There is only one thing that can save America and that is the truth the whole truth and nothing but the truth.
When Reagan tore the solar panels off the roof of the White House he tore the heart out of America. America was about better futures not mythical pasts.
In 1980 America was the promised land for most Canadians. We had political problems, we were barely a speck in America's rear view mirror.
We passed America long ago and with our children all having healthcare , access to education, personal security and a strong safety net we no longer see America in our rear view mirror. America is never going to catch up unless it gets a better engine.
I know the truth hurts and I know many feel I have no right to criticize their country but I love America and I love its people. I know it is not my business to tell you to give up smoking but I am Canadian and we put pictures of dying people diseased lungs, tongues and throats on cigarette packages many years ago.
We are a selfish lot and know when our citizens are healthy, educated and productive we are all made richer. Life is not a zero sum game.
The Fed cannot save the economy the economy is what it is it is not alive it is, it exists it changes but it cannot be saved or killed by the Fed or anyone else.
The question I ask is whether the economy is serving us well.
7
Interest expense = interest income which means someone is losing income. That would include retirees and old folks who rely on their savings. Powell and Trump should officially address this constituency and explain to them why they should sacrifice so that borrowers can benefit. In front of cameras please.
3
When 40% of Americans (per the Federal Reserve) can't come up with $400 cash in case of an emergency, it's difficult to see how cutting the federal funds rate is going to boost demand - particularly when there's a pandemic underway.
4
The value of a fiat currency rests on its capacity to make more of itself. It is the foundation of capitalism and monetary policy should function to keep yield curves stable.
Congress ruined monetary with its own incompetence at fiscal policy. Employment is an independent variable to regulate with taxation, spending and public borrowing.
2
The idea is not that dropping interest rates will prevent supply chain disruptions and a minor recession. It is that ensuring money supply stability will prevent a vicious cycle resulting in a liquidity crisis and a much worse and avoidable situation. The fed does this to calm investors, lenders, etc and prevent the money supply from drying up. In a recession the leverage inherent to our system can cause an information problem in which a rapid contraction of the money supply results in currency no longer reliably conveying information about price and value to economic actors. The solution is to keep the money supply as stable as possible via the fed. Very likely we will have a real reduction in economic output on the order of a few percent. Let’s not impose an artificial crisis on top of that in which what is essentially a bookkeeping problem causes a vicious economic contraction.
2
Why cut interest rates for a virus? It probably has nothing to do with the virus; Trump just wants his billionaire patrons to make as much money as possible on the stock market. So now that the gravy train is over, he's holding the door open for them while they leave.
5
America has no shortage of historians who have seen this all before. Today's Krugman's subtitle says it all On putting too much faith in central bankers. America is in deep doo doo and and just like ancient Athens the central bankers were intent on destroying Athens evolution into the cradle of Western civilization.
It took Solon the poet philosopher to put the bankers into their proper place and free Athens best and brightest from their indentured servitude.
The Obama presidency was a disaster the promise of hope and change saw America's malaise increase and saw inequality grow as opportunity and the promise of a better future diminish and you saw the election of a snake oil presidency.
I saw my Quebec's quiet revolution and we are rich beyond my wildest dream. I saw the corporations flee and heard the prophets scream doom and gloom. Today I see a liberal democracy that guarantees healthcare, access to education and personal security. I see a dynamic economy and an optimistic future. We are America. We have removed God from our politics and social contract. we have what America has lost the confidence to build a better future.
It is hard to believe in a better future if your whole life you have been taught America is the best and brightest.It is harder still when you believe things will never get better and you believe the best was in your past and things will only get worse. It is worse still when you believe that only total destruction will bring about a better world.
7
Demand-side policy tools like monetary and fiscal policies are not designed to address the CoVID-19 supply-side shock, and I don't expect them to accomplish much. Only longer-term structural changes on both a national and a global scale can fix this, and they are very slow and difficult to implement.
4
Our 'president'* has been bragging, for some time now, that we have the greatest economy in our history. If that is so, why do we continually need to prop it up, with tax cuts, interest rate cuts, more corporate welfare, and all of the other wacky schemes that they come up with?
9
I sold off every individual stock I had when the market began to dive in 2000, that left me with a nice gain. Then I researched and bought small cap aggressive growth mutual funds. That I held on to through the following rough 15 years.
They made remarkable recovery by tripling in the value. Last few years I sold the small caps and replaced with one large cap mutual fund. As I compare it with the major indexes volatility, mine absorbs a lot of bumps like a smoother riding car equipped with shock absorber.
I am bracing myself to go through a big correction now; but this time around with confidence in America' equity. Experience taught me to stay in.
However; Individual stocks are different story. I would have sold them all by now had I kept any. For the reasons that individual stocks not only can lose value to zero but it is embarrassing not to be able to cut the loss short.
I prefer actively managed large cap mutual funds in today's economic climate to stay with them. That gives me freedom to keep hiking and rock scrambling when the market is upset.
I followed Mr. William O'Neil who established Investor's Business Daily; and his guidance was and is my north star.
Judging by the primary results of yesterday & today, it appears that Putin's advice to Trump is turning out to be true; that Biden is the worst threat to Trump.
3
The shock absorbers are shot with low interest rates and the seat cushions have been removed with the deficit heavy tax cuts.
2
Conflating the stock market with the general state of the economy is tempting, but the travails of people who play games with money for a living is a long way from people trying to hold down a job or several jobs so they can pay the bills, keep a roof over their heads, and eat on a regular basis. It's not all that relevant to people drowning in student loan debt, but it does mean something for people counting on 401k's to provide for their retirement.
Perhaps it is time to start working on making the stock market less of the achilles heel of the economy, or the funder of so much corruption of our politics with the power of money and revolving doors.
4
Yep, what a difference a day makes. From the big 1,000 point bump to a big 800 point ditch. I guess that half a point interest cut isn't going to fix the loss of business from the virus. The president just needs to focus on getting us prepared for the virus and stop worrying about the stock market. Oops, I forgot, that's the only thing he can campaign on. Oh well, it's going to be a rough ride Mr President.
3
Prof. Krugman, kindly refer to The Economist (Oct 11 - 17, 2019) Briefing: Automatic Investing - "March of the machines" - which indicated an estimate of about 24% of US Public Equities...$31trn. of Managed and Other Owner (Held by Companies and Other) are traded by Humans...with Algorithms accounting for the remaining 75%!! So all this about Traders reactions to say, rate cuts or news sound like a Gloried MYTH of Yesteryear, preAI!!
1
For a change, Trump didn't create this crisis. That means he can't lie his way out of it. Fox can't lie their way out of it. Hate radio can't lie their way out of it. The RNC can't lie their way out of it. Conservative think tanks can't lie their way out of it. Dark money republican super pacs can't lie their way out of it. The republican justices on the supreme court can't lie their way out of it. When it comes to pandemics, there is no 'fake' news that will save Trump and his criminal republican party.
8
@Markymark Perhaps that is why he has put the vice president in charge of making sure no unapproved information sees the light of day.
2
Fed alone cannot save the economy from the panic paranoid pandemic. Only the home of the well informed brave can save the economy.
1
I watched the Democracy Now discussion between Paul Krugman and Richard Wolff and as much as I wouldn't wish the Presidency on my worst enemy the need for a Krugman Presidency is obvious.
America needs a promise of a better future and Paul Krugman realizes America's need for the hope of a better future and the clear vision of understanding the need for hope of a better future and the expertise to explain the path to a better future.
https://www.youtube.com/watch?v=z6J3ROV4IPc
2
@Montreal Moe
I especially enjoyed Krugman's comment that Biden says stupid things and I appreciate his inability to say that Biden says stupid things because he is ignorant of what is happening. Biden is a decent and well meaning person whose limited understanding is no solution to America's malaise.
3
@Montreal Moe —And Trump is? Whatever Joe’s flaws, he knows the British didn’t have airports during the Revolution.
1
@JLW
Here is a link to Solon. I have always had a huge excess of empathy and I understand the pain. I lived in Trump country. I also take kindly to Biden's humanity but at the end of eight years of what we understand as sanity America elected a Nihilist.
Obama was a neighbour and as fine a man as walks this Earth but all the things that were the source of hope and change got worse. America needs a change and moderation will not stop the starvation for hope and change.
I fear America will not survive four years of moderation.
4
I don't see daily stock fluctuations as indications of anything important. There are a lot of cross-pulling factors these days, more than when I started trading decades ago. ETFs and 401Ks, day traders, algos, non-public dark pools, no bond desks, options, derivatives and on.
Stocks are Shakespere to me. I never understood Shakespeare in school and don't understand him now. Or stocks. Except the line about sound and fury signifying nothing.
In volatile markets like these, when I want to get a sense of what's going on, I find myself looking more at oil and gold than stocks. Oil as a daily referendum on future economic activity and gold as a fear gauge.
Just my opinion.
1
Today's continuing decline in the markets after the rate cut ,is a vote of no confidence in this Administration's ability to manage a real global crisis.
2
Jerome Powell has been exposed as a weakling who is afraid to stand up to Donald Trump and Wall Street isn’t amused. 50 basis points is not a vaccine and any person with half a brain knows this.
6
I've always thought that the stock markets operated via the greater fool theory. There is a guy running for President, who innovated a tool that allows some fools to get their trades in a little faster, than the next fool in line.
