Can the Fed and Friends Save the Economy?

On putting too much faith in central bankers.

Comments: 204

  1. "But were last week’s big sell-offs equally irrational? Probably. " "So what happens next? When it comes to the markets, I have no idea." Wow, such conviction and insight. No wonder economists are held less accountable than weather reporters Krugman should be more honest and admit he HOPES that are more bumps in the road so it will negatively affect Trump.

  2. @Norville T. Johnston I would suggest a different interpretation: 1) Krugman is being honest that economists cannot predict the market because it doesn't always move the way indicators suggest it should. 2) Coronavirus is an unpredictable bump in the road, regardless of who the President is. 3) Apart from fear and the herd mentality, it is having very real effects on the underlying economics. 4) With interest rates so low, a cut won't have much, if any effect. 5) Conclusion: it is likely, but not certain, that investors are in for a rough ride. The fact that this will reflect poorly on Trump, regardless of what Krugman may hope or not, comes with being President. It is also true that his dismantling of the infrastructure, put in place by Obama, for dealing with pandemics does, in fact, make him somewhat responsible for the fallout and fear of Coronavirus. And it is certain that he will blame all his enemies, real and imagined.

  3. @Norville T. Johnston I believe you're projecting. You may have rooted for economic downturn during Obama's presidency to hurt him politically but people like me and Professor Krugman HOPE we're wrong about DJT and that his policies bring prodigious gains in every way. When Obama mishandled something, Dr. Krugman pointed it out and is doing the same now.

  4. @Norville T. Johnston What Paul is not saying, because he's beat this drum to death, is that this cheap money is directly designed for additional buy stock backs that will fuel equity prices but actually provide little lift to the overall economy. The bump is coming, and it's in the form of corporate debt to earnings ratios. US corporate debt is $15.5 trillion, 74% of US GDP according to Forbes (summer 2019). Financial stability is waning in several market sectors and indicators, especially riskier bonds that are too plentiful due to floating loans for equity buy backs. The bump is before the pothole, both are coming by year-end 2020.

  5. Powell has zero spine. A recession will come eventually, and by that time, the Fed will have to rely on another round of QE to move the needle.

  6. @Zane Good analysis, but what do you want to bet that QE is next on Trump's wish list? By the time we get to a real recession, every arrow in our quiver will be shot, except for fiscal stimulus, which the Democrats should not approve unless it conforms exactly to their vision of it--i.e. no tax cuts for fat cats or military Keynesianism.

  7. @Zane What would he do if he had a spine, other than try to stay upright working within twitter-reach of a nutjob? Isn't Krugman's point that he has no tools available?

  8. @Zane QE has been in place since last summer. Not much more room to work with regarding that option.

  9. How are interest rate cuts going to help when the looming crisis pertains to material goods? All the investment in the world won't make a difference if factories don't have the materials to produce goods. You can't eat money.

  10. Lower interest rates are supposed to stimulate taking loans to juice industry and perhaps spending. The coronavirus just keeps people out of the stores and out of the factory. Lowering interest rates does not cause people to go back to work or overcome virus fears to go shopping.

  11. Those things count only if the spectrum of your thinking does not begin and end with money.

  12. Perhaps lower rates help small businesses that may take out bridge loans to survive until the pandemic passes?

  13. Krugman's analysis points out the irrationality of the market, as well as the lack of wiggle room. What was perceived as a healthy economy was already unnecessarily "juiced". This latest move by the Fed is a show of "no confidence". Unlike previous downturns, this is compounded by lack of trust in the competence of the current administration to navigate this current crisis. We're likely riding a roller coaster into the "Trump Slump."

  14. @Sophistia -- trump slump. Good one! Not to mention the trump pandemic trump's great recession and the trump depression. I'd settle for just one out of three -- sadly, most of us already have the latter.

  15. @Sophistia If a slump dumps Trump, bring it on.

  16. I don't see how interest rate cuts are going help the economy slowed down by factories closing and by demand reductions caused by people afraid to travel and go out. I think what really needs to happen is that the government should provide free virus testing for those who have a reason to request it. People treated for the virus who don't have medical insurance or large deductibles should be supported financially. There ought to be some kind of funds for people trapped in quarantine or worse sick in the hospital. Some industries, for example, the travel industry and especially airlines may need some long term low interest loans to tide them over what could become a drastic reduction in business revenue. The workers laid off by the travel industry should be able to collect unemployment benefits. The government should also get ready for the potential large increase in hospital utilization in isolation environments. Of course, there also has to be an increase in government funding for labs working on a vaccine or on treatments for the virus.

  17. Lester, I hesitate to criticize , but clearly you just don't get it. In the US, health care is a business, and businesses have to make a profit. Therefore the more sick people there are, the greater the profit. No freebies here, please. As for those who don't have health insurance which matches the president's, they're losers - why should anyone care about them? Get with the program, Lester - there are great opportunities here if you know how to exploit them. p.

  18. Powell has been brow beaten by Trump constantly as Trump fears that any economic bad news will hurt his reelection chances. There is no long term strategy here. Just an appeasement of an incompetent, petulant president. To make matters worse, given that the current difficulties have to do with an unpredictable pandemic and resulting economic chaos, the stimulus of a rate cut will have negligible impact on the underlying economy and takes away a tool to treat a real economic downturn in the future. It may prop up the stock market by reducing the returns on debt, but that matters only to Trump, who banked his presidency on stock market success.

  19. I have been somewhat leery of bonds for a while. A series of unfortunate events coupled with decades of government manipulation of interest rates had caused me to see bonds as high risk and low reward. But all of that pales compared to what we are now seeing. The current bond market has become divorced from reality. Adjusting for inflation investors buying bonds are effectively paying entities to lend them money. That's nuts. When one considers the huge amount of global debt at every level of society... personal, corporate, and government; bonds have reached the point of being a ultra-high risk investment. The only rational argument for buying them is if you think the world is heading into another deflationary economic crisis. And even then, as a long term investment I can't see how bonds will outperform equities or pretty much any other asset class. How bad is it? Given a choice between bonds and gold, which pays exactly nothing, I'd take the gold in a heartbeat. At least gold is likely to keep pace with inflation over the long run, and is impervious to the depredations of central bankers.

  20. As an accountant, I learned to analyze company financial statements and make reasonable predictions about future earnings potential. My investments were guided by my analysis. However, the tech stock bubble gave me a valuable lesson. The stock market is more about psychology than economics. Thus, the Coronavirus spooked our collective outlook and now we see a rebound after we have come to our senses. Cutting interest rates makes us feel better and drives up stock prices. How will lower interest rates help if supply and demand are curtailed by people not producing goods and buying products?

  21. I'm not worried. We'll have a vaccine in a few months and be ready to rock again! Wait, that's for phase one testing? I'm confused. I mean, at the outside a year...or huh? We'll just use the flu vaccine. That'll work. Whatever! Keep Am. Great!

  22. @Chris My wife does biotech research. We were speaking of this yesterday, she was saying a vaccine that can be released to the public is at least 8 months away. This morning the CDC said it was a year away. It takes time to develop the vaccine and run it through testing, and this is if it is "fast tracked". There is no quick fix for this virus.

  23. Nobody can predict where this will go, but my theory is that the market is comfortable with Trump's leadership when all is comparatively smooth sailing. After all his administration is very business friendly. I predict that the market has less faith in him and his administration during a crisis such as the coronavirus and the fed machinations will not be enough. I sincerely hope I'm wrong, but I worry that we are in for a bumpy ride.

