After chopping interest rates to near zero and announcing a massive $700 billion quantitative easing (QE), the Jerome Powell-lead bank has now said it will buy short-term loans from banks and companies to a smooth flow of credit within its economy.
Evidently, the Coronavirus pandemic is disrupting processes and the US Federal Reserve is desperately trying to prevent a cataclysmic breakdown of its core industries.
FED Mop Up short-term loans
The FED seems to revive one of the key tools it unleashed during the GFC of 2008-09 by unclogging system of “commercial paper.” Large corporations issue commercial papers often to raise payroll needs and to meet other short-term costs.
However, with COVID-19 pandemic disrupting processes and causing panic, rates for commercial papers are up as many companies race to issue them with gloom expectations that the market will tank, affecting their revenue.
And it gets worse.
Buyers, usually money market funds, are seeking to dump them meaning although corporations would want to seek extra funds, they can’t due to the extra supply. Faced with this problem, the FED and the Treasury Department are now stepping in to save and “drain” the clogged system.
“An improved commercial paper market will enhance the ability of businesses to maintain employment and investment as the nation deals with the coronavirus outbreak.”
The Printing Spree
The FED has been on an intervention spree, printing money in alarming proportions as they react to major players faced with a cash crunch selling whatever they can to stay afloat.
— Peter R. Quinones (@PeterRQuinones) March 15, 2020
They recently extended their securities purchase plan to the Repo market, expanding their scope “to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes.”
Bitcoin is Stable and up 12%
As centralized entities flex and temporarily shore a falling market, crypto commentators and Bitcoin supporters are now pointing at their fragilities and instead lauds Satoshi Nakamoto’s vision.
Bitcoin is a creation borne out of a crisis.
It is designed to be deflationary with a fixed supply.
Bitcoin’s superior monetary supply once again comes to limelight.
Satoshi made sure this would never happpen
— Wilfred Michael (@CryptoWilfred) March 17, 2020
Over the long term, it is uncorrelated with the traditional market meaning despite the across the board free fall of asset prices, it can be a reliable store of value in the long term.
At the time of press, Bitcoin is up 5% in the past 24 hours.