This article was originally published by Michael Snyder at The Economic Collapse Blog.
Has the Federal Reserve finally met an opponent that it won’t be able to defeat? Ever since the last financial crisis, unprecedented intervention by the Fed at key moments has kept the economy and the financial system relatively stable.
No matter what has come along, it has seemed like the Federal Reserve has always had an answer, and this has created an environment that has enabled the most ridiculous stock market bubble in U.S. history to grow to epic proportions. But now COVID-19 is perhaps the greatest challenge that the Fed has faced in modern times. No matter how low-interest rates are pushed, and no matter how much helicopter money the Fed drops from the sky, it isn’t going to cause fearful Americans to go shopping, take trips or start businesses. And nothing that the Fed can do will be able to mitigate the severe disruptions to global supply chains that we are currently witnessing.
But that doesn’t mean that the Fed isn’t going to go back to the same old playbook that has worked so well in the past.
On Tuesday the Fed announced an emergency rate cut, and instead of soaring, stock prices absolutely tanked. In fact, the Dow Jones Industrial Average ended the day down 785 points…
The decision to cut rates by half a percentage point came two weeks before the Fed’s scheduled meeting as the central bank felt it was necessary to act quickly to combat the effect of the virus spreading worldwide. It’s the first such emergency action coming in between scheduled meetings since the financial crisis.
The Dow Jones Industrial Average closed 785.91 points lower, or nearly 3%, to 25,917.41; it rose more than 300 points earlier in the day. The 30-stock average gyrated between sharp gains and solid losses after the decision was announced. The S&P 500 fell 2.8% to 3,003.37 while the Nasdaq Composite pulled back 3% to 8,684.09.
At this point, the Federal Reserve doesn’t have much room to reduce interest rates. But of course, President Trump was disappointed in the Fed’s decision because he wanted an even bigger rate cut…
Trump tweeted following the Fed’s move – keeping up his longstanding practice of demanding lower rates.
‘The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors,’ Trump wrote. ‘We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!’
Meanwhile, just about everyone else is using the word “panic” to describe this move by the Fed. The following example comes from Zero Hedge…
Instead, as it stands “it smells like panic” as more than one Wall Street veteran put it.
Worse, as BMO’s Ian Lyngen puts it, what happened after the Fed’s emergency 50bps rate cut, the biggest since Jerome Kerviel blew up SocGen, “the situation didn’t play out exactly as Powell might have envisioned.”
So just how bad is it? Well, as plunging stocks demonstrate, the Fed is this close from losing all credibility…. and since the market has been held up for the past 11 years on nothing but Fed faith – and trillions in Fed liquidity – this could be a very, very big problem.
If you can believe it, even CNBC’s Jim Cramer is saying that this move by the Fed has made him “nervous”…
Cramer went on to say that he’d previously been optimistic, despite the recent Dow freefall. But the Fed’s move has caused him to adopt a more cautious posture.
“It makes me feel, wow, the weakness must be much more than I thought,” Cramer said. “And I’ve been trying to be bullish, but I can’t.”
He added, “I’m now nervous. I’m more nervous than I was before.”
The Federal Reserve has almost entirely run out of interest rate ammunition already, and we aren’t even officially in a recession yet.
So what are they going to do once things get really bad?
A reduction in interest rates usually spurs the U.S. economy, but these are not normal times.
Even if interest rates were pushed all the way to the floor, it isn’t going to change the fact that global supply chains are collapsing and a large portion of the population is scared to death of this virus…
Lower borrowing costs typically spur more consumers to buy houses, cars and other products, and encourage businesses to purchase more equipment such as factory machines, computers.
But historically low rates can’t address delayed deliveries from China that leave store shelves half-filled and auto manufacturers short of imported parts. They can’t prod shoppers fearful of contracting the virus to visit malls and restaurants. And they can’t bring back throngs of foreign tourists to U.S. hotels and shopping centers, including many from China and other countries now subject to travel bans.