  24. Before the virus was front and center, broad stock market indices ( S/P 500) was as overvalued as the worst points in history in the last 100 years. Since two of the most common appeals to “this time it’s different” relate to interest rates and profit margins, a few observations may be helpful. First, while low interest rates may very well encourage rich stock valuations, those rich stock valuations have the function of reducing likely future returns on stocks. For any given amount of future cash, if one can observe the price being paid today, one can directly calculate the implied rate of return embedded in that price. No further “adjustment” for interest rates is required. A second, equally important point is that if interest rates are low because growth rates are also low, no valuation premium is “justified” by the low interest rates at all. Stocks will produce a competitively low return by virtue of the depressed growth rate. Elevating valuations in that situation only adds insult to injury. With regard to profit margins, it’s important for investors to recognize that above-average profit margins of recent years were the mirror image of depressed real unit labor costs that followed the surge in unemployment after the global financial crisis, and that this labor market slack has now been taken up, placing clear downward pressure on nonfinancial profit margins. Right now, I'd focus on containing the corona virus, so people do not die. That is a real investment.

  25. The difference between Dec. 5, 2000 and now is that on that date, we were not looking at the development of a pandemic disease. No rate cut is going to fix that!

  26. I'm very concerned at the low rate as you taught us for years about the small cushion to allow further rate cuts, but the problem is Trump's hammering away at Powell to fire up the economy with rate cuts. I might be accused of irrational criticism, but the fact certainly is now that this is Trump's economy. I hope for everyone's sake, we are OK as the epidemic is one of psychology now even before widespread physiological disease, but like 1929, people always repeat the mistakes of history because they know them. I'll be growing apple trees for everyone now.

  27. Yes, and who would have thought that it would be a pandemic which is causing us to "face a serious bump in the road." This metaphor can be expanded by envisioning a speeding car, driven by an impulsive teen who is influenced by the whims of his, or her, peers. When that car meets that speed bump, it jolts and trembles, shakes and vibrates, possibly with worn-out brakes that can not slow down the impact fast enough before it crashes into that car ahead or, worse yet, people crossing the street. It is a sad but true and never-to-change aspect of capitalism: that is that for us who have little to do with Wall Street, we are still vulnerable to its adverse fluctuations.

  28. Over here we call your discipline Philosophy, Politics and Economics, Paul. Best if you stay away from Quantitative Finance and Market mechanics. It’s not a mugs game, but if you think traders care what commentators think as opposed to those who provide their capital, its cost and their trading limits, then you got another thing coming.

  29. @David: Dr. Krugman has made is clear repeatedly that he DOESN'T have the misconception that traders care what commentators think.

  30. @David Well then, let's all bow down to algorithmic trading ... because its so rational, disciplined ... and does't care about pandemics.

  31. So the Fed has cut .5 percent, now Fed rates are at 1 percent. The ten year is near 1 too. So what happens when we start having negative interest rates? I think that would be a timely column to start working on now.

  32. So it appears the business cycle is not dead after all. Things interrupt the good times. The pendulum always swings. But there is a lesson in that. It will swing back to good times again. And it's like two steps forward, one step back. The coronavirus came out of nowhere. But life is like that. There were some concerns that asset prices were overvalued even before this crisis hit. So it might have been inevitable that there would be a market correction. Yet if you're a long-term investor, it makes no sense to sell. Markets trend upward over time.

  33. @David There were some concerns that asset prices were overvalued even before this crisis hit. So it might have been inevitable that there would be a market correction. **** Thank goodness the market has been so high. That cushion has assuaged a lot of investors.

  34. Looking at the Wikipedia page for "Wall Street Crash of 1929", I see: "With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market". In any case, there is a history of people thinking the stock market can be controlled. And there were times, quite clearly, when that was not the case. What happens when a lot of wealth disappears over a period of a month ? The economy will be in trouble too.

  35. How will interest rate cuts help people who get laid off from jobs and can't pay their rent? How will interest rate cuts help small businesses who can't access their supply chains and/or people aren't buying because they don't have a paycheck?

  36. Let them eat cake!

  37. @big al But only if they can grow and mill their own wheat and raise chickens for eggs. We cannot help them with the ingredients for cake. That would be socialism! And maybe even pinko communism. It would also foster a culture of dependency, unlike inheriting millions of dollars.

  38. Most commenters understand this already low rate being reduced again will do virtually nothing to calm a jittery and irrational market. More that I can say for Trump. Many big businesses are siting on tons of cash they are already choosing not to invest in capital expenditures and expansion. They will not take advantage of this rate cut. One commenter suggested perhaps small companies might take out bridge loans to keep the doors open. Not sure most banks are interested in that kind of risk. If any are, it will be a small number. Better the government would loan directly to small businesses if the passed muster. As nearly everyone has said, this is once again a Trump wanting to pretend he is doing something for political purposes.....

  39. Its nice to have someone as knowledgeable and respected as Paul Krugman admit that we don't know what is going to happen with the market. And, we obviously don't, so, we'll have to let it play out. But, this day to day lurching and trying to fix by drastic measures seems unlikely to work. Fingers crossed!

  40. @Kent If you don't know what's going to happen with the market you should immediately get out, because the big money that owns the market knows what will happen, and knows exactly how to make it happen. When you have trillions of dollars you leave nothing to chance. The average Main Street investor does not realize that Wall Street Traders make money when the market goes either up or down, and Traders are paid to make that happen everyday, which they can do with only 5 million dollars plus leverage. Wall Street made out like Bandits when the markets dropped 50% in 2001 and again in 2008. Since the piggy bank has been filled back up, it's time to crash it down again.

  41. @Fourteen14 Don't believe that the market is Entirely Rigged by traders?? Here's how you do it: You have $200 million you need to place long. So you first leverage up $5 million and feed it into your Level 2 ladder short. Best to be a name brand big trader so you attract attention. You hit every bid and your selling pushes the market down. Other traders see the price fall and want to get out fast. Algos see what you're doing and jump on board. (You've called your trader friends so they know what's up and help out - you helped them yesterday - then you call your contacts in the financial press with the scoop and they trash talk the stock down). The price chart will look like a tilted-over "W" pattern; a low followed by a lower low. That second low is you taking the other side of everyone else's trade to create down momentum. Now you've run all those stops below the first low and have clear sailing to buy - remember you have $200 million you need to buy. This is called the "old wash and rinse." You've got everyone crossed up and lowered the price down, so now it's time to lift the ask. Now you buy, buy, buy! Your client is happy - you placed their $200 million in the market at a very good average price so they'll give you their next block order. That's how it's done. That's why the average Wall Street income is $400,000 and why small investors following their brokers' advice are marks. Still think the markets are not manipulated?

  42. I don't know if this is good or bad, but if imports drop due to problems overseas then we might switch from an economy limited by insufficient demand to one limited by insufficient supply. This could drive up the costs of imported goods and increase demand for domestic goods. Since we are already at close to full employment, this leaves productivity increases as the only option. While covid-19 is nowhere as severe, I have heard that the sudden drop in post-plague workers led to economic expansion due to higher productivity. These are just speculations. I would welcome different points of view.

  43. @Grindelwald I'd suggest taking a long look at the mortality data by age. Most of those dying so far have been retired.

  44. @Eknath , good point but this is international as well. The loss is not currently dead workers but the likelihood of a few years of healthy workers not being able to work because of quarantines and plant closures. To maintain our GNP in the US, we would have to make more here. Not only are we at close to full employment already, but more US workers are retiring than are being replaced by younger ones. We have also alienated the supply of skilled immigrants. Before they shut him down, Mulvaney admitted that we were "desperate" for more skilled immigrants.

  45. "There was some real news about the coronavirus, but probably not enough to justify the sheer scale of the decline." Well maybe. I'd concede that the sudden drop in the markets by more than 10% in one week was awfully abrupt. If the market was ever rational based simply on stock value than sheep mentality in Vegas-style gambling, it would have already dropped substantially over the last month. If we look at what China did to curb the astronomical growth of the epidemic, the Chinese economy will be affected for months. That will affect the US economy through supply chains and product deliveries. Considering the Trump Administration Moe, Larry & Curly stage show in providing accurate testing, there is no reason to expect that the US won't have to restrict commerce to some extent in order to inhibit the epidemic growth here. There are no good reasons for optimism. We are continually hearing about cases appearing with no traceable source meaning that the infection is already present in many communities not knowing who is the source. There is no cure, no vaccine, and wholly inadequate quarantine facilities. A vaccine is promised within about a year, but, remember, there is not yet any vaccine for HIV, and ebola had an approved vaccine as of 2019 that was used by 2018 after initial infections in 2014. Public statements by Trump-controlled medical experts are optimistic, but the facts don't support that optimism.