As a retiree with no pension, but 7 figures in savings, what should I do?
Soon we will experience negative rates. I knew I shoulda been a civil servant!
4
Monetary policy won't work. But since interest rates are ultra-low, fiscal stimulus will. Why not make massive medical investments in detection and contact tracing? Buy all 325 million Americans a thermometer and give them free Coronavirus detection and treatment services? Use that fiscal stimulus to calm and build back the economy. The added benefit is to make controlling the spread of Coronavirus virus a collective goal we can all strive for. Free treatment and testing became the policy in China and as a result the Chinese infection rate is declining. Problem is the dunce in the White House has no clue and the idiots advising him think economic policy is like watching a movie to see what happens. Aside from that, we have the resources to get this thing under control. We lack only the imagination and political will.
4
How about paid sick leave for everyone who doesn’t have it so they can actually afford to stay home when they are sick?
2
Why do a rate cut to respond to a growing pandemic? Its like taking a knife to a gun fight
2
For all the damage that Trump and Co have done to the economy, and now what they are doing to public health, I have one question: When are we all going to rise u and slay them?
Asking for a friend...
4
Stocks remain wildly overvalued. Wake me at Dow 16,000 and I may consider limping back in.
4
My take on the markets is we are seeing an overdue correction and panic, together. During the 2008--09 crisis there were frequent large swings in prices, because no one knew how bad the risk exposure was. Today, no one knows how bad the disease exposure is , by a factor of two magnitudes.
4
Good move by the Fed while the Democrats continue to try to cause a panic among the American people. They have caused a run on toilet paper!
@Dan Locker No need for the Democrats to cause a panic the fool in the White House does it. Being from NYC and knowing the Trumps the man is a Coney Island con man, but then again Americans love con men and fraudsters. He was bankrupt four times oh, five a football league thanks to him in the early 80's. Why the NFL never let him get near buying a team. He is now on board to bankrupt an entire country, but hey keep drinking that Jim Jones Kool-Aid, if not sure look up the event late 70's. Frankly let people take their lumps I am sick of them talking about the stocks they own and how great laugh laugh you are in low interest items. Time to make them pay the pipe and I bet alot with lose their shirts on the margin calls. Hey, I have a friend who has a basement of Beanie Babies want to invest in some. Jim Trautman
4
It’s not the job of The Fed to “Save the Economy”. Also, your headline implies it’s in peril. Definitely, time for a correction but not a collapse.
Also, why don’t you ever use numbers or facts?
1
No.
Well Paul, you got your downturn. It's an election year and you can now write your predictable columns ahead of time (for the summer and fall) and take some off. Where are you putting your money in this environment?
Today's must be the shortest rate cut based rally on record. It's unfortunate that Paul Krugman's article today had to be written before the market reversal set in.
In any case, the shortness of the rally only accentuates the points Krugman makes.
Viewing matters from a wider vantage, before the economic slowdown or pandemic arose, traditional tools to blunt a recession (i.e. fiscal stimulus & monetary easing) were fully deployed in the US to prolong the economic recovery until the 2020 General Election ended. With a projected one trillion dollars 2020 US Federal deficit projected & monetary easing at historically aggressive levels, little room remains to safely deal with a possible recession.
The immediate challenge to domestic & global markets by the COVID - 19 pandemic is the brake-down & congestion of supply & distribution chains. If the pandemic continues for several months, the added challenge is the cessation of production because workers are obliged to stay home & not congregate in a manner that promotes contagion.
Thus, fiscal stimulus & monetary easing aren't at present remedies to address economic dislocation resulting from a global pandemic. Such increases now may well promote inflation & convince many people that public authorities are incompetent.
2
the stock market is almost entirely driven by psychological factors. and given that most people, even those investing in the market, are morons the market's short lived correction and bonce back were perfectly predictable. while the stock market is a great tool for building a retirement fund over 40 years it is horrible when it comes to funding that retirement when it actually happens. unfortunately with interest rates at rock bottom or negative, the stock market is about the only place to invest with any hope of earning returns that can support retirement. there is a lot of money tied up in the accounts of retired persons. because of market volatility retired people are less willing to spend because they cant count on reliable investment returns let alone protecting their principal.
1
If you're a Dem - you certainly hope not!
Anything to beat Trump, right?
1
Dead cat bounce.
4
How come when we see photos of traders at the NYSE, that old guy with the white hair and goatee are usually in them?
1
What happens when the Federal Reserve lowers interest rates to zero or below and the stock market continues collapsing in spite of this?
Oh yeah.
Trump hands out free $100 bills and bitcoins in front of the White House and the IRS mails checks to you and me.
3
@A. Stanton
The cash that comes included with a new monopoly set will eventually be worth more than the bills you'd get from Trump.
4
... " probably not enough to justify the sheer scale of the decline.
... "a serious blow to the economy.
... "our shock absorbers were pretty much shot.
... "Brace yourself."
Not so sure about that, no kidding, ditto, pay heed.
The market was overvalued.
But my personal belief is that investors are (finally) coming to grips with the fact that tax cuts don’t make up for having a willfully ignorant, arrogant, mendacious blowhard who has no idea what he’s doing in the White House.
5
Gold before people- the ultimate perversion.
2
Personally I am waiting to hear our current President declare the Coronavirus the largest crisis our government has ever faced......
1
I love it Fed in Trump's back pocket afraid to incur his wrath. They cut the rate a half point guess what the market going down more stern action, pardon me what would they like the rate is at the end. Know what I am sick of not being greedy and taking chances and putting my money into safe bonds that the rate keeps dropping lower and lower and soon I get nothing. My late wife and I have saved all our life so pardon me to prop up Wall Street people like us are spit upon for the greed of others. i think Krugman says it all the market crashed in the late 80's saving and loan you know paying more for investment than charging for loans and stocks the same. dot com crash, the mortgage crash now face facts the crash is going to happen it could have been a soft landing, but the greed and the big bonuses could not allow that. Wall Street is a scam people with their brokers bidding stocks up to over 20 to 30 of their real value. Consumers to the tune of $14 trillion, credit card debt $930 billion, farm debt $250 billion. A President who even bankrupted a football league, now a whole country. Hey, Boeing announces $18 billion loss and no planes and the tv guys great time to buy and the shares go up. Here is a prediction the crash should have happened a year or two ago soft landing, now one heck of crash like 1929. Do love it more has to be done, what it is like Beanie Babies up and up and now have a friend has a basement full. Greed and stupid. Jim Trautman
3
Are we simply at the end (or beginning) of a negative economic cycle or just living through a short-term aberration? Either way the Fed doesn't have the horsepower to arrest the slide...the people, however, do. It begins with salvaging Washington.
"Can the Fed and Friends Save the Economy?" - yes, if by 'Friends' you mean "We the people."
1
My impression is that the Fed acted because its Governors felt they needed to "do something". And of course the "something" that the Fed can do is lower interest rates.
But it's kind of a strange weapon with which to fight what could be a pandemic-driven recession. We can speculate which industries will get hit hard (eg. travel, tourism, hotels, retail stores, disrupted international supply chains etc.). But we have no real idea how hard the hit will be.
No one knows exactly how bad this virus is nor how fast and far it is spreading. We also have no idea what, if any, research breakthroughs will occur to produce an effective vaccine and whether such a panacea will be timely etc.
So yes, the Fed reacted in the only way it really can react. But it really is a rather meaningless gesture. One blunted both by all the unknowns and by the fact that, after all, we're already at amazingly low interest rate levels. So even if the Feds aim is well and true -- the arrow it's firing is quite blunt.
1
Although China may recover from this epidemic soon, the spread of the virus worldwide means that the supply chains will remain broken, and the consumer demand will not return early. Nothing the financial world does has any relevance to the real world facts. For example, the US has 924,107 staffed acute hospital beds, with the vast majority (almost 800,000) in community hospitals. Community hospitals will not be capable of taking care of critically ill patients. The occupancy rate is 66%. There are a total of 74,222 ICU beds in the US. These numbers cannot change quickly or cheaply. In a real epidemic, facilities will be inadequate and people will die for no good reason. What will the Fed do for these people?
2
Pence does not have the authority to manage the corona virus problem. The right move Is to appoint somebody with great organizational skills and give them carte blanche. This could be someone from the military who has marshaled large operations. They could put together the right kind of staff. This would be in close alliance with the CDC and FEMA and other agencies.
The necessary spending would have a positive effect on the economy.
Lives would be saved. Confidence would be restored. Government would be well thought of. But there's the problem.
3
"Well, here comes the bump. Brace yourself."
Sounds good to me. Believe you me, people like the Deplorables learn much much more from the pain of their misjudgments than they do from books or teachers.
1
Herd behavior on Wall Street? Who ever herd such a thing?
For a fairly complete explanation see
Benoit Mandelbrot's 'The (Mis)behavior of Markets: A Fractal View of Financial Turbulence', 2006.
Brilliant insights by a true genius, including why predicting markets is 'a mug's game'.
https://www.amazon.com/s?k=The+Misbehavior+of+Markets%3A+A+Fractal+View+of+Financial+Turbulence&ref=nb_sb_noss_2
3
Feels like the last days at a Trump casino.
5
With only 1% rate left in the pocket, the Fed is a malnourished tiger with no tooth and claws.
3
The Fed dutifully supplies the helium to fill Trump's balloons.
2
@617to416
But looks like they sent lead today.
