencies liked Fannie Mae and Freddie Mac. Such a move beyond that would require Congressional approval.
Update: Emergency FOMC meeting:
On Sunday 15 March, the Fed officially started QE of 700 billion (500 billion treasuries and 200 billion MBS). Cut rates to 0%. Reduced reserve requirements to 0. Initiated swap lines. This is the real bazooka.
Update 2: Mnuchin announces to add even more QE:
Update 3: The Fed can now also buy up stocks and corporate bonds:
Update 4: The ECB is firing a 750 billion bazooka as well.
The Governing Council decided the following:
(1) To launch a new temporary asset purchase programme of private and public sector securities to counter the serious risks to the monetary policy transmission mechanism and the outlook for the euro area posed by the outbreak and escalating diffusion of the coronavirus, COVID-19.
This new Pandemic Emergency Purchase Programme (PEPP) will have an overall envelope of €750 billion. Purchases will be conducted until the end of 2020 and will include all the asset categories eligible under the existing asset purchase programme (APP).
For the purchases of public sector securities, the benchmark allocation across jurisdictions will continue to be the capital key of the national central banks. At the same time, purchases under the new PEPP will be conducted in a flexible manner. This allows for fluctuations in the distribution of purchase flows over time, across asset classes and among jurisdictions.
A waiver of the eligibility requirements for securities issued by the Greek government will be granted for purchases under PEPP.
The Governing Council will terminate net asset purchases under PEPP once it judges that the coronavirus Covid-19 crisis phase is over, but in any case not before the end of the year.
(2) To expand the range of eligible assets under the corporate sector purchase programme (CSPP) to non-financial commercial paper, making all commercial papers of sufficient credit quality eligible for purchase under CSPP.
(3) To ease the collateral standards by adjusting the main risk parameters of the collateral framework. In particular, we will expand the scope of Additional Credit Claims (ACC) to include claims related to the financing of the corporate sector. This will ensure that counterparties can continue to make full use of the Eurosystem’s refinancing operations.
The Governing Council of the ECB is committed to playing its role in supporting all citizens of the euro area through this extremely challenging time. To that end, the ECB will ensure that all sectors of the economy can benefit from supportive financing conditions that enable them to absorb this shock. This applies equally to families, firms, banks and governments.
The Governing Council will do everything necessary within its mandate. The Governing Council is fully prepared to increase the size of its asset purchase programmes and adjust their composition, by as much as necessary and for as long as needed. It will explore all options and all contingencies to support the economy through this shock.
To the extent that some self-imposed limits might hamper action that the ECB is required to take in order to fulfil its mandate, the Governing Council will consider revising them to the extent necessary to make its action proportionate to the risks that we face. The ECB will not tolerate any risks to the smooth transmission of its monetary policy in all jurisdictions of the euro area.
Update 5: The Fed opens swap lines with following central banks, which will flood the world with dollars. Note that Russia and China are not in the list:
On Sunday, the Board of Governors enhanced the standing USD liquidity swap line arrangements with the Bank of Canada, the Bank of England, the Bank of Japan, the ECB and the Swiss National Bank by offering 84-day maturity, in addition to the 1-week maturity operations currently offered, and by reducing the pricing by 25 bps to OIS+25bps.
On Thursday, in response to the global need for USD liquidity, the Fed reopened the swap lines they closed in 2010 with a range of central banks of non-G7 countries: the Reserve Bank of Australia, the Banco Central do Brasil, the Danmarks Nationalbank, the Bank of Korea, the Banco de Mexico, the Reserve Bank of New Zealand, the Norges Bank, the Monetary Authority of Singapore, and the Sveriges Riksbank. These USD liquidity arrangements will be in place for at least 6 months.
Some of the world’s largest economies are not covered by these arrangements, among them Argentina, China, India, Indonesia, Russia, Saudi Arabia, South Africa, and Turkey
Update 6: The stimulus package is now 4 trillion.
Update 7: The QE program is now infinity since 23-Mar-2020 (MBS and Treasuries).
Update 8: The U.S. government has reached a deal for a $2 trillion stimulus package + $4 trillion in bailouts = $6 trillion.
Update 9: The G20 pleads for a $5 trillion response.
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