  46. @DGP The facts might suggest an over-reaction as they try to see if they can block transmission in a global economy.

  47. On a "selfish" note I'm glad the Feds lowered rates as that should in theory lower mortgage rates which is good for me because I'm in the process of selling property. That being said, I think it was a bad move as the Federal Reserve won't have too much room to do something if there is a major shock to the economy (such as financial shocks, etc.). They should've done nothing and let the "market forces" play itself out. They are perpetuating and facilitating an already over-valued market. Not only that, they are are giving into "child tantrums" which as many parents know, doesn't end well.

  48. @thewhigs Mortgage and short term rate are rarely tied together much.

  49. @David Agree - both are based on various "treasury curves" and there were some changes to the various treasuries.

  50. Funny, I never heard any of that "panic". I listen to financial radio every day. Analysis and investors are not alarmed because the market has so much room still (ex., is still so high). These guys realize that the severity of this illness just isn't that bad. Big swings don't represent panic, but somehow I suspect the good professor knows this.

  51. @AACNY But the answer is obvious, isn't it? Another whopping "magic elixir" for our economy ... a tax cut for the wealthy. But, you knew this, right?

  52. Dr. Doom, Nouriel Roubini, who correctly predicted the 2008 financial crisis, thinks stock markets will drop 30 - 40 percent from their early-year highs because of coronavirus. Think Dow below 20,000. ( He also says Trump is history because of the outbreak.) True, the stock markets aren't the economy, but can be a leading indicator of what might happen. There's already talk of economic stimulous packages. We might all need regular monthly assistance money if things get really bad. I know I will.

  53. @BruceM . . . are you a farmer? wink wink

  54. @Tom No. I'm a craftsman, designer and small business owner. I make unnessary, artsy items. I expect business to drop dramatically in the coming months.

  55. Krugman asserts the big sell off was "irrational," but in the next sentence says there was real news about the coronavirus, but not enough to justify the sheer scale of the decline. One wonders how - if we don't know the extent of the economic effect of the virus (and we don't and can't) - how we can know that the decline in stock prices are irrational. Stock prices are the present value of future earnings, small changes in a consensus view of what those future earnings will be - especially near term earnings - have a large effect on stock prices. This is basic and not contested by serious people, of which Krugman is one. His buddy Shiller has staked his reputation on the thinly-supported notion that markets are "irrational" and so he buys into and repeats tortured explanations, not founded on empirical analysis. How does one distinguish the pejorative "herd behavior" from the equally plausible, "rational people, when confronted with new information act rationally and that tends to be in one direction or the other." Fama has a Nobel too, and lots more data...

  56. @Chris If it were so well reasoned, it would have started earlier and been more smooth rather than rocky. The spikes occur because markets move -- and have always moved -- in reaction to fear, whether fear of loss or fear of missing out. But even Krugman knows you don't judge a market by any given day or week or month.

  57. @Chris An Economist can have five Nobels and know squat about whether a given move was rational or not. There's a reason the richest people from investing are rarely Economists. The guy who runs the most successful hedge fund in history (a mathematician) might know but he's not talking.

  58. While central banks have little leverage, fiscal policy has been gutted as well running Trillion $ deficits while unemployment is at a historical low. Politics have superseded economics. It has been the case for about thirty to forty years.

  59. I was surprised by yesterday's buying spree because it showed how little many traders understand the relationship between the market and the underlying economy. The coronavirus threatens supply chains; it also reduces demand for goods in which people need to gather in public, such as a restaurant meal. Rate cuts do not address those issues. Many of those participating in the buying spree seem to be completely clueless, and I expect the results to be reversed.

  60. @Bruce Yes, the markets reversed just hours after this pointless cut was announced. We don't have a cash liquidity problem, so you are right about this cut doing nothing but ensuring problems in the future when it's needed.

  61. @Bruce To better understand the difference between the stock market vs. the economy, check-out this hilarious analogy based upon a person walking his dog, with the economy being the person and stock market prices being the dog https://youtu.be/59im9CtR9YI?t=45.

  62. They can pretend to do something and get investors to bite on it and temporarily get a small bump in the stock market, which they will laud as proof that there methods are sound. But their methods are not sound. Oh the horror, the horror. This virus is but a small side excursion from our journey toward total natural destruction of the planet. A little bump that will cause us to slow temporarily. We shall march on however, to total destruction. The market will be quite perturbed when the full affects of climate change are here and we are past the point of no return where runaway warming is in effect. About ten years.

  63. @Chris Pessimism won't get you very far. Thankfully, lots of smart people are working on our problems, and total destruction is nonsense fear mongering without evidence, like all before who claim they know the future and it's bleak, even as the evidence has shown ever increasing wealth and lifespans with less violence.

  64. The Asia Times reported yesterday that China’s economy has been slammed by the corona virus and that businesses are faring far worse than what the markets are acknowledging. This, according to the China Beige Book, an independent data collection research group. Perhaps one of the few silver linings to this crisis is that China’s supply chain disruption will most likely result in needed diversification. This diversification will be a slow process, however, and until it happens we can expect our economy to suffer the consequences of supply shortages, plummeting consumer demand and spending, failing businesses, and a world of economic hurt. One of my biggest fears is the uncertainty that the information we are getting from this authoritarian administration is accurate or fact-based. “Fear is the lengthened shadow of ignorance.”

  65. @Cassandra G. Which authoritarian administration? China or trump?

  66. I live in a city of 300,000. A factory here employing 200 people is lacking parts from China and suspending production.

  67. @Independent And how will a rate cut really help these people? Good luck. It won't. However they will deplete their savings faster.

  68. @Independent who will undoubtedly blame the Democrats for pushing us into recession by hyping the virus "hoax".

  69. @Independent The disruption to the supply chain is one of the major effects of this Coronavirus pandemic. The effect will be loss of employment and shortage of final products. The first should be mitigated with temporary unemployment support programs. The second is something we have not seen in 50 years and it could cause increased inflation.

  70. Please stop calling people who buy or sell stocks "investors". They're not, they're speculators' They're only interested in "making a killing" if the stock goes up or down. Whether the company issuing the stock is making or losing money is a very secondary concern. Therefore, while I've never tead Shiller's Nobel Prize winning work, I think it can all be summed up in just one principle: the only thing that matters to speculators is the opinion of other speculators, and that, obviously, means that all speculative markets, such as the stock market, are inherently unstable. Or, in Krugman's words, "self-referencing".

  71. @archer717 You are in the markets for the long term, aren't you? (Buffett says yes.) After that, speculators and investors are just two terms that mean the same thing in reality, even if people like to pretend one is moral/wise compared to the other. Both put money into something they expect will go up in value over time. Investors speculate, and speculators invest.

  72. @archer717 You raise some really interesting points. There are all kinds of players contributing and detracting from the markets. Indeed, who the heck does really benefit from such a cut? It seems that many of us will be the losers when the markets AND the economy really take a tumble.

  73. I couldn't agree more with Krugman. The Fed held out an unworked out gambit to the market players who believed that all that's needed to save and spur the economy is just the next interest cut. At this point, it's a sacrifice of major pieces (namely those depending on higher safer interest rates) by giving corporate heads even more cheap money that they may be reluctant to spend or invest. A gambit is supposed to provide a strategic advantage, not just a tactical one. But even chess is a game of material, space, time and position: the Fed's calculation and timing is doubtful at best. I don't believe these people at the Fed have a sufficient understanding of the qualitative consequences of their decision making, and they are somehow misinformed about the quantitative aspect. Their decision is impulsive rather than carefully weighing the costs and benefits of their options. They could have played a waiting move first. They should also have powerfully pushed back at the mere suggestion that they are privy to the President's casual and misdirected orders (unless that's not the case). Now the President has the option to say (furthering the factual dubiousness) that the Fed just didn't do enough, or that they did so too quickly, or just plain not enough.