1
Nay...Think it will blow over in a couple months. Same time the flu runs it's course, giving time to produce a vaccine for next year. Market should be back in less than 6 months...with steady growth, till November..
1
Fed Chairman Greenspan, a Republican Party mole, was the key factor in the Republican candidate being within striking distance of VP Gore in the 2000 election. Once it was resolved, Chairman Greenspan jumped on the accelerator with both feet and kept it floored for years. We know the result.
What is with this fixation on the economy when people are dying? Where are our values as a society?
5
@Jackson —Which is why diabetics find themselves trying to ration $500 insulin that cost $10 to manufacture. That very attitude.
Capitalism and cannibalism can get tough to tell apart.
1
A day later... the rally lasted hours.. maybe just an hour. Great read. Hit the nail right on the head.
Why do I get the feeling that The Market is controlled by a bunch of giddy, teenage girls like those who went crazy at the sight of Elvis many decades ago? Or the Beatles a few years later.
The interest rate drop will surely benefit the Trump organization which owes far more than it owns. Probably the Kushners as well.
Science and modern medicine will turn the economy around vis a vis the corona virus --- all else is con artist's mumbo jumbo.
5
It doesn’t need saving. It needs to be left alone.
1
I guess we could all work from home and just spend all day buying stuff online? That might hold us for awhile...or at least until Amazon's or Walmart's warehouses are empty? So maybe mid-April?
1
Just a crazy thought. One way to prevent a boom/bust Stock market economy would be to have companies issue their stocks at a fixed price instead of floating it. For example every product has an MSRP, and the market price does not vary much . Similarly say Apple stock should have a fixed price based on economic parameters rather then crazy human sentiments. The stock market is nothing but legalized gambling on a grand scale that unfortunately affects the economy and every one. If one could make stock prices less of a gamble and base it on economic parameters , maybe we could avoid this gambling mentality of winner take all.
3
No-risk investments are already available. They are called savings accounts. After the Trump-bullied Fed cut rates again today, you can get a solid 1-2 percent rate.
1
I guess you just have to live and experience things before you know that nothing remains the same forever. I've lived through an oil bust, the 1987 stock crash just afterwards, the tech crash, the housing collapse, trumps one man economic miracle and maybe now the corona virus. My advice, have enough cash not invested in the market, don't risk over extending your credit, stop expecting having the latest gadget will make you happier and just try to enjoy some of life's simple pleasures, always live below your means and then get a good nights sleep. The only thing that's constant is change.
12
Binyamin Appelbaum's Opinion piece from February 28th, 'The Fed Can't Save Us From the Coronavirus,' was much more informative and elucidating. There's a link at the bottom of this article (at least on my laptop), and Dr. Krugman had a few days to read that article and ponder its contents.
It's rare that someone trumps Krugman, but Appelbaum's card is the ace of spades. "Sheer scale of the decline?" Covid-19 is already disrupting supply chains as well as demand, and nobody knows whether the numbers are going to get worse (exponentially so), or peter out like SARS did. (My bet is the former as the lethatlity is less but it seems like its far more contagious, mainly because completely asymptomatic folks can spread the virus.)
4
@Ignatius J. Reilly ~~~~well said
I think the FED should have held off on cutting rates right now. Investors need to remain calm and let the economy play itself out. the virus is the virus and the FED can't inject a magic pill to make it go away. We need to let the medical community not he politicians lead the way.
5
Let's not lose sight of the enormous and ever increasing federal deficit. Financing it is very costly. Lowering interest rates makes it less expensive for the Trump Administration to finance it. The coronavirus is probably not the only reason they cut fifty basis points. It may not even be the primary reason.
4
What exactly is another interest rate going to do for me? My savings account was earning 1.36% interest a year. Now it will apparently earn less than 1%. I keep reading stories that Trump wants negative interest rates. Does that mean my bank will pay me to borrow money? If so I will borrow all I can get, with interest, and die of COVID-19 before I have to pay it back.
10
That means you will pay the bank to hold your money. The fed wants you to spend your money to boost demand
2
I am writing the same comments I was writing when Trump had his TV show.
The economy is doing just fine and will be blowing up America probably sooner than later. The Obama Biden administration was calm and orderly but the hope and change did not materialize and inequality grew larger faster.
Obama's administration was a failure and there is no one worth blaming.The world grew richer and more equal even as wealth was consolidated and the rich access free money as the poor try to navigate the usury.
I suspect Sanders is too conservative and only a new 21st century can save us from an economy that is no longer benefiting human development.
I live in Quebec where we are in the fifth decade of our quiet revolution. We understood health education and welfare were our real source of wealth and we are optimistic and our evolution is racing ahead. There is nothing quite like hope and the ability to adapt to help one believe in the future. I guess I am a lot like Bernie but I know some millionaires and billionaires and they are not to blame. They are not that smart and it is a willingly ignorant electorate that is to blame.
America needs negative interest for those who can't spend and usury or wealth penalties for those whose incomes vastly exceed there ability to spend.
7
@Montreal Moe
America needs the poet philosopher Solon but insists on the reign of those blind to the realities of 2020.
1
Don't see any mention in the analysis that stocks were at all time highs which many analysts described as a stock market bubble. Priced for perfection so to speak. Not surprising that some really bad, unexpected news pricked the bubble. The big question is whether the Fed can restore that sense of euphoria. Too early to be sure but it's beginning to look like the answer to that question is no.
10
I was thinking about those smart people who made a lot of money betting on the housing collapse.
Maybe I can make an appointment with Goldman Sachs and see if they can create a security for me based on the death rate of the virus. Or something.
@MT there’s already something exactly like that here in America: it’s called Health Insurance, and you can invest in a lot of those companies that offer it.
1
Interest cut is helpful when demand
is sluggish. Consumers can finance
purchases of cars, homes and other
durables cheaply. Ditto for small
businesses to finance working capital.
It can't solve production problem from
supply chain disruption.
9
But interestingly enough, consumer rates haven’t fallen that much.
2
It's a good question, but Mr. Market doesn't think the answer is yes.
In fact, using the Dow as a proxy, Mr. Market gave up more than a thousand points today after the initial euphoria of the half point emergency rate cut (it's high point) began to wear off. In just ONE DAY!
If the one percent doesn't trust the Fed to cure the virus, pity us poor folk. We are staring down the barrel of a martial law imposed usurpation of our normal lives to contain the virus unless Trump's stable genius prediction that it will simply go away comes true. And those who employ us are imposing no-travel policies. Soon the markets like Costco that we have not emptied will possibly be restricted in hours and staffed with police or National Guard carrying automatic weapons at the door checking our ID's to see if we are permitted in on the chosen day.
Yep. Trump has inspired great confidence in our futures alright. He promised we would get sick of winning. We are.
9
@Johnny Comelately ~~~~ive been saying to the same afect, for a few weeks, and could see this playing out......and IT (45), hoping for an easy election...
These schools, sports and theaters closing makes me wonder when they could ever reopen, Coronavirus will likely linger somewhere for years, maybe decades. If schools are closed until it is eradicated, they are essentially closed permanently.
3
I think we're being set up again for another dose of disaster capitalism.
Either wait for a disaster or create one and use that as an excuse to transfer wealth to the Rich.
We're likely to see Tax Give-away 2.0 sold as a fix for this pandemic, and all the Republicans will cheer.
If it doesn't work, they'll blame the Democrats and use that disaster to do another one.
It's a brilliant strategy.
17
How much selling was to lock in previous profits, suddenly at risk. Supply chain will be slack then bumpy. Can’t buy our way out of this short-term.
6
Yields on bonds and consumer savings accounts are so low, investors have few places to go for decent returns. That could help establish a floor under the stock markets.
This is like a bad horror flick from the 50's. We're not only afraid of contracting the virus, but also being quarantined for 2 weeks or more--like being in prison.
I was at Costco this morning, acutely aware not to touch my face. First thing I did when I got home was wash my hands thoroughly for about 30 seconds. I'm starting to feel like I need to wear a hazmat suit to go out in public. Good times.
4
no of course not. we have to stop beseeching the central bank priests every time some bugs hit the windshield. they are not magic men, or women, but wholly fallible and very flawed. as are their tweaks. these slips and downturns are what we get when we push for extreme efficiencies in production and lean money policies. while "just in time" production is effective and efficient - its also extremely sensitive to even minor disruptions. compounded by all processing the US has outsourced - meat processing for example - and supply chain disruption is inevitable and expensive for consumers. double compounded by Trumps tariffs.
whats the price of a 12oz package of bacon these days? up about a $1.50 since the tariffs took hold...because China processes most US pork. (and chicken!) how much is a summer BBQ gonna cost this year? banks cant fix this!
3
Krugman is right on! After the Fed rate this morning, the market briefly rose, and then tanked at end of day down about 2.8%. The market inevitably will reflect economic activity, as Krugman points out. The coronavirus may depress economic output for 1 to 3 months, and stock prices will have to reflect this. The US medical response is just getting underway a month late. How much will travel, education, and retail business be affected? Just now we see some conferences and flights cancelled (but not Trump rallies). Will the US undergo quarantine like China's? And the data are still spotty. Kirkland WA reported today that there are 21 known cases of which 8 people died. We know that these data are incomplete because coronavirus does not have a mortality rate of over 30%. Undoubtedly sick people have not been diagnosed so the actual number of cases in the Kirkland community is much greater than 21. This jives with the lack of test kits thanks to Trump's dismantling of CDC's global epidemic response team. The best way to shore up the markets is to restore the economy by stamping out coronavirus in the US. The administration has failed so far, and is finally addressing the problem directly. Interest rate drops will not cure coronavirus.
