STOCK MARKET SURGES 15% IN 3 DAYS!!! Is The Stock Market Crash Over? Even the chairman of the Federal Reserve is acknowledging the longest economic expansion in American history is likely over.
“We may well be in a recession,” Fed chief Jerome Powell told NBC on Thursday morning after a new report showed unemployment claims skyrocketed to record highs last week.
But Powell emphasized this is not a normal recession — it’s one being driven by government efforts to halt the spread of the coronavirus pandemic.
“There’s nothing fundamentally wrong with our economy,” Powell said, noting the solid growth and low unemployment leading into the crisis. “We start in a very strong position.”
The Fed has slashed interest rates to zero, promised unlimited bond-buying and rolled out a series of emergency lending programs — all aimed at stopping the panic in financial markets and preventing a financial crisis.
Powell emphasized the Fed will not run out of ammo to fight this recession, even though rates are already at zero. He said the only limit to the central bank’s rescue efforts is how much support it gets from the Treasury Department.
I just think these numbers right now are not relevant, and, you know, whether they’re bigger or smaller in the short term,” the Secretary said.
He added businesses “hopefully will be able to hire back a lot of those people” with the assistance from the $2 trillion economic relief bill passed by Congress on Wednesday.
“And by the way, you know, lots of big, big companies do continue to hire for obviously grocery stores, pharmacies, you know, delivery services. These companies are on overtime, so I know they are hiring people as fast as they can,” Mnuchin said.
Mnuchin also said the global health crisis forced people out of work — it wasn’t anyone’s fault.
STOCK MARKET CRASH- Central banks have been lowering interest rates and doing quantitative easing (i.e., printing money and buying financial assets) in ways that are unsustainable. Easing in these ways has been a strong stimulative force since 2009, with just minor tightenings that caused “taper tantrums.” That bolstered asset prices both directly (from the actual buying of the assets) and indirectly (because the lowering of interest rates both raised P/Es and led to debt-financed stock buybacks and acquisitions, and levered up the buying of private equity and real estate). That form of easing is approaching its limits because interest rates can’t be lowered much more and quantitative easing is having diminishing effects on the economy and the markets as the money that is being pumped in is increasingly being stuck in the hands of investors who buy other investments with it, which drives up asset prices and drives down their future nominal and real returns and their returns relative to cash (i.e., their risk premiums). Expected returns and risk premiums of non-cash assets are being driven down toward the cash return, so there is less incentive to buy them, so it will become progressively more difficult to push their prices up. At the same time, central banks doing more of this printing and buying of assets will produce more negative real and nominal returns that will lead investors to increasingly prefer alternative forms of money (e.g., gold) or other storeholds of wealth.
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