  74. Fair enough, although I saw the sell off as a market correction. But the easy money policies of the last decades have not yielded large productivity gains or increases in manufacturing. They have allowed CEO's the ability to pad investors and the cost of workers and consumers. So we should we think a dip back into easy money will fix the economy. furthermore to extend your analogy of a bumpy road we have the added advantage of an erratic driver. It ain't Mario Andretti driving our economy, more like a student driver who was smoking gange before class, so fasten your seat belts.

  75. Half a percent is really small. Imagine if the FED had followed Trump's tweets from 6 months ago and had lowered the rates for no good reason back then. We wouldn't even have that half percent in this time of crisis.

  76. @r Half a percent is really big when your options are limited, and you are near the ZERO bound.

  77. It seems there's no issue with having funds or because borrowing is expensive, just that we can't manufacture and transport as much as we'd like, and others are staying put instead of traveling. The Fed can't fix that, and it's use it likely going to make matters worse.

  78. The principal function of the Fed is to serve as Trump's scapegoat. Why assume responsibility for the public health system when you can blame the pandemic on interest rates?

  79. My first day as a baby solo trader was Black Monday. Fun times. The market is pricing in supply side concerns and the prospect of a recession. We've been flying high on Trumps' no-regulations-ever/tax-cuts-for-the-rich for so long, the market has a lot of repricing to do in order to get near-recession values priced in. Central bank moves (and tell me Powell didn't just knuckle under and jump the gun with the easing -- Yellen was so much better) are not going to be nearly enough to keep the markets afloat. If you're young, with a strong stomach, hang in there. Think long road. If you're not so young, duck and cover.

  80. @Andy I ducked and covered. Sold everything during yesterday's rally. I slept a lot better last night.

  81. @Dan I suppose cash is king. But now how do you put it to work? Gold seems like a fair bet.

  82. Me Too!! Told Our Children And My Friends To Do The Same And One thanked me today

  83. A move aimed at improving market psychology. It'll have no effect on business investment. It will do nothing to help low income folks or those contracting the virus. It almost smacks of desperation. We should remember that all Trump cares about is to be re-elected and that the stock market is crucial to his prospects.

  84. @Kidcanuck Almost? it totally smacks of desperation. It seems it was intended to boost the stock market and bolster confidence, but instead it had the exact opposite effect. Now traders are asking "what does the Fed know that I don't know? When is the next shoe going to drop?"

  85. The rate cut was demanded by the president via twitter to improve his reelection odds. Powell should show more independence. What is this strange power Trump has over people?

  86. @Jack Everyone single Trump sycophant expects a payday. Even the ones he casts off are taken care of by the republican establishment.

  87. I wouldn't put too much stock (pun intended) in yesterday's big rally. It may have just been an infected cat bounce.

  88. If you are either selling or buying at this moment you are a sucker.

  89. 'It's just the common cold, Folks!' #TrumpVirus = #TrumpSlump Lots of people are saying it

  90. There's the stock market and then there's the real economy. Manipulating interest rates can directly affect the stock market, but the real economy is not so easy. If the money supply is short or interest rates are high, then increasing the money supply (by lowering interest rates) can help the real economy. But when the real economy suffers from a challenge to productivity, increasing the money supply will do nothing but fuel inflation. The Corona virus is having an adverse impact on the real economy. How deep and how extensive that is remains to be seen, but I suspect that it will be significant.

  91. "Bear in mind,".... Whoa... Stock direction prediction???? (smiley face here)

  92. Stock market valuations are highly dependent on low interest rates, on top of a trillion dollars in corporate tax cuts that have artificially bolstered profitability (and executive compensation) via buybacks. The sugar high of the Trump tax cut has worn off. There's too much money in equities that doesn't belong there because bonds produce relatively little. Approximately 80% of stock trading is now based in computer algorithms. When the market's up, these programs want to buy more, and when it's down they want to exit. This results in exaggerated price movements. The price to earnings ratio in the stock market was running around 24:1, versus 40 during the dot-com bubble in the early ‘90s and over 100 before the crash in 2008. But the P/E ratio is gamed, as corporate profits have been relatively stagnant since 2014. Unemployment figures are gamed, too. Most of the job creation we’ve been hearing about lately is based in low-wage service or “gig economy” jobs. U.S. corporate debt has gone from 4.5 trillion to nearly 10 trillion in ten years. This debt increasingly is going to risky firms for investor payouts and deals, rather than capital expenditures or labor. Junk bonds pay five or six percent rather than nine or 10 percent. A lot of risky companies are swimming in debt, so lenders have thrown money at them and spread these risky loans throughout the financial system. I strongly suspect the party’s over, and it will be over for a long time.

  93. Lower rate are going to spur travel, or prompt Chinese supply lines to reopen? It will throw a wrench into banking, cause further pain for persons looking for interest return on cash, and make U.S. Treasuries less attractive. I think the Fed has lost any semblance of independence.

  94. I don't understand how cutting interest rates solves a health crisis. Cut-rate money can't stop a contagious virus from spreading, can't heal those now sick, and can't bring back the deceased. No one will take cheap money and build factories here to replace goods not currently coming from shuttered factories in China. I chalk it up to political window-dressing, whistling past the graveyard.

  95. But if 85% of US stocks are owned by the wealthiest 10%, are they the ones giving the sell or buy orders? Traders are trading, but who's telling them to do the trading? Sure there's a simple answer to this (like stop loss orders, etc.), I'm just ignorant of what it is.

  96. @famj most folks, wealthiest or not, keep stocks in asset management firms, mutual funds, etc. Their managers call the shots...

  97. @famj Algorithms call the trades. Stop loss orders, by the way, often do not work when everyone's running for the exit. Wealthy people, funds, and corporations own the stocks but they compete amongst themselves, all trying to get a leg up.

  98. Thank you for being such a voice of reason through good times and bad.

  99. The "central bankers" have ripped off savers, with absurdly low interest rates over the past 10 years. Cumulatively hundreds of billions in interest has been lost so that we can make things easier for corporations' debt payments. Socialism for corporations. But actual people? They can rot.

  100. This recent rate cut is ridiculous. This is like giving crack to a recovering addict. What is the FED going to do when a real crisis hits? They will have no tools left to mitigate economic turmoil and then we will see what real pain feels like. I thought 2008 was bad, I dread what is coming.

  101. It looks like the era of easy money is over. The wasted labor wrapped around the corner of broad and wall may need to start apply at Walmart. Maybe that is even too good for them.

  102. The trader in the image must be getting a kick-back. We have seen him a number of times in "NY Stock Exchange" trader images over the years.

  103. @LynnBob He's not breathing.

  104. Uncertainty is a miserable state. It infects others like a laugh or a yawn. One starts then others see it and go right along. I used to provide marine organisms like the purple sea urchin to genetics labs, biomedical researchers, and educators who have studied the organism for more than a 100 years. In 2005 the genome of the urchin had been mapped and published. I had tools most fishermen lacked by earlier generations like real-time wave and wind data from offshore buoys, as well as three day predictions of weather and wave data that was fairly reliable, but I usually didn't sleep well the night before taking out a boat then diving. Once I was on the water the unease fell away and experience told me what I would expect but I had decades of diving experience. The one thing that I could not predict was the behavior of others like some 300 lb 40 year old man on a jet ski. I was almost run over in the water by this guy next to my boat as they road waves on their jet skis in a manner that was both dangerous and illegal and guys like these weren't as rare as you'd think. I was taking pictures of jellyfish so I got photos of them and they were fined but they were already banned from SB County waters for a previous incident where they were caught. Trump is a lot like that overweight jerk on a jet ski, he keeps getting caught but he can't stop himself from getting his adrenaline buzz. I expect more irrational behavior in the stock market after getting caught again too.