7
We can all be sure that if the Coronavirus leads to a Trump Slump that costs him the election, all we will hear for the next 10 years from Trump is that he lost the election because of a pandemic. We’ll never stop hearing from this guy! All we can do is stop listening and try to forget.
7
Taking Wagers on exactly when Pence realizes HE is the fall guy. I’m guessing on the way out the Door, just after he “ resigns “.
Seriously.
6
Pence is ELECTED by the Electoral College not appointed or employed by Trump. He cannot be fired or forced to resign by the President.
3
@Suburban Cowboy
Unless like Spiro Agnew he did something criminal, like be Trump bagman shaking down Zelensky. Trump will say that he is shocked, shocked that his VP did that and never told him. You’ll have to ask Mike #2, he’ll say.
1
Keep repeating:
The invisible hand. The invisible hand. The invisible hand.
I want to focus on two statements.
"Actually, I wonder if some of my readers are too young even to remember that?"
Yes. I'm too young to remember the dotcom bubble in any meaningful sense. My understanding, such as it was, left me with the vague impression of absolute stupidity. Why would you work for sweat equity and toilet paper? I don't understand why seemingly intelligent people have such enormously destructive gambling problems.
"Bear in mind, also, that it was always a given that the Fed would cut rates if the coronavirus looked likely to do serious economic damage."
So why the stock swings? If you knew the Fed was going to lower interest rates, there's no uncertainty in the markets.
Except the Fed wasn't the source of the uncertainty. Wall Street didn't want to believe coronavirus was going to do serious economic damage.
Maybe it won't. I hope it doesn't. But it already has.
You're left in the awkward position where investors are buying up stock from work-at-home software companies. Brilliant. I know I desperately want to learn an entirely new software while recovering from a really bad case of the flu. I'm sure I'll be extremely productive at work. Thanks Wall Street. Your brilliance never ceases to amaze.
#PinkSlipWallStreet
2
@Andy
I remember it well. A bartender at my local was saying that he bought JDS Uniphase. It was at $1227/share, then lost 99.8% of its value with the bust. So when your bartender starts giving you stock tips, it’s time to get out.
4
To a large extent the coronavirus problem is causing a supply chain problem, leading to a drop in supplies. At the same time there is some panic buying going on for food supplies. Under such conditions, a drop in interest rates to stimulate demand may drive up inflation.
4
I concur wholeheartedly, especially with the last two paragraphs to which very few economists of sense could retort let alone refute.
As I have said to my students, between Trump's tax cuts (right or wrong-you judge) and the Fed's actions to date, we have pretty much already shot our bolts for stimulus and we are likely to be at only the start of the economic difficulties and, now, with little in the arsenal to fight the sea of potential troubles ahead. MORE deficit spending? How do you pay for it? Increase taxes and risk killing any gains through spending. Borrow, but borrow from whom, the Chinese, Europe, ourselves? Not likely. Cut rates and buy bonds? From this starting point, the impact will probably be small.
Not a lot of options.
Yeah, hold tight.
5
The last thing that markets can handle is lack of information and continuity.
In a normal situation, if the market (and its makers) could anticipate good leadership, the Fed cut might actually have worked. Our leadership, however, is shrouding itself in secrecy and spreading false information (in that sense the US leadership is no better than the Chinese).
If we see zigzagging of stock prices in the next few days it means that the markets don't trade anymore on information, but on speculation. That usually is the foreplay to a larger drop. Get ready for a bumpy ride.
1
The Federal Reserve has the power of the printing press which is just as powerful today as it has ever been. So the idea that the Fed has no ammunition is not correct. As long as the rate of inflation is below its target the Fed has little reason not to use the
power of the printing press to ensure its goals of "stable prices"
and "maximum sustainable employment." With all due respect to
a winner of a Nobel Prize in Economics, Krugman.
@David
Looking forward to my $2500.00 McDonalds single hamberders delivered by a self driving car for a $500.00 service fee.
1
Inverted bond yields never fail as an indicator. Thank you, Mr. Krugman for advising us to prepare mitigation for down cycle.
3
It's important to look at who gets hurt. In the dot-com bust it was investors throwing money at venture capital funds, and ridiculous start-ups.
This time the party was being thrown with borrowed money. Over 1.1 trillion in record US corporate debt.
As Mr Krugman, and other (non-Chicago school) economists like to point out, the economy is not to be conflated with Wall street. The P/E ratio of traded shares was not, recently, in the opinion of Mr Krugman et al, reflective of the underlying asset value (heavily leveraged) of US corporations.
This is more like the financial crisis of 2008 when investors panicked because they couldn't determine the "actual value "of CDO's and other financial derivatives. Start looking at the statistics for missed corporate debt repayment.
4
Isn't cutting the rates in the face of a likely supply shortage due to factory closures in China and now elsewhere, setting us up for inflation with too many $$$ chasing after too few goods?
7
If it were up to Trump, we wouldn't even have that full 1.5%.
Regardless that 1.5% are "worn shocks", Trump's incessant nagging that the Fed should lower rates, long before anyone heard of the corona virus, illuminates just how unqualified he is to hold and execute the duties of POTUS in good faith.
10
The coronavirus is having a real impact on the public: Confirmed illnesses (or even deaths) in your local area, cancelled conferences, delayed or cancelled vacations, even something as trivial as concern about the person sneezing next to you. No amount of "happy talk" or denial from Mr. Trump is going to fix this. And his proven ignorance makes it worse. Vaccines take time; they can't be wished or bullied into existence. And economic recoveries can take even longer.
13
All of the people who didn't sell last week saw the upturn yesterday and decided to sell today.
6
Let's see...who should we pick to run the show on dealing with this virus.
Mike Pence?: In 2001, Pence wrote a post on his website noting smoking doesn't kill, and equated the dangers of smoking to fatty foods, caffeine and sports utility vehicles. Years later, Pence voted against legislation giving FDA power to regulate the tobacco industry and adding new warning labels to tobacco products and ads.
Dr. Anthony Fauci? M.D. from Cornell, to NIH in 1968, becoming Head of Clinical Physiology, then Chief of the Laboratory of Immunoregulation, then, Director of NIAID, which has the responsibility for an extensive research portfolio of basic and applied research on infectious and immune-mediated illnesses. He played a significant role in the early 2000s in creating the President's Emergency Plan for AIDS Relief, and in driving development of biodefense drugs and vaccines following the 9/11 terrorist attacks.
Trump chose Pence, who's now in charge to steer us out of this pending pandemic crisis.
That's one way to induce uncertainty into financial markets.
14
A novel approach for a novel virus.
Fight Covid-19 with lower interest rates.
The virus doesn’t care.
The stock market is down almost 2% so it doesn’t care.
The only things for sure are the spread of the virus and the lower confidence in trump.
A 1/2% cut didn’t move the market up. Cut more he screams via tweet.
trump is using the wrong weapon and he’s going to run out of ammo with the rate at 1% now.
Back to the drawing board prez. Maybe you should delegate finding a solution to some REAL experts, which excludes pence.
This is the time for leaders to stand up. It’s not the time to hide behind scapegoats.
11
@Steve Ell
"A 1/2% cut didn’t move the market up. Cut more he screams via tweet."
The "emergency" cooties cut is likely to upset the markets as it will spook investors. Reacting instead of analysis is the hallmark of people that don't know what the hades they are doing.
1
"Schadenfreude"
Trump has been pestering the FED to lower the interest rate for over a year. Well, his desires came to fruition, and Powell reduced 50 points, more than the paltry 25. Result? The opposite that the ignoramus in the White House expected.
A question to Trump: Do you want another reduction?
7
This morning, I listened to a skylark calling from a tree, outside my bedroom window.
It occurred to me that the bird calling, was having exactly the same effect upon the over-all economy (as opposed to the stock market), as the promised interest rate adjustment of this morning.
But, the bird calling was a beautiful moment.
-C
13
is a side effect of this interest rate cut a precipice that we will fall from later?
do these low interest rates keep failing companies on life support? if they can't compete and the only thing that helps is lower interest expense, i don't see how this helps the economy.
shouldn't companies see growth from innovative products? new markets? manufacturing technology? management teams that control costs? higher prices?
if there's no inflation, all reducing interest rates accomplishes is exacerbating the problem. too many poorly managed companies with obsolete factories will drag down the well managed companies as lower interest rate provide the extra oxygen they probably could not gasp in otherwise.
5
An emergency rate cut by the Fed in a time when President Trump we have the strongest economy in our history? What many haven't noticed is the Feds have been cutting the rates going back to 2019. Then add on the massive tax cut PLUS deficit spending unlike what we have ever seen should tell people that the underlying basis for our economy is actually poor. Trump and Republicans have been jacking up our economy and now should a real financial downturn happen there are no tools left in the box. Ducktape will not keep a ship from sinking...
11
This is exactly why we need more CEO salesmen / businessmen like Trump as Presidents: Businessmen know that reality needs to be remade to serve their pockets. Their needs come first. Always.
4
Question: Will increased supply of capital during a period of limited availability of goods result in rapid inflation?