And the problems that we are seeing with global supply chains are expected to continue to get worse in the weeks ahead. In fact, Harvard Business Review is anticipating that the impact of this virus could peak “in mid-March”…
Reports on how the Covid-19 outbreak is affecting supply chains and disrupting manufacturing operations around the world are increasing daily. But the worst is yet to come. We predict that the peak of the impact of Covid-19 on global supply chains will occur in mid-March, forcing thousands of companies to throttle down or temporarily shut assembly and manufacturing plants in the U.S. and Europe. The most vulnerable companies are those which rely heavily or solely on factories in China for parts and materials. The activity of Chinese manufacturing plants has fallen in the past month and is expected to remain depressed for months.
But what if this virus just continues to explode all over the planet?
When I posted my last article yesterday, the number of confirmed cases outside of China had just surpassed the 10,000 mark.
As I write this, that number is just shy of the 13,000 mark, and by the time most of you read this article it will be even higher.
After interest rates are pushed all the way to the floor, “helicopter money” will be about the only weapon the Fed has left.
Normally, “helicopter money” pushes up stock prices, but in the middle of a horrifying global pandemic, people are not going to want stocks.
Instead, there is going to be tremendous demand for food and other essential supplies, and “helicopter money” will just escalate prices to absolutely absurd levels.
Sadly, fear of this virus is already starting to cause this to happen…
Would you pay $149 for a two-pack of 12-ounce bottles of Purell? How about a single container of Clorox wipes for $44.25, plus $14.59 shipping?
As the coronavirus spreads and people rush to protect themselves and their families from getting sick, the U.S. is seeing heavy demand for everything from masks to hand sanitizer.
If you use Purell, I hope that you stocked up ahead of time.
There has never been a time like this before in all of American history, and what we have seen so far is just the beginning.
Now that the U.S. is planning to start testing more people, we are being warned that we could see an explosion in the number of confirmed cases in the weeks ahead.
If that happens, there is going to be a tremendous amount of fear.
But now is not a time for fear. Now is a time to be calm, to think rationally, and to act resolutely.
It is during moments of crisis that we find out who we really are, and hopefully, this challenge will bring out the best in all of us.
About the Author: I am a voice crying out for change in a society that generally seems content to stay asleep. My name is Michael Snyder and I am the publisher of The Economic Collapse Blog, End Of The American Dream and The Most Important News, and the articles that I publish on those sites are republished on dozens of other prominent websites all over the globe. I have written four books that are available on Amazon.com including The Beginning Of The End, Get Prepared Now, and Living A Life That Really Matters. (#CommissionsEarned) By purchasing those books you help to support my work. I always freely and happily allow others to republish my articles on their own websites, but due to government regulations, I need those that republish my articles to include this “About the Author” section with each article. In order to comply with those government regulations, I need to tell you that the controversial opinions in this article are mine alone and do not necessarily reflect the views of the websites where my work is republished. This article may contain opinions on political matters, but it is not intended to promote the candidacy of any particular political candidate. The material contained in this article is for general information purposes only, and readers should consult licensed professionals before making any legal, business, financial or health decisions. Those responding to this article by making comments are solely responsible for their viewpoints, and those viewpoints do not necessarily represent the viewpoints of Michael Snyder or the operators of the websites where my work is republished. I encourage you to follow me on social media on Facebook and Twitter, and anyway that you can share these articles with others is a great help.
it isn’t going to cause fearful Americans to go shopping,
What the hell are you talking about?
People are buying preps by the truck load.
Bunkers are back!
every conceivable, air filtration, water filtration, device is flying off the shelf.
Costco is in all hands on deck mode.
The stawk market drops if somebody sneezes….i like it
Just so the zombies stay away from Ruralsville. We are all crazy and armed to the teeth…cept most don’t have teeth.
Shh ! Listen ! Can ya hear the banjos playin’ Deliverance?