  105. Here in Chicago they just announced the big housewares shop at McCormick place has been canceled. That's 47,000 less hotel nights and 60,000 less visitors placing orders. How a drop in interest rates is going to fix this, I don't know. And then there's the temporary payroll deduction being floated about. Seems useless if you've just been laid off from your job cleaning hotel rooms or assembling widgits.

  106. @JimA To Republicans, tax cuts are the cure for everything, including viruses.

  107. Greenspan was right in that he knew a free and open market without ridiculous regulations like Glass-Steagall, or Dodd-Frank would flourish with derivatives and other banking magic thus keeping the economy out of recession, and therefore, all classes within our society, from poor to rich, would be lifted ever higher.

  108. @David "ridiculous regulations" Your comment is the definition of ridiculous.

  109. While this cut is welcome, it will probably do nothing to stop the slide as long as Corona is around. Just a band-aid but what else can they do? That said, USA is actually in the apparently superior position to withstand this downturn since it is minimally affected by the nasty virus. Our friends/partners/enemies, China most, are being gutted. Their troubles spill over and I think that DJIA is not that bad at all having in mind the economic mayhem around. But, 'trading' is nothing else but half-rational chase for quick buck so we can expect massive lunacies on either side, probably slide rather than climb, as long as the virus does not subside. So, yes, brace yourself, knowing that nothing can help, except vaccine.

  110. So what Shiller is saying is that "The Masters of the Universe" are sheep. Fortunately the Feds have been ignoring trumps stable genius pleas to lower rates.

  111. I have faith in Trump's gross incompetence. He rarely lets me down. I think it will lead to his eventual failure and a prison term. The thing that will ultimately defeat Trump, is the dumbest thing on earth, the Coronavirus.

  112. @Keith Dow Reference to Orson Welle's classic radio show?? I like it. Someone could do a good political cartoon with it: Trump as a Martian. :)

  113. @Keith Dow I hate to think of the price we all must pay.

  114. @Keith Dow Just like in HG Wells War of the Worlds -- after destroying the world's armies, it was, in the end, the tiniest of creatures that felled the Martian invaders. We know for a fact that Coronavirus microbes are immune to Trump tweets! And I would imagine that the growing non-partisan disappointment concerning his handing of the Coronvirus crisis is not going away anytime soon either. And now, there is a very real the potential of a market meltdown as the stock traders consider the potential long term negative effects of a Coronvirus pandemic. And there are other bits off irony. Just prior to the South Carolina primary, Biden's campaign was pronounced DOA and Sanders was poised to run away with the nomination -- and look at Smokin' Joe now --risen from the ashes - a new man! Who was that person I saw on stage with Amy, Pete and Beta?

  115. The COVID-19 virus, a delicate but highly contagious virus, roughly one-900th the width of a human hair, is spreading from person to person around the world. The coronavirus, as it’s known, has already infected people in at least 60 countries per the NY Times. The virus will control the economy now and Trump can't do a thing about it.

  116. The market is not the economy nor is it economics. It is a casino. Donald J. Trump is the master of bankrupting casinos, nobody knows more. Covid-19 has walked into the house and now, no one knows nuthin’. All bets are off. Matches up with the Trump Trifecta of defeat in the Middle East; Syria, Iraq, Afghanistan, all wastes of American blood and treasure.

  117. Covid-19 don’t care about interest rates.

  118. @Western Montana Doctor Very good point.

  119. NO. Even a master Showman and lifelong Con Artist can’t fool Mother Nature. Seriously.

  120. And Trump never misses an opportunity to blame everyone else for bad things that happen. In this case, if things go bad, he will blame the Fed for not reducing interest rates into the negative range. And his followers will believe him. And the media and the Democratic candidates will be unable to explain to voters why negative interest rates are a really, really stupid idea. And even if they did, most Trump followers would still not understand it.

  121. The Wall Street capitalists are about to be be born again socialists. The government haters will now pine for help on bended knee. Don't look for the GOP to help. Better put your money on a different horse.

  122. @David Henry Either Biden or Trump will give the capitalists everything they want, just like last time. What Bernie would do is help them out - but only if they make radical changes in the way they do business.

  123. Mr. Krugman, Off topic, but could you please comment on Fareed Zakaria's Washington Post 2/27 editorial regarding Scandinavian country's taxes v. USA taxes. I think (evidently I do not Know) that he has over stated to data points to make his point. Thank you Brendan Smith

  124. can banks save us and the economy from covid-19 ? no. can the fed prevent panic in the market if the virus spreads ? no.trumps trade wars have greatly worsened the problems and the fed tried to bail him out of the chaos he created with a rate cut earlier.

  125. Only because economists who were forced by their graduate schools to kowtow to the ideology of Friedman then rational expectations does this misplaced faith in monetary policy still have resonance. Chicago, Stanford, the list goes on. No matter the facts they histories write history with tools that make Procrustean beds look like a paragon of reason. Has there been much progress in economic theory since JM Keynes? One doesn’t have to ponder more than a femtosecond for the answer. So government spending at federal state and local levels is the key in face of Voldemortvirus including direct grants to everyone if things get really juicy thanks to Voldemort incompetence.

  126. @Tom Megan Actually, Friedman wrote repeatedly that the Fed cannot control interest rates. They are set at auction. The Fed controls, as Krugman rightly points out, only its discount window, lender of last resort to banks that cannot borrow from other banks to meet their overnight liquidity requirements. The zombie adherents of the Austrian school of superstitious economics castigate Friedman for his notion that the Fed can control the monetary level; his suggestion for monetary policy was to print money. The Austrians get intellectual apoplexy from that idea. Of course, if you read Mises you realize how little he understood either logic or human behavior.

  127. Wells Fargo - the Stage Coach that Robs You. What else is there to say about the entire banking industry, including the Fed Worm, which has eaten its way into the heart of our government? Like the National Rifle Association, the Fed is an industry association that is powerful enough to dictate policy to our government. That can't be good. But the Fed is even worse than the NRA, because employees of the Board of Governors are considered government employees - you pay their salaries. The Fed is there to watch out for the banking industry, so you better watch out for yourself.

  128. Cam the Fed Save the Economy ? Not with yet an additional rate cut - the real interest rate (nominal 1.25..1.5%) minus inflation (2.5% and accelerating) is now negative. That said, there is some question if this columnist understands what the Fed is doing. On Aug 15th, 2019, he stated in the NYT "The Federal Reserve basically controls short-term rates, but not long-term rates" . That has not been correct since 2008 when Federal Reserve commenced QE (quantitative easing) precisely to lower the long term interest rate. (By the Feds analysis by 1.5%)

  129. @Woof He understands perfectly well what the Fed is doing. The question is, do you? Milton Friedman made the point repeatedly that the Fed could not control interest rates, which are in fact set at auction (historically the Fed has not done well with meeting its target for interest rates; one good example is when during the Bush Jr admin the Fed wanted to raise rates, but no matter how much it raised the only rate it controls, the discount window, someone kept buying up treasury bills which of course keeps the rates low). What the Fed can control is money levels, which is what Friedman suggested they use as a means of control in monetary policy. In reality, QE in good parts aims at reducing the friction in money flow, particularly lending.

  130. So can the Fed and Friends save the day? No. The Fed cut rates and the stock market slides. Trump’s commands didn’t work. Financial markets and handling a pandemic are complicated. Who knew?

  131. What magic do low interest rates have that tax cuts lack? The usual reason for reducing interest rates is to provide low-cost money for investment, but this is exactly what the tax cuts were supposed to do - and failed. In fact corporations used the money from both tax cuts and low-interest borrowing to buy back their own stock rather than invest in more production and hiring. Where both low interest rates and tax cuts probably did have an effect is in inflating stock prices (or keeping them high). This seems to be Trump's main interest. There is no reason to suppose that this would be different in the face of a global slowdown. Both actions provided more money for any kind of speculation rather than real investment. This is not constructive, especially with deregulation going on. Economists need to get past the fantasy that central banks control the economy by fooling around with interest rates. Belief in this dogma makes it too easy for politicians to avoid action that might actually make a difference. Actual long-term rates have declined sharply since late 2018, well before the coronavirus scare, and there is no evidence of any beneficial effect. Private investment (for example) has declined since Q1 2019

  132. @skeptonomist Krugman claims that the effect of interest rates is through housing, not investment, but record low mortgage rates since around 2012 combined with very high prices have not raised house construction rates above what are still historic low levels. Aside from that anyone who thinks that the Fed again "needs to create a housing bubble", as Krugman himself put it in 2002, is just crazy. Anyway that bubble was created with deregulation and not interest rates. Probably some federal support for low-income housing would be a good thing, but that response (even if approved by Republicans) would be too slow for a coronavirus recession.