1
@Kevin -- given how far below inflation targets we are, the Fed may actually hope so ...
With an expansionary fiscal policy and lower interest rates, one would hopefully see the US economy pull through, with little damage.
One critical issue is consumer confidence, which will not be lifted by another interest rate cut. Keynes talked about the ‘liquidity trap’, where despite interest rates being cut, it did not see a lift in borrowing. Consumers are fearful for the future, and Trump’s crack team of spin merchants and smooth talkers, are not cutting through.
This is the time where experienced, very well qualified economic experts are needed. Trump’s economic team is one of the reasons why US consumers are so uncertain about the future, and Trump’s ability to deal with complex, ongoing issues in a way that will assist most Americans.
6
Love the analogy of having a set of tired shock absorbers, a fiscal jalopy maintained by shade-tree financiers. Near-zero interest rates - cut to the bone to juice the stock market - leave 'U.S.' with no protection from, or way to absorb, our current economic shock. Nice.
6
sheriff powell is running very low on ammo, so he fires half his remaining ammo into the sky. the president and some investors had asked for that, so they celebrate.
the rest of the market is much more sober. if the economy is in a good place, why is the ammo almost bare? the fed's monetary tools were at a state that should correspond to recession, even before covid-19.
unfortunately, warsh is far worse than powell in terms of how he toes the trump line.
4
@LL -- if the economy is in a good place, and the virus is just a hoax created by the liberal media to take the president down and won't actually cause any problems, why fire the ammo at all?
I don't want to sound muggish but what if the bump in the road turns into a tank trap. When the markets bottoms out at some level, the exuberance of the herd to return to pre-virus market levels will be blunted as the losses mount up. Investors were sitting on cash prior to this event and are not likely to jump back in just because the worst of covid 19 has passed. The countenance of Team Trump doesn't seem to provide much confidence to a jittery market hungry for a sign of effectual leadership. Like so much of the convention breaking ways of this President, this is the new normal.
3
Dr Krugman,
You're right, Herd Mentality does affect markets. IMHO, it affects beyond markets as well.
Take the Coronavirus panic itself. Chinese bureaucrats in Wuhan mismanaged the initial outbreak, leading to a spike in cases. China's medical system revealed a deep inability to treat victims, leading to a high death rate of infected persons. Seeing this, observers and even professionals compare death rates equivalent to the 1918 Spanish Influenza or the Ebola pandemic in Africa. The CDC admits the only treatment for COVID is to stay in your room until you get better or die. Ibuprofen or aspirin is supposedly ineffective at lowering the fever. Antihistamines are suddenly ineffective at relieving congestion. Hospitals plan to go on full hazmat-suit quarantine when dealing with patients. Because everyone (VSP's?) says we're about to have a Zombie Apocalypse, we're expecting a complete shut-down of society.
I guess I'll have to binge-watch "The Walking Dead" to figure out what to do next.
1
mr krugman - more than 10 years ago, floor specialists at the NYSE were essentially eliminated.
i know there was jealousy - i worked for the biggest specialist firms, in terms of size of the book - because on a normal day, selling at the offer and buying at the bid in a balanced market was pretty much a license to print money.
the specialists earned that right by accepting the charge to make an orderly market in times of high volatility. the specialist had to sell at the offer and had to buy at the bid and the price movements were relatively small most of the time, but there were trading halts and indications of the bid and offer prices and the volume of shares that would trade at those prices. eventually, an equilibrium level was found.
the days with the biggest swings in terms of points and percentages have come since the specialists departed. sure, they made a lot of money, but was that ok given the requirement that they stand up as the buyer or seller of last resort? would it help to bring the system back today? could it handle algorithmic trading? would anybody even take the risk?
the small investor is at the mercy of the larger one and can't possibly compete in terms of time to execution of the trade. when the DJIA moves 600 points in 15 minutes, as it did on friday, there is something the matter with the system, at least in my opinion.
7
@Steve Ell - true. Also HFT algorithms only work in a narrow range of volatility.They are designed and tested with trillions of trades (as recorded by trading systems) in normal market conditions. Not "black swan" events.
For this reason most HFT's hold no positions in stock "overnight". They close out into cash before the market closes. Since they don't technically "invest" they exist in a world separate from small investors. It still hurts when the elephant steps on you, though.
2
Fear is the common denominator in this scenario. It's fear of virus that will do the true economic damage, and it's fear of the fear that investors are reacting to. Numbers (interest rates, infection rates, death etc.) don't matter. Human psychology does. This ship has sailed.
2
Covid-19 may finally expose to DJT voters and their media outlets what FBI investigations, convictions of advisors, and impeachment didn't (all political events, without immediate consequences for his voters): extreme incompetence for the job. Interest rate cuts? See the market at 3:30 pm EST.
Trump's inherited wealth was very significant ($413m as per NYT - a nice head start), and his family business today is neither large nor complex by real estate and hospitality industry standards. Even if you believe that career CEOs can make great Presidents, Trump Inc.'s "operating experience" gave him no expertise that is transferable to the POTUS role. 2016 Trump voters bought the MAGA and drain the swamp messages, and the successful billionaire myth, delivered with the braggadocio and vitriol honed in The Apprentice.
The markets aren't looking for stimuli - they are rating the Administration as incompetent in their Coronavirus situation assessment, and in their messaging and actions.
I'm confident that Covid-19 will be the end of Trump, but I'm very concerned for the next 10-11 months . He needs serious help from courageous Americans, Republicans and Democrats. For after this crisis: maybe we'll all check candidates' qualifications, in executive leadership and skill, and in moral-human values, more thoroughly in future. Leading a large, complex nation of 330m, still the most influential and powerful nation globally, deserves significantly better.
8
I guess we will see in the next 6 months if the Federal Reserve has a spine to stand up against Trump's bashing. Since he will never be blamed for anything going wrong, they will see more of it. Real economic reasoning doesn't exist in Trump's world.
4
The Fed does not have room to respond because it has not been doing its job for the last ten years. Hyper low rates are tools that can get a slow economy lending and growing again, but they cannot fix a broken economy. The damage done in the 2008 crash, and the inadequate response to it, are still with us and the economy has been weak ever since. One thing that could have helped strengthen the economy was to have slowly increased interest rates to allow fixed income instruments to begin putting more money into the economy. Increasing interest rates at the right time can grow an economy. But the Fed has been acquiescent in allowing interest rates to be treated as a political gift to the wealth class instead of using Fed policy to contain inflation. Since there is no inflation due to collapsed worker wage demands, the next goal should have been monetary health. Since the Fed wasted the years that it had by keeping rates low and causing a stock market bubble they have no room left to manage the next downturn. Last weeks decline was simply smart money agreeing that it was time to take profits from an obvious top. The decline is not the problem, the market volatility that exposes nervousness is the problem. The global slowdown will not hit domestic businesses for a few months and when it does we could see an actual panic. With the rates where they are, what is the Fed going to do then?
Fed policy has been madness, madness, and we are all going to pay for it.
6
Remember it all too well Professor Krugman.
It's the before the needed bank bailout before the bank bailout. You know Trump!
I am thinking this is the first cooties cut in the fed funds ever. That is a bit weird.
"Second, as I’ve already pointed out, the Fed and its counterparts don’t have much room to respond."
And that is the part that has bother me...and should bother lots of people...for quite some time. Taxes are low, the deficits are high and now rates are very low as well. If a recession is triggered by this or other of Trump's random economic policy, where is the fix...
2
@glennmr
the fix you ask?
vote Nov. 3 as if the future of the nation counted on it—it does.
6
@Mary Elizabeth Lease
"vote Nov. 3 as if the future of the nation counted on it—it does."
Agreed, but the economic issues could be almost insoluble. I am one of those silly people that think a strong economy should be coupled with a balance budget or a surplus. Obviously, debt is accumulating faster than the economy can service it.
But the cooties cut will certainly work...wait.
What happens when the economic downturn really begins to manifest itself and corporate earnings start to fall? The banks will be charging us to hold our money, which it looks like they're doing already if you factor inflation against the interest rate on bank money market funds. Hard to believe, that at one time, back in 1980, the prime rate was over 20%. Will more tax breaks for the rich help? They're swimming in cash as it is.
3
Plague doctors wore a light, waxed fabric overcoat, a mask with glass eye openings and a beak shaped nose, typically stuffed with herbs, straw, and spices. Plague doctors would also commonly carry an interest rate cut at the end of a cane to hand out to patients.
301
@stjohner I wish I could recommend your comment 1,000 times!
23
@stjohner So hilarious. And I like that it is accurate right up to the interest rate cut cane. Plague doctors had more science behind them than Pence.
43
@stjohner Took me more than a second to get this. Nice! And history tells us that the magical rate cut didn't work very well for plague, either.
20
"Can the Fed and Friends Save the Economy?"
perhaps...but the real question is can they save the nation from the GOP?
The Republican Party, as an institution, is a danger to the rule of law and the integrity of our democracy.
The problem is not just Donald Trump it is Republicans who choose to collaborate with him.
The only hope of defending the country from Trump’s Republican collaborators is to vote against Republicans at every opportunity.
4
Last week, I was listening to an expert on China's economy appraising the benefit of China loosening it's money supply to goose its economy. Other than making people feel good, he said it would not work because tight money was not the problem. The problem was that people, because of coronavirus, were not producing or consuming. The US economy is driven by consumption, not by lack of money to build factors or buy machines. So, loosening money supply will not likely have much benefit.
