On 13 March, U.S. Treasury Secretary Steve Mnuchin said, “There is a lot of liquidity” in the markets and that the current financial panic “isn’t like the financial crisis” of 2008.
Perhaps he was referring to the current panic’s cause as being sparked by a virus rather than financial, as it was 12 years ago.
As we have long noted, however, the overvalued equites were ready to slump last August but were pumped up with $7 trillion of Fed money into repo markets from last September to January, that artificially pumped them up.
As far as the market crashing now vs. back in ’08, there are similarities.
In the month after Panic set in on 15 September 2008, the Dow dropped 21.4 percent.
At the end of 13 March last week, the Dow had dropped 21.5 percent in 30 days.
During the Great Recession, the Federal Reserve kept markets working by making cheap money available to banks. In the 30 months from December 2007 into July 2010, the Fed gave the banksters a $29 trillion bailout.
Now, with markets and the economy in collapse, Washington is calling for a stimulus package in the range of 2009’s $800 billion “Recovery Act,” which propelled equity markets to an 11 year bull run, while median household income in American sank to 1999 lows, when adjusted for inflation.
And, since the Fed began their repo injection in September, they have flooded the market with $9.1 trillion in artificial/cheap money, interposing itself between the markets and financial reality – more than half the total amount it made available during the Great Recession in a fifth of the time.
Last Thursday, the central bank promised $1.5 trillion would be available to trading houses just for the last two trading days of the week.
Mnuchin also urged banks to use the “discount window,” a mechanism by which banks can take short-term loans from the Fed when the banks run low on cash.
But few banks are going to the discount window. The reason: transactions at the discount window are public record, revealing which banks are short of cash.
In contrast, there is no public record of which banks are taking the Fed’s cheap repo loans.
If there were, the public might be able to see which banks are in the most trouble from risky loans or market investments that have now tanked and want to take their money out.
Indeed, deep in trouble, yesterday, bank stocks continued their sharp selloff with Citigroup leading the downward charge, diving nearly 20 percent, followed by Morgan Stanley slumping 15.6 percent and Bank of America and JPMorgan Chase each dropping more than 14 percent.
Also, the Trump administration is pressuring Congress to alter portions of the Dodd-Frank financial reform act so the Fed could channel money to large domestic and foreign banks without disclosing the banks or amounts involved.
TRENDPOST: While it was applauded by the media, Washington, and Wall Street that the Federal Reserve would inject $1.5 trillion into the short-term money markets to boost the crashing equity markets, never was it noted that this is anathema to capitalism.
Just as with the “Too Big to Fail” Panic of ’08 scheme that bailed out the failing banks and now the Fed action to bail out Wall Street money junkies, in capitalism, business and investors rise and fall on their own merit.
“By their deeds you shall know them.” Capitalism is dead. Corporatism is alive.
From entrepreneurs to mid-sized businesses, from the store clerks to garage mechanics, the government does not inject pennies into their pocketbooks to keep their business from failing or paying their rent when they are out of work.
TREND FORECAST: The fallout from lock downs and the closing down of businesses, enforced by federal, state, and local governments to fight the coronavirus, will spike unemployment to deep depression levels.
With all of the coronavirus coverage, this is barely being reported by the mainstream media or by the governments whose actions will soon cause millions to be out of work.
Instead politicians, media and the general public cheer government actions and ignore those questioning and criticizing them as ineffective, unrequired, and severely damaging to individuals and the economy.
Bankruptcies and credit card/auto loan delinquencies will skyrocket.