  133. Furthermore, in the year 2000 China was less than 2% of global GDP, whereas now it's over 20%.

  134. The best way to limit the economic impact of the coronavirus is not to lower interest rates, but to limit the number of Americans who contract the disease, to nurse them back to health, to develop a vaccine, and to return life to normal as soon as possible. Period!

  135. Should I listen to Krugman or Trump? Hmmm

  136. @Quinn Trump who?

  137. If the near free money the Fed is handing to banks in the form of bottom-level interest rates and quantitative easing to expand the money supply were invested in the production of goods and services and higher wages so consumers could purchase those things, it would help both the economy and our capacity to control corvid-19. It will instead be invested in stock buybacks, mergers and acquisitions, short term speculation, predatory lending, or sequestered in tax shelters—corporate wealth feeding itself. The stock market surge has been largely independent of real growth, pushed by growing bank, corporate, government, and consumer debt and fictitious electronic money injected by the Fed. Unfortunately, the corvid-19 epidemic is making human beings take ill and die, closing factories, and pinching off trade—real world events. The stock market collapse will be the opposite of panic—recognition of hard truths.

  138. I sure wish someone would explain just how interest rate cuts and or tax cuts are supposed to help in the case of a pandemic. What’s the theory?

  139. I like the shock absorber analogy, but I also think that the “real economy” - i.e., goods/services, single-job employment, sustainable revenues/earnings - and the stock market, have both diverged massively in recent years. Federal investments in big infrastructure could help, if only they were legitimate and well-planned. However, infra initiatives like “free enterprise zones” are being managed by self-dealers and corrupt cronies like Mnuchin, Wilbur Ross and Scaramucci. Cheap money - super low interest rates and quantitative easing or printing money seem to have very little impact on bolstering the real economy. Instead they serve as a money supply for stock traders and corporate stock buy backs to prop up equity prices. That’s the reason for the super high price-to-earnings levels in the stock market, while the real economy sputters. It’s almost like the stock market is a handy source for alternative facts.

  140. @domplein2 Well said. There is too much money swirling around in the stratosphere, while on the ground ...

  141. No. Last week's crash was due more to the reaction to a shut down supply chain ("at the end of the month!"), than to the instability of the market itself. There is no shortage of money, so this will be a short-lived (if that) "recovery" event. However, the real adverse affect is the realization that our WH is both incompetent (firing the Pandemic Response team and their chain of command), and hopelessly confused (by science fact). Watching the president ask inane questions, and refusing to acknowledge what he's just been told, clearly, is the last thing those looking for "confidence inspiration" wanted to see and hear. The upside: the rest of the industrialized world is doing a much better job of dealing with the virus situation than are we. I feel confident the global supply chain will continue, albeit slowed, and there will certainly be short-term consumer interruptions. The Fed cannot affect that.

  142. "Before today’s rate cut, the Fed only had around 1.5 percent, leaving far less room to cut." Remember when Trump wanted a rate cut to haul the growth rate up and polish his image for the election? And intelligent people argued that the rates were already so slow there was little to cut IF WE HAD A REAL CRISIS? The country will have to suffer through the Remedial Course for the Slow Learner -- and he still doesn't get it.

  143. @M. B. E. True. And the crisis is just starting.

  144. The middle class has been stretched to the breaking point and have no equity on which to stimulate a consumer economy. The reaction to the virus leaves supply chains broken with no others able pick up the slack. There are no workers to work in the factories and no consumers to buy stuff. Those with money are putting it under the mattress, not investing in productive businesses. How is a miniscule interest rate cut going to have any lasting effect?

  145. @kirk Precisely! We have a fair amount of cash, and we ain't spending it anytime soon. We were planning some trips, but we have canceled those plans for the forseeable future. While the rate cut may not be completely dumb, it is pretty useless in the scheme of things.

  146. This Fed doesn't have anywhere near the stature of Bernanke or even Greenspan. This will make a difference as this crisis develops. Given the Fed's limited ability to do anything this time around here comes the tax cuts; payroll and anything Trump can get through. This seemingly will be equally ineffective dealing with a public health crisis induced economic crunch.

  147. This is the long term consequence of using tax cuts and central bank rate cuts in response to the Great Recession. We did not get the real stimulus needed, much less did we get it in a timely fashion. Now we pay the price. Of course, Democrats did not do it because Republicans would not help, and instead offered every possible obstruction. But still, Democrats gave in to that rather than staging an all out fight over it. They rolled over on tax cuts and interest rate reductions for easy cash to the wealthy as the only fix for the Recession. Now we don't face a mere recession, but an outside the system impact, a black swan event. We are taking that on an unhealthy economy, already feverish from failure to give proper and timely stimulus, and in fact NEVER to give proper stimulus. Our economy is like a patient in the hospital, suffering a new reverse before getting strong enough to handle it.

  148. @Mark Thomason I live in Europe where very few countries exist without coalitions. In the U.S. its all us or them - killer ping pong economics ! Is there any option for coalition governments in the American Constitution. If not, lets invent it.

  149. I'm fairly confident the Dems are going to win this November. Why? The economy is tanking - we always have to clean up the mess. It's also when the Republicans become very concerned about the deficit and nix any stimulus spending. You heard it here first.

  150. With all our protections just about gone, I'm curious who the president will wind up blaming for his failure.

  151. Obama. Just like the British Tories blame Labour for today’s problems in the UK, including a recent terrorist attack in London, even though Labour has not been in power for almost a decade.

  152. I am a 20 year veteran of the investment business and an investor for much longer than that. I have always been amused that when these market gyrations happen, the market pundits blame the individual investor for panicking. The “pros” don’t really get too frazzled by it. But My experience is the individual has a lot more patience than the financial press gives them credit for. And it’s the “pros” stampeding off the cliff

  153. You do not have to be a genius to know that cutting interest rates, to prop up the stock market, will not calm people living in fear of a deadly virus. What the country needs and deserves is an honest government-wide strategy for protecting the population from a health crisis. Not a government-wide plan to keep from embarrassing the president because he does not know what he's doing and the fact that his administration cut funding for the very health agencies who should be on the forefront of this crisis. In the face of a crisis, that is killing people, this administration should be ashamed of themselves. Where is the Congress? Where are the "scientific experts"? Where is Common Sense?

  154. @lalo Try telling that to a Republican. Those interest rates should have been normalized a long time ago, but when Powell tried raising them the markets slowed, okay, but Powell never waited to see if the economy would stabilize and begin expanding again. Instead bowing to Trumps economic genius (not) he pressured Powell to lower them and Powell did. Franklin Roosevelt had the same issue, when his new deal plan was well underway, Roosevelt tried reducing the amount of stimulus the government was providing. The economy slowed, Roosevelt turned the spigot open again, the economy started expanding again. At some point Roosevelt would have slowed the flow of government capital, and let the free markets take over, but WWII came along. My point is, easy Fed money has gone on for far too long, and now that the Fed needs room to maneuver, they don’t have it. Keep in mind Trump has been calling for negative interests rates. In Trumpworld, he thinks negative interests rates are a good thing, but he also thinks greed is good.

  155. @Lalo You don't have to be a genius to be in this administration. And that is the problem.

  156. @Lalo ... Are you really still asking "Where is this," and "Where is that?" Are you really still hoping that somehow, somewhere the things you're asking about still exist in this administration?