6
After Trump and Wall Street launched tariff war on China and US's ally, meaning raised tax on middle class American and businesses; Dismissing global threat of COVID 19, as isolated China's problem, before realizing that the effect of it has been affecting US's economy like fires since the beginning of the outbreak; After pressuring the Fed to cut interest rate to booze the artificially inflated and speculative stocks market, Trump and his Wall Street's gate keeper got it in a matter of days!!! Amazing, but alas ... , when those pseudo economic gimmicks confronted with fundamental economic reality, it crumbles and bring us down with it.
2
The people of the United States apparently need to learn another hard lesson in real economics. The central bank is not all-powerful. The central bank can't spend on what we need. The central bank can't set priorities. The Fed can't protect us from a foolish president and a sycophantic Senate. The Fed can't save us from our failure to plan, our failure to invest, or our failure to prioritize our public health. We have to do those things. We have to stop pretending that it doesn't matter how we spend our resources.
8
Calm heads prevail. What is Warren Buffet doing?
Having a huuuge margarita!!!
No, wait! That’s what his brother Jimmy is doing!
I do find it rather ironic that a literal pathogen could be what rids this country of our figurative one for the last 3 years.
Karma's a B, as they say.
11
There's only one person putting too much faith in central bankers and unfortunately, he's the one with all the power.
I can't believe the Fed actually gave in to his ridiculous demands. Still haven't figured out how this is supposed to stop people from being worried about the virus.
Personally, it makes me worried that the Fed thinks things are going to be a lot worse than I do. Or did.
104
@JM: It's not the virus. No one concerned about it will by an airline ticket because of an imperceptible reduction in their credit line interest. HOWEVER, Trump and his enablers are very concerned about the reduction in their paper profits from securities speculation. Just imagine - the margin calls, the reduction in "net" worth, the election! OMG!
13
@JM
I completely agree with you. I'm not sure what Powell thinks his move will accomplish, and he has less firepower today than he had yesterday - to be used when it can actually do some good. I always hoped the Fed would be the last institution to bend a knee to this ridiculous clown, and they failed. Good luck to you, Jerome, and to the rest of us.
10
Cutting interest rates will accomplish nothing against a highly contagious virus. My guess is Congress could do more by putting aside money to offer testing for free, and offering some type of paid quarantine for those infected.
I've been closely following what happens in countries with a similar situation to ours, that waited too long to test because of poor resources like Iran or ignorance of the number of infected, like South Korea and Italy.
Hope someone in Trump's Administration has read what Iran is getting ready to do, release 54,000 inmates from jail to avoid the chance of mass infections..
2
This strikes me as a teachable moment. All we need is a Professor..............
Some facts.
There is plenty of demand out there - demand for paper masks, demand for vaccines, demand for hand sanitizer etc. is higher than ever. No shortage of demand. Check.
People cannot go to work because they are sick or quarantined - so supply of everything will at some time and too some degree be disrupted or restricted.
So clearly we have a supply side problem.
Nil desperandum. We know how to fix this.
It should be easily fixed by massive tax cuts - across the board - for the very wealthy, and large multinational companies headquartered overseas who will see the opportunity and immediately repatriate cash to employ Americans making paper masks, generic medicines and inventing vaccines. Thereby solving the supply problems. At a stroke. Job done.
To pay for these tax cuts we will need to cut back on welfare payments to the poor and the sick. Once the safety net for the poor and the weak is withdrawn, they will drag themselves up by the the bootstraps and be grateful. And why not? Laying about in quarantine can't be fun after a while.
The recovery will be clearly visible once cruise ships again set sail on the rising tide, that all said and done, benefits us all. (More or less equally)
And this should also be self financing and help reign in the national debt, which, whilst not a problem, looks likely to become one in November.
4
Not a lot room in the fiscal side either, given that we will likely be looking at an expanding fiscal deficit north of a trillion, even without further tax cuts. But, then, putting more money in people's hands when supply is disrupted doesn't seem like a solution to the problem either. Might have to buckle up and go along for the ride.
The stock market is a chaotic system that reacts to predictions about its future.
So, predictions are doubly hopeless, but that will never stop people from trying, or stop people from believing in the predictions.
The situation is remarkably similar to the "psychic readers" who work out of tiny booths at the street fair, except the psychics don't make any money.
To the extent the stock market reflects the real world today's drop confirms your analysis.
It is likely, as someone said here, that investors knew a rate cut was coming and bought yesterday. But even so large a rate cut didn't encourage a rally, so we are headed down again.
"Brace yourself" first for a health crisis. And then brace for the effects of the inevitable decline in the global economy.
I hear that dark humor has become a staple among the dedicated health care people preparing to care for corona virus victims. Hospitals and clinics, for the most part, still have no test kits, thanks to what appears to have been a CDC bungle.
Question: Did CDC make a "Buy American" political decision not to by test kits from abroad (e.g., Germany, South Korea)?
3
@Frank McNeil -- I suspect that the size and surprise of the rate cut made a lot of people on Wall St. concerned that the Fed believes things will be a lot worse than expected.
So the rate cut actually accelerated the worry and the selling
3
The pressure of the coronavirus will be intense in America. But Europe seems more fragile economically. Can Krugman explain what the effect of the coronavirus will be on Europe? - particularly in a country like Italy which was seeing slow growth prior to the outbreak, and is too big to bail and too big to fail. The ripple effect from Italy's economic engine (Milan) shutting down will be big more than consequential for Italy, and thus Europe, and thus the US.
@Paul Thomas If I was a betting person, I predict we are heading towards a global recession. This is going to be a very bumpy ride for the years to come. A global problem will need global leaders unified in a global response. Given our countries' current leadership, I don't see a strong rational response.
3
I don't understand why the Fed cutting interest rates now will help anything, regardless of whether they have enough of a rate to cut. There appears to be plenty of liquidity in our economy. So, how can monetary policy help. A simple analogy: I guess if you need $69 dollars to by a 2 oz. bottle of hand sanitizer more money could help, but if the 2 oz. bottle isn't available at any price what do you do with the extra money. It's a publicity stunt meant to calm things down, but if it's the wrong solution, it's not going to help for more than a day (as we are already seeing.)
2
If today's stock prices are any indication, no. Investors saw the move to cut interest rates as an "emergency" measure and reacted accordingly. All that's needed is a calm, sensible, honest approach to soothe some of the fears and let the American people know there's a strategy and a plan and experts guiding and leading that. Our president is not capable of doing that.
4
The problem with the Fed is that it listened to Donald, "the clueless Le Horrible", and panic. Fed's panic feeds into Wall Street because Fed is supposed to be the "calm guardian of the Universe" and it crumbled.
well, I know there is a happy person in Omaha, who is smiling and buying, and not said a word...Mr. buy-low-and-sell-high buy,
Warren Buffet!
1
Buffett isn’t buying yet. Markets are still overvalued by 40-60 percent. Wait till January when we have a sane Democrat in office.
1
@Elliott
it's better to buy now and not wasting that 100 billion sitting in the treasury bills.
Those who can't do, teach. Those who can't teach, teach gym. Those that can't teach gym become bankers.
1
To me, William Cohan had it right in his earlier NYT column. Lately, owing to the historically low interest rate environment, markets have seemingly lost sight of the investment risk/return maxim, ignoring (denying?) risk while focusing exclusively on return. Further, the stock market has been trading as a commodity, on supply and demand (for stocks) versus on the underlying fundamental earnings potential of companies, priced for perfection in a decidedly imperfect environment. So, with another hat tip to Cohan, this pain will be healthy for markets. But first the pain. And the Fed can do little about it at this point.
1
There are other effective tools in the armamentarium where they rightly belong -- public health, public behavior, front line health care.
It's one thing if the economy dives. It's another if innocents die in their millions. The first is OK. It bounces back. As for the second, life is for the living. So, how do we live now with our understanding of the world and systems we've put in place? Perhaps it's time to revisit our systems. I believe this all will make us reconsider our values in a way that has only been rhetorical this century. "Woke" is a weird expression of the time. Perhaps the times call for a bit more literacy in and grasp of science.
Science has been a wellspring of progress for decades, not politics or social awareness. Maybe a little more application of it in those domains will help us all.
1
A society in which consumption has to be artificially stimulated in order to keep production going is a society founded on trash and waste, and such a society is a house built upon sand.
- Dorothy Sayers Why Work (1942)
4
A Fed interest rate cut in the current environment is the financial equivalent of 'trickle-down' economic policy. Stimulus must always be ladled in from the top because the benighted multi-degreed recipients will put it to use in the best possible places to benefit the economy as a whole.
Today's rate cut should have encouraged investors. Didn't work. Capital markets were already oversupplied with investment money. Now markets are even more supplied. Duh.
4
DJT has recklessly used every missile in his shed to keep this e stock market cranking for 3 more years - added $1T/year to the deficit, cut corporate and high earner taxes to virtually nothing and gained very little in terms of wage or investment growth, and pressured the Fed to cut rates to zero. Every one of those policies is all about short term gain for him. I see a Democratic President showing up in 2021 with a potentially bigger ness to clean up than Obama had.
218
They wear dark suits and make serious sounding comments. They have a small army of quants using incomprehensible formulae to time and predict market movements, so that those sitting on an Alpine hoard of money can make (or lose) a fortune overnight on the rumor of a fractional point change. There are dozens of ways to play the market other than putting money into equities themselves, or, in another context, side bets.