Let’s get the nomenclature right, My Peeps !!! This NOT Covid-19. This is the WUHAN VIRUS !!! never refer to this virus by any other name. It’s the WUHAN VIRUS !!!
China created this monster its P-4 lab after stealing the underlying Corona virus from Canada. They inserted HIV dna strings into it to make it easily transmissible between humans and lethal. Then it infected a worker who infected other workers and customers and vendors at the live food market.
China is financially liable for the death & destruction that they have negligently unleashed upon the world. They should be sued civilly and criminally and Chinese financial assets seized to pay damages to the victims.
China is trying to obscure the origins to mitigate their guilt !!! 🙂
Totally agree! It should be called the ‘Ch#nk Stink’.
China made this baby and China then exported it just as they export all their other crap. For that they should be sued and have their assets seized to compensate companies, countries and individuals for the loses.
It is worth remembering they bribed the UN to say all those nice things about them.
Be it an accident (highly unlikely) or a bioweapon that went rogue, China is where it started, as did all the other epidemics apart from Ebola.
There is no way panicked shoppers wiped out the entire supply of Purell and Lysol wipes. Other entities are involved.
The Fed. is not all powerful, at least not much longer, this fact will be made manifest in the near future. What it really means when it is said the Fed. has “met its match” is that they are at a near endgame for business as usual. The limit for absorbing or underwriting any more debt is about here. The cost of sustaining the status quo has become too great. It is fortuitous for them a “crisis” has come along to provide a possible out. When the Fed. continues to lower interest rates until almost zero percent it basically means two things: a – they are losing control of national fiscal policy – probably due to a combination of the sheer magnitude of debt levels (public and private), that the return on more issued debt is ever diminishing, that powerful entities are are demanding exceptions to sounder practices because they are addicted to “easy money”, and that business is not doing as well as reported. And b – that they are almost out of ammunition to deal with new challenging fiscal conditions. Of course it’s full speed ahead because no matter what happens the taxpayers will pick up the tab.
My concern was never so much the clinical aspect of the virus, but rather, the official and economic reactions to the virus.
Pandemic bonds, insuring ‘economic hitmen’ (sic), are said to expire, June-July.
“There has never been a time like this before in all of American history, and what we have seen so far is just the beginning.”
“What is “the parousia”, and how does that ancient Greek word completely shake up conventional theories about the rapture?”
from 2Cor 2 —
“I knew a man in Christ above fourteen years ago, (whether in the body, I cannot tell; or whether out of the body, I cannot tell: God knoweth;) such an one caught up to the third heaven. And I knew such a man, (whether in the body, or out of the body, I cannot tell: God knoweth;) How that he was caught up into paradise, and heard unspeakable words, which it is not lawful for a man to utter.”
imho, being in God’s manifest presence is like having one foot in Heaven. The hiding place may just as well be inside of a burning furnace or a lion’s den.
Sorry Y’all…this totally O/T, but is simply neccessary.
Over the last couple of weeks a WIDE variety of scenarios have been floating around in my addled brain relating to COVID-19, but the latest article up at the ‘Hedge is simply, “The Sum of All Fears”
“Who Or What Started The Wuhan Coronavirus Epidemic?”
I don’t know where to start describing this as other than “BAD”.
The Federal Reserve’s measures will make things worse, just as they did with the response to the Global Financial Crisis (GFC). A quick summary:
1) GFC response and impact: Exploding the creation of electronic money through discount windows and back-door bailouts to financial institutions around the world created the highly leveraged junky economy we have today. It gave rise to the ridiculous spectacle of low-IQ morons from the third world sporting smartphones and endless access to cheap credit as they migrated to the West to become a Deliveroo driver.
2) Coronavirus response and impact: They will double down on creation of electronic funny money and direct it into the hi-tech surveillance economy. It will also flood the third world with cheap money making the migration crisis worse (once somebody in a poor country gets enough cash to pay off a people smuggler to get to the West, they go for it). Said migrant