  157. It’s as if the world has forgotten a tried-and-true method commonly used throughout the 20th century to rescue the economy from recession—fiscal policy!! Since interest rates are near zero, it makes economic sense to spend money *now* on infrastructure or public health. Since our economy is powered mostly by consumer spending, it makes sense to put money in people’s pockets so they in turn can go out and spend it. My spending is your income, and your spending is my income, as Krugman has said. The spending will also more than pay for itself in the long run by tax revenue generated from a more productive economy.

  158. @AlNewman Big finance has too much influence on government. They don’t care about the real economy, only Wall Street. Fiscal policy only helps the real economy, it doesn’t help them one bit. No “forgetting” is involved.

  159. @AlNewman - No, the deficit is already huge. It cannot be increased more, and instead should be reduced over the medium term.

  160. @DRS If people start losing paychecks, tax revenue to the federal govt is going to go down, not up.

  161. The Fed cut is transactional response to a transactional president. There is no fiscal strategy here. Just pre-empting Trump's twitter feed. And the truth that Trump has no health strategy or care about the impacts to real people. Just annoyance at how this messes things up. As in all other things Trump, his crono response is dealing with the single moment to both save face and blame others. If he or the administration truly cared about the public's future - they would be opportunistically revising and increasing CDC/NIH submitted budgets. The military can't fight this battle - nor can a bigger wall. So all the 99.99% of us can do is listen to real science and doctors as we get played in Mr Toad's (Trump's) wild ride.

  162. It would be great if the Trump administration applied a level of urgency to confronting the corona virus. Every administration official that I have seen spends little time talking about the potential challenges to every day life caused by a potential pandemic. They immediately pivot and start talking about the stock market and the economy. Why am I worried?

  163. @Sean What should make you even more worried is that, urgency or not, there's really nothing any Administration can do about this. Sure, the Administration is incompetent, but even if they were not they'd not know what to do except for confidence building measures. We're on our own when it comes to a virus. Beef-up your immune system and wash your hands is the best advice.

  164. A president who cares only about the color green will not surprisingly confuse an interest-rate cut for an antidote vaccine.

  165. The turmoil being caused in the markets are in no way linked to interest rates or liquidity. There is ample liquidity. The collapse of 2008 occurred because global liquidity essentially vanished overnight. What we are experiencing now is fear induced by the very real threat of a serious economic downturn. If factories don't produce, if supply chains are interrupted, if goods can't be shipped, if people cannot travel, then economies slow down, way down. (You see, it's that old globalization thing that Trump rails about). There is only one economy, the global economy. It is powered by the global movement of people and goods. Today, as I write this comment, the market is down about 1%, after the big rate cut. Traders anticipated a big cut was coming (people talk) and bought on the rumor. Today, they are selling on the news to lock down a short term gain. In any event, the virus downturn is just beginning. It will take months to unfold. In the meantime, our President will have ample opportunity to tell us how wonderful everything is and continue to slam the Fed until they drop rates to zero. But the downturn will come anyway. This is kinda sorta a public health issue, not a monetary issue.

  166. @Bruce Rozenblit Good analysis. In contrast to the piece on which you're commenting.

  167. @Bruce Rozenblit You are generally correct, except that the 2007 -2008 great recession was caused by the collapse of the housing bubble, and not because "global liquidity vanished over night". That's why people who were looking at the housing bubble were able to forecast the economic collapse, and no one who was looking at global liquidity was able to forecast the economic collapse (provide an example if you believe that I am wrong). It seems that some people will do anything to try to attach a right-wing spin to economic discussions.

  168. @Bruce Rozenblit - And, this is panic. Trump pretending it's no big deal before a national audience last week, only to be directly contradicted by pros, including Dr. Faucci was all we needed to see. Now, this attempt to save the rich through interest rate cuts is actually undercutting the market - because the market senses fear, and sees the cuts for what they are: panic. This is what happens when incompetent "businessmen" have the arrogance to believe the know how to govern a large country.

  169. I am confident that Dr. Krugman knows that the economy and the stock market are two different things. The Fed is just playing politics by giving corporations a break that will not translate to lower prices or more jobs.

  170. It could be that you will all want Bernie Sanders, M4A and expanded social security by the time this has finished. The folly of making people's security dependent on the stock market might be apparent.

  171. How does cutting rates help disrupted supply chains? Asking for a friend.....

  172. @North Dakota I've been saying that all morning, since the rate cut was announced. My degree in economics is a mere Bachelor's degree, but even I can see that the logic train has gone missing.

  173. @North Dakota Because it allows companies that have had a hit to their revenue borrow cheap money in order to keep on producing the goods necessary keep the supply chain running at current rates.

  174. @South Dakoa Revenue is taking a hit because goods arent being produced. Those goods aren't being produced because people can't go to work. Lowering rates isn't going to ease this fact.

  175. I'm curious - what does the drop in interest rates "cost?" How much have we frittered away in Corporate Socialist tax cuts? How much was cut from CDC, NIH, or other public health budgets? I think that paying for public health, infrastructure, education, and international diplomacy have a higher return to our society than flushing money down golden corporate toilets.

  176. @brian -- Spot on!

  177. @brian I find it very curious that all the items you mentioned in the first part of your last sentence have been de-emphasized or defunded by the current administration, while major attention has been placed on bolstering the stock market ( not the economy as a whole) to present the rosy picture needed for election purposes.

  178. @Brian Wait, since when does "society" matter in the United Shareholders of America?

  179. The greatest benefit of a rate cut goes to stocks. The largest number of stocks are held by and for the richest of us. What’s left is, well, what’s left for the rest of us. So then, even though (forgive me for repeating this tired phrase) the rich get richer; thankfully, viruses don’t give a damn. The stock market may well be an economic guide; nonetheless, it is not the sole determinant of the direction of the “economy.” This is why although the rate cut’s impact will have a very small effect economically it will have the truly unnecessary impact of favoring the very rich--not unlike the corporate tax cut brought to you by the same dolts who are now purring over today’s act by the Federal Reserve.

  180. @MMB That's just wrong. For example, if you're a public employee anywhere in the United States, your pension depends on the performance of capital markets. I'm a teacher in California, looking to retire in 5 years. The agreement I've made commits to paying me about 60,000$ a year for the rest of my life. At 7% annually, that would require nearly one million dollars invested on my behalf. The California teacher's retirement system was funded at about 75% of its long-term liabilities last i checked. So, yes, I'm deeply impacted by the performance of the stock market, and to that degree, the Fed is intervening on my behalf. We are living through interesting times. Much of the rhetoric we're hearing from the more liberal half of the Democratic Party is exagerated, to say the least. Yes, we have elites. Yes, policy favors elites. That's not at all surprising. But the simple fact of the matter is that an individual with self-discipline and patience can still make a good living and become financially secure in the US. The structural impediments to advance simply aren't as great as they're made out to be.

  181. It could be that the government needs to actually govern, not just run up its credit cards and offer cheap money.

  182. The spread of Covid-19 was a catalyst for a market correction which was long overdue. US corporate profit margins were narrowing pre-virus as companies chose to re-distribute most of the Trump tax breaks via stock buybacks and dividends instead of reinvesting. With the inevitable slowdown resulting from China's lock down, the disruption of supply chains, travel restrictions, etc. the only tool available to corporations will be cost control. So I agree with Paul Krugman, while it's hard to predict what markets would do in the near future, there's some certainty now that a recession will be in the cards for 2020. I'm not convinced that today's cut served any purpose other than satisfying equity investors who have been high on new records sustained by Central Banks massive liquidity injections and low rate policies for over a decade and a petulant president who measure success by the performance of the S&P.

  183. No mention of the overbought condition of American stock markets, of a P/E ratio that's significantly above historical averages? Everyone who pays attention to their investments has known that recent rises were fueled not by earnings but by stock buybacks and tax cuts for the investor class, and couldn't last. It's just hard to be the first to sell. It's easier to be the second to sell.