But to the vast majority of regular Americans who have no extra money to play with in the markets, or have only a limited stake, often in retirement accounts, the market is nothing more than a casino, including its clanging bells and flashing lights.
Fat cats at Mar-a-Lago burn up an extra cigar or two over the ups
and downs of the market, but to a regular civilian on the sidelines, it has little real relevance and no relationship to the funding of business activities, such as expansion and job creation. It might as well be Parcheesi.
Real people worry about surprise medical bills, job losses, and unaffordable rent increases.
61
Even with all the downside of a rate cut for the sake of therapy, perhaps it will help the middle class and impoverished weather the future shock to the economy. Investors will always be OK. They have the money. It's the have-nots that should benefit just to survive. Now I will be anticipating a rate cut on my credit cards. Could be a story later as credit will be over utilized due to coming hardship.
Maybe the Fed, can try forcing banks to write off student loan, medical, and credit card debt. You know force the banks to eat their bad investments and free up consumers to start consuming again. Sure beats giving 'investors' with plenty of money an interest rate cut, to do what with? Buy another boat, or 3rd house with?
2
@Mike
Unfortunately a lot of wealthy people take the tax cuts and invest in political campaigns so they can keep getting tax cuts.
The business to be in is one that captures all of this political money being spent.
1
Cutting interest rates in the hope of calming the markets or our dear leader will not work. Now the elderly will earn even less on any CDs they have and the virus will continue to spread regardless of any stimulus that the Fed puts into the economy.
I would like to know where the line about Jared Kushner went that I read here earlier.
If we pay to what is happening to consumer behaviour, spending and economic activity now not in 2000 in China, South Korea, Hong Kong and Japanese and Italy and Iran, Singapore, HK and Australia - then your statement that last weeks collapse maybe irrational is very wide off the mark. Consumption and spending is collapsing! Except for runs on essentials - Australia biggest city is sold out of essentials Why panic...markets often overreact and sometimes Undereact too - People in effected areas are De-Risking - no travel no shopping no entertainment
And sure as the sun rises and sets, Trump, who is happy to take credit for the booming stock market will distance himself from any nosedive becoming the victim of any number of conspiracies or not my faults. Sorry buddy, you break it you own it. That this house of cards has stood as long as it has is a miracle in and of itself.
4
The indications so far is that coronavirus will kill maybe 10x to 20x more than the yearly flu does. And it kills roughly the same demographic of older, sicker people. I know it's callous, but if this were the flu causing 10x more deaths than usual, I don't think it would get any attention at all.
At some point in the next couple months, working age adults are going to realize that it doesn't affect them or their kids and things will go back to normal. Until then, the nightly news will get a nice bump in ratings.
1
It appears the stewards of the economy are stewing the economy to placate the underlying hysteria. I'd bet it will stew it further. It was probably a bad idea for the fed to show early concern that may precipitate anxiety. As the fed goes, so too those who put their faith in it's judgement.
1
True monetary policy is stretched with rates at such low levels. Wouldn't it be nice to use today's historically low long term interest rates to finance a robust infrastructure program?
This crises might all be the unexpected gift that jump starts a much needed fiscal stimulus program that provides the financial backing needed to bring America into the 21st century.
2
No.
The answer is quite simple. No. Not even the Fed can fight the enormous economic slump that will be the result of Trump's failed policy to deny and ignore the COVID-19 epidemic.
He has known about this epidemic since the end of December 2019, when his friend PM Hsi announced it and eventually quarantined Wuhan.
Hundreds of people die daily though the Chinese say that the number of daily deaths is declining. That's looking hard for a silver lining.
I remember a day, i think in 2008, when Barack Obama said the market was low (around 800 DOW) and it was a good time to buy. There was an instant uptick which continued. Think about it. Market watchers always try to say when are the market highs or lows, but are rarely ever precisely right, but Obama was. He's one for one here.
Yesterday may have been a self-reinforcing buying panic, but it looks mighty suspicious to me.
I'm guessing that some people had inside information that the Fed was going to do a "surprise" rate lowering, and traded on that knowledge.
More the fool they. The Dow is down over 800 with two hours left in the trading day.
1
@sherry
You are so right! Our oligarch lovin’ conservative Supremes will always fail regular Americans, just as Trump and the Senate look for ways to pile on to keep the stock market investors happy.
With a likely supply crunch we would expect there to be inflationary pressure coming down the line very soon. What will the Fed do when inflation hits 3% and heads towards 4%. This was a very shortsighted move by a Fed bullied by a clueless President.
2
The virus will be a serious blow to the economy. . . not really. More accurately, people's reaction to the threat of the virus is already dealing a serious blow to the economy. The fact of the matter is that a tiny proportion of the population has been infected with the virus, a small percentage have died, yet the world's second largest economy has pulled the plug on its production and transportation, thus affecting most of the rest of the world. Sounds like an over-reaction to me, caused by emotional and political concerns.
People compare current conditions to past conditions in the US.
But consider Japan. The Nikkei stood at 38915 in Dec 1989, then fell to 7862 in Mar 2003. That's a loss of 80% of its value.
Even now the Nikkei has only recovered to 21083.
Americans have ignored unsustainable trends in the US for many years.
Just before the dot-com bubble the US had short term interest rates near 6%, just before the Great Recession the US had interest rates near 5%.
Short term interest rates have been near zero since the Great Recession, except for a gradual rise then decline since 2018.
So the Fed has not much ammunition. Meanwhile, during boom times, we have allowed national deficits to increase at about $one trillion per year.
What happens when we have our Minsky moment?
Economists are not necessarily a source of wisdom about market crashes. The macroeconomic models have limited predictive value. Economists failed to predict the Great Recession of 2008.
Now Saez and Zucman have published a book extolling the virtues of a "wealth tax" on the billionaires, and this is being pushed by Sanders and Warren.
But if we don't play our cards right a market crash could wipe out 80% of the wealth of the billionaires before it is collected.
Perhaps we should be careful about starting a revolution when we understand macroeconomics so poorly.
Perhaps we should elect a president who pulls back from the abyss, and helps the two parties talk to each other.
I'm referring to Bloomberg.
1
What are retirees and savers supposed to do in a 0 rate environment?
Work or drawn down your assets
US corporations have collectively over $3 Trillion cash in “offshore” bank accounts, that they outright refuse to bring back into the United States for the completely selfish reason that they don’t want to pay taxes on it.
American corporations would literally prefer to die before paying a little tax in order to help the country. Why do those people, who would literally rather watch the country burn than re-invest in it, deserve a rate cut?
4
Every time Wall Street has a panic attack, the President of the United States Donald Trump wants to lower interest rates. Sure makes his loan refinancing profitable, but it's not going to do a thing for growth, or consumer demand. Consumers are maxed out, there is no more margin left. Business is competing for brains, not Dollars, which are in plenty supply for investment. In fact, the first solid country that offers interest rates on cash reserves is going to get a ton of the world's savings, and pension funds, and insurance funds, and the billionaire class parking and shielding their money from the US Communist.
1
From other commentators in these pages, it seems no-one has yet taken into account the huge demand shocks underway, both at the consumer and other levels.
We will see a self-perpetuating radical shrinkage of the global economy, not just as countries start to enact quarantine measures against the coronavirus, but as the global mood shifts from production to, broadly speaking, conservation.
This is a shift Republicans and corporations have been trying to prevent for twenty years now.
But at this point, with the accelerant of COVID-19 to start the ball rolling, it will be inevitable.
Which means not just a dramatic change in quantity for the global economy, but one in quality as well.
It will hit both superficial industries - finance and the media, tourist travel, restaurants - and fundamental ones equally hard. Transportation, production across all major manufacturers will quickly hit a wall of oversupply they cannot overcome with temporary cutbacks. They will have to shut down entirely, and be replaced with entirely new organizations meeting real, present, fundamental needs.
Everyone from Apple to Monsanto will be affected.
Hold onto your hats, a storm is coming.
4
Would be nice to know how much these rate cuts are saving Trump and family in interest payments.
3
maybe but I do know my bank account is not generating much interest anymore
Elizabeth Warren already has a comprehensive and effective economic and scientific plan for Covid-19 as well as the economy/jobs/housing/trade/
Trump will blame blame the "do nothing" Congress when lower taxes, free interest rates, and higher deficits, with no increased production, health, education, or science.
1
Agree 100% Paul . . . and I do remember the dot com bubble. The thing I continue to see is that people just cannot get past the narrow view of the market; this is not your Father's (circular flow) economic system. Everything is global, there is way more supply than demand, cheap labor is the main driver; a race to the bottom. I doubt we will ever see any semblance of the positive rates of the past. No "ammunition" as you say. Hang on to your hats (crash helmets).
1
Watch what happens when we get a Corona Cluster in an area of industry that is a keystone.
2
With the US economy in a (very) late stage expansion buoyed up by the consumer, this health crisis appears poised to finally break consumption in addition to the havoc it is already causing in global markets and supply chains. And, monetary policy is helpless to do more than add liquidity to an already very liquid financial market. We are guaranteed a recession.
Public health crises require public health responses, and we have had instead a propagandist response spewing gobbledygook. The public requires timely and accurate data and
specific guidance as to what to do and not do to mitigate risk. We are getting none of that as political hacks are controlling the narrative and hiding the data. If they wanted to spook the consumer, they are doing it perfectly.