  184. "Can the Fed and Friends Save the Economy?" The actual question is "Can trump and friends*"save his reelection?" *including those at the Fed, the DOJ and Fox

  185. Maybe the critique should be the opposite, "shouldn't the economic system be flexible in order to accommodate all of the people it is supposed to ostensibly serve." Perhaps one day, our civilization will grow up enough have a system in place where the tail doesn't wag the dog. But we certainly learn to realize this is precisely what we have when something unforeseen or potentially catastrophic strikes.

  186. The Fed has been inadvertently helping the GOP stay in power with low-interest rates because the public wrongly assumes the president has something to do with the economy. As Dr. Krugman points out, this leaves the Fed with little room to deal with real crises. I find Dr. Krugman's statement about scared buying to fascinating because it also illustrates that investors really want to buy. They are willing to accept any little piece of news in order to buy, whether the information is truly good or not. This is simply more evidence that the high value of the major stocks is truly no indicator of the health of society.

  187. I suspect some element of Chairman Powell's action was to mute criticism from the Twitter President who would undoubtedly (and may well yet) claim any recession is the Fed's fault because they did not lower the interest rate early/aggressively enough.

  188. The downturn is coming and I am sorry, it may cause a lot of pain for people who can least afford it. The virus will cause both pain and sorrow for the entire population of humans on the planet. On a brighter note it may rid us of the current man in the WH.

  189. How are you retirees feeling now? You get the double whammy of decreased returns on your “safe investments” and the probability of a stock market five on your 401K....plus since this does nothing to combat the ACTUAL crisis and your age group is the most vulnerable, good luck being to afford anything if you do get sick.

  190. So Trump was a stellar graduate of the prestigious Wharton School. Time to start demanding: Show the transcripts! Show the transcripts!

  191. I'm pretty sure that most of the 'market' is owned by a relative few. When we 'save' the economy, we save the top investors from having to get less that their usual 15-20% rate-of-return. They're spoiled and want to be treated that way. Not sure what our economy is really doing; it seems pushing us closer to plutocracy and ending any semblance of democracy, which requires a certain level of equality. Our economy is for the rich; the rest of us are 'mugs'. Bernie's a 'democratic-socialist' like the Swedes, or Finns or Danes or other counties with the best standards of living and where equality is much more real. So, here, we're being scared of this democratic-socialist bogeyman. We're told to follow the greedy, lying snake of the corrupt, capitalist Trump (who cheats anywhere he can including taxes, write-offs, depreciation, etc.). You'd think we like being serfs to the pampered few. You'd think we don't mind giving our children a rotten country. You'd think we really care little about the environment and all the wreckage it is doing; partly due to our destructive habits. Save the economy? Well, let's save America; that's a different story.

  192. This silly talking point—that “the Fed and its counterparts don’t have much room to respond” because interest rates are already low—needs to go away. I’m shocked that such a prominent economist in Krugman makes such a basic error. There is no limit to how expansionary monetary policy can be. As the late great Milton Friedman pointed out, if it comes down to it, the Fed can print money and drop it out of a helicopter. There is no reason why low interest rates should prevent expansionary monetary policy. Of course, expansionary monetary policy doesn’t fix the coronavirus. But the “interest rates are too low to ease monetary policy” point is total nonsense and should not be taken seriously.

  193. It is becoming more difficult to separate the bear stock market from the Caronavirus, since both sucker punch those who try to figure it out. Faith in Central bankers is no different than faith in politicians during an election year. Am waiting for Evangelists to steal the headlines. Unveiling Caronavirus seems to be more like unveiling a new car at an automobile show when the sheet gets pulled off and wows the crowd. Partialize and incrementalize with small dosages of test kits. As for rate cuts, the market gobbled it up as it now concludes it has permission to wow the audience and move lower. Imagine how many 80 years olds out there that think it is time to buy the dip.

  194. Well, they're all wearing suits and speak with a funeral director's confidence. I have noticed, though, that as the stock market goes up, the quality of life goes down. Therefore, I'm buying several chickens. Eggs.

  195. The longer this plays out, the ineptitude of the Trump Administration is on full display. With "Katrina" coming his way, Trump wants payroll tax cuts and the Fed to make things better.

  196. We don't need free money for big banks; what we need is free healthcare paid for by taxes on the rich. Vote today as if your lives depended on it because Republican government does not want any improvements to healthcare. They don't want Medicare for All for certain, even though that's exactly what we need in an epidemic; they don't even want improvements to the Affordable Care Act; and, in fact, they are in the Supreme Court right now trying to kill the ACA, too. If you're in a Republican state forget about it. They won't expand Medicaid because it's "socialism!" making sure that the sick will get sicker and sicken more people in their sick states. We are done with Republicans and their easy money for the rich. Just sick and tired and done.

  197. What poetic justice that Trump claimed the Obama recovery as his own economy despite what we all knew, and now, he's welcome to the just deserts of a radical Fed harassment into low rates that will leave no room for saving the economy, not yet seriously impacted. It could be worse. I guess Trump doesn't save for the future. Add that to the list of shortsightedness.

  198. The Fed has acted to support the financial class, i.e., to artificially keep up the stock market. Krugman has just explained previously why an interest rate cut will do nothing to stop the economic effects of the virus. Why the Fed cut rates is inexplicable unless they have their finger on the wrong pulse and are cowed by the Big Orange. It's another disturbing sign of organizational degeneration under the Big Orange.

  199. The Fed kept interests rates too artificially low for far too long. The rate cut last November was irresponsible and hurt small savers and people on fixed incomes who aren't millionaires. It also fueled the already bloated corporate bond debt – roughly $1.4 trillion dollars worth coming due this year; high levels mimicking indebtedness around the 2008 financial crisis and that economists and financial advisors have been discussing in terms of real caution. The rapidly developing Corvid-19 global pandemic will force a recession given the interruption in material supplies, manufacturing production and services. Jobs will be impacted. And it will be the smaller and mid-sized businesses that will suffer the worst consequences because they lack the deep pockets of the "we don't pay our fair share of taxes" multi-national corporations. The CEOs will keep their jobs, the everyday worker might lose theirs. The best response the Fed could make would be to encourage the Trump administration to declare a national emergency so that the NIH, CDC, and other agencies could receive the the funds they need to rapidly deploy a coordinated effort with the states at containment, testing, education, and treatment, including coverage for those who are uninsured or under-insured. High medical costs will stop people from seeking help and prod those to work when they shouldn't. If there was an argument for Universal Care like Canadians enjoy this is it.

  200. I have no idea where the markets will actually go by the end of today, tomorrow, next week, next month, etc., etc. But as of this moment, the Dow is down over 3.6%, and that is well after the announcement of the half point emergency cut announcement by the Fed. Is it possible that the cut was interpreted as a sign that it's time to panic?

  201. Think there’s going to be a big demand for 10 yr bonds yielding less than 1%...

  202. Krug's right on this. Plus, the issue here will be more supply than demand. You can want all the stuff you like; if supply chains are broken, it really doesn't much matter. And fixing that has to do with biosocial fixes, if possible, to something not fundamentally economic. It's, I presume, more akin to war than demand shock of whatever provenance. And to get out of this, if possible, we'll have to move to far, far, far more state intervention than just about anyone is willing to consider...outside of total-wartime. I mean, I'm just some guy, but if anyone has a better explanation or prediction, lay it on me and us. It's brutal, for sure, and no one reading this, and no one writing this, has any excuse of ignorance: everyone knew this was inevitable. Just as we all know that as long as we have nukes, their use, at whatever level, is inevitable. Just as we all know that as long as we burn carbon, destruction, at whatever level, is inevitable. We know all these things, all of us, including the deniers. They've of course heard about what they're denying. Look, the species, Covid-19 aside, is at a crossroads unlike any seen since that great bottleneck way back in the day when we apparently missed extinction by a no-doubt entirely contingent hair. Well, now we have massive wealth and power--and all the potential solutions to anything short of an asteroid hit. Early humans had to rely on luck. We don't. Will we step up? If not, there's no one to blame but ourselves.

  203. Watch what happens when we get a Corona Cluster in an area of industry that is a keystone.