POTUS ranting about the need for further Fed easing for “competitiveness” is the reductio ad absurdum of this Country’s current governance disaster. Time to put some sentient adults in charge who are not purely self absorbed as well as proudly ignorant.Priority one is the health crisis. Do the work. And Pity we have ballooned the deficit for no good reason because fiscal stimulus may well be needed as well.
Morons, all.
4
I can vouch for your history of the bursting of the dot-com bubble and your your Shiller based thesis.
But I think something more fundamental is going on. The real economy is uncertain and despite what Mr. Trump touts we have not figured out how to lower the underlying low-wage concerns.
The President doesn't inspire confidence.
Watch this rally in Charlotte.
https://www.c-span.org/video/?469845-1/president-trump-campaigns-charlotte-north-carolina
5
The Fed can't defeat covid-19, but the government's power to create fiat currency--especially in times of emergency--can assuage the fears of millions of Americans. Trump can announce in one hour (and Congress will back him up) that Uncle Sam will pick up the tab for anyone currently living in America--citizen or not--who needs medical attention for any reason, including a coronavirus test.
When our national health is under attack, the gov't should spare no expense. Where's the money going to come from? Simple, the Treasury will create it out of thin air! If this spending leads to higher inflation, then Trump can rescind his stupid $1.5 trillion tax break to the rich to soak up the excess currency created.
Our dire situation is a perfect example of why we need a national discussion about the merits of Modern Monetary Theory. We have the tools--let's not be fools!
1
I always appreciate Krugman's take, and his self-deprecating posture when required (outing himself as the occasional mug). So clear, so concise, so correct!
Mr. Powell devolved into another one of Trump-toadies. As another commentator mentioned regarding a different but germane article, "the baby howled, and [Powell] gave him a toy." So, the interest rates on Trump's outstanding debt decreased, and he made out like the bandit he is.
Monday the market goosed up...and now look today at 1402 h....down about 600 points. What's the next toy for the toddler-in-chief?
Never thought I'd day it, but with so few firsts left in my life, here goes: Not my President!
2
If the US government can do the following, it will bring confidence back into the economy:
1. Ensure people get paid for sick leave and the government picks up the tab for all Coronavirus related leave. This will ensure infected people stay at home and not spread the disease.
2. Businesses should get interest free loans to meet payroll in order to meet the shortfall in cash flow. This will keep businesses alive and jobs intact until we tide this over. Maybe government can write off these loans at a later time.
3. In addition to point 1, the government should pay for any medical expenses related to Coronavirus. This will help people not get bankrupt and keep demand alive when the economy recovers.
I know this will be very expensive but something like this is necessary.
1
I am sure the GOP will follow up with another tax cut for the rich.
4
Simple answer: Nope.
This is what you’ve been explaining for a decade.
Here we are, along with the rest of the world.
Many business failures ahead, corporate and small, as they are the ones radically over indebted this cycle.
Meanwhile, we need an administration and Congress who will forgive all present student debt.
Good luck to Bernie on Super Tuesday!
By the time someone is opposing Trump for this November’s election, no-one offering weak sauce measures — this means Biden — will have any support. At all.
Go, Bernie, go! We need you now more than ever to save us from corporate predation!
2
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.
Think there’s going to be a big demand for 10 yr bonds yielding less than 1%...
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?
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.
3
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.
4
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.
4
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.
2
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.
13
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.
3
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.
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.
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.
2
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.
4
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.
1
So Trump was a stellar graduate of the prestigious Wharton School.
Time to start demanding: Show the transcripts! Show the transcripts!
4
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.
1
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.
2
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.
1
"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
2
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.
4
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.
3
It could be that the government needs to actually govern, not just run up its credit cards and offer cheap money.
4
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.
3
@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.
1
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.
607
@brian -- Spot on!
30
@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.
59
@Brian
Wait, since when does "society" matter in the United Shareholders of America?
25
How does cutting rates help disrupted supply chains? Asking for a friend.....
252
@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.
50
@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.
5
@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.
38
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.
4
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.
504
@Bruce Rozenblit Good analysis. In contrast to the piece on which you're commenting.
4
@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.
15
@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.
137
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.
1
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?
@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.
A president who cares only about the color green
will not surprisingly confuse an interest-rate cut
for an antidote vaccine.
2
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.
3
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.
275
@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.
71
@AlNewman - No, the deficit is already huge. It cannot be increased more, and instead should be reduced over the medium term.
9
@DRS
If people start losing paychecks, tax revenue to the federal govt is going to go down, not up.
30
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?
185
@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.
27
@Lalo
You don't have to be a genius to be in this administration. And that is the problem.
2
@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?
2
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
3
With all our protections just about gone, I'm curious who the president will wind up blaming for his failure.
2
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.
1
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.
3
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.
5
@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.
2
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.
1
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?
3
@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.
2
"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.
13
@M. B. E. True. And the crisis is just starting.
1
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.
9
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.
8
@domplein2
Well said. There is too much money swirling around in the stratosphere, while on the ground ...
3
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?
9
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.
9
Should I listen to Krugman or Trump? Hmmm
24
@Quinn
Trump who?
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!
48
Furthermore, in the year 2000 China was less than 2% of global GDP, whereas now it's over 20%.
5
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
11
@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.
2
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?
26
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%)
1
@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.
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.
6
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.
1
@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.
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.
9
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
3
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.
33
@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. :)
@Keith Dow I hate to think of the price we all must pay.
@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?
1
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.
6
Better to buy Clorox than Bonds now.
At least Clorox helps with the Disinfection.
And pays a Dividend:
https://investors.thecloroxcompany.com/investors/stock-information/dividend/default.aspx
1
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.
12
Covid-19 don’t care about interest rates.
13
@Western Montana Doctor
Very good point.
NO. Even a master Showman and lifelong Con Artist can’t fool Mother Nature.
Seriously.
11
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.
7
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.
12
@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.
2
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.
1
@David "ridiculous regulations" Your comment is the definition of ridiculous.
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.
1
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.
3
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.
3
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.
1
@LynnBob He's not breathing.
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.
3
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.
3
@JimA
To Republicans, tax cuts are the cure for everything, including viruses.
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.
12
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.
9
Thank you for being such a voice of reason through good times and bad.
1
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.
1
@famj most folks, wealthiest or not, keep stocks in asset management firms, mutual funds, etc. Their managers call the shots...
@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.
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.
30
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.
28
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.
16
"Bear in mind,"....
Whoa... Stock direction prediction????
(smiley face here)
2
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.
4
'It's just the common cold, Folks!'
#TrumpVirus = #TrumpSlump
Lots of people are saying it
5
If you are either selling or buying at this moment you are a sucker.
3
I wouldn't put too much stock (pun intended) in yesterday's big rally. It may have just been an infected cat bounce.
7
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?
46
@Jack
Everyone single Trump sycophant expects a payday. Even the ones he casts off are taken care of by the republican establishment.
3
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.
48
@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?"
2
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.
22
@Andy I ducked and covered. Sold everything during yesterday's rally. I slept a lot better last night.
35
@Dan
I suppose cash is king. But now how do you put it to work? Gold seems like a fair bet.
Me Too!! Told Our Children And My Friends To Do The Same And One thanked me today
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?
33
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.
10
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.
27
@r Half a percent is really big when your options are limited, and you are near the ZERO bound.
1
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.
10
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.
4
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".
19
@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.
2
@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.
2
I live in a city of 300,000.
A factory here employing 200 people is lacking parts from China and suspending production.
47
@Independent
And how will a rate cut really help these people? Good luck. It won't. However they will deplete their savings faster.
4
@Independent who will undoubtedly blame the Democrats for pushing us into recession by hyping the virus "hoax".
3
@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.
1
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.”
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@Cassandra G.
Which authoritarian administration?
China or trump?
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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.
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@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.
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.
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@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.
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@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.
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.
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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...
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@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.
@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.
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.
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@BruceM . . . are you a farmer? wink wink
@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.
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.
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@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?
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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.
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@thewhigs Mortgage and short term rate are rarely tied together much.
@David Agree - both are based on various "treasury curves" and there were some changes to the various treasuries.
"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.
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@DGP The facts might suggest an over-reaction as they try to see if they can block transmission in a global economy.
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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.
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@Grindelwald I'd suggest taking a long look at the mortality data by age. Most of those dying so far have been retired.
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@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.
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!
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@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.
@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?
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.....
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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?
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Let them eat cake!
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@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.
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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.
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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.
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@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.
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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.
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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.
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@David: Dr. Krugman has made is clear repeatedly that he DOESN'T have the misconception that traders care what commentators think.
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@David
Well then, let's all bow down to algorithmic trading ... because its so rational, disciplined ... and does't care about pandemics.
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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.
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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.
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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!
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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.
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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.
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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!
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@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.
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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?
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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.
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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.
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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.
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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.
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."
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@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.
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@Sophistia If a slump dumps Trump, bring it on.
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Perhaps lower rates help small businesses that may take out bridge loans to survive until the pandemic passes?
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.
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Those things count only if the spectrum of your thinking does not begin and end with money.
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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.
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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.
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@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.
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@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?
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@Zane QE has been in place since last summer. Not much more room to work with regarding that option.
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"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.
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@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.
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@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.
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@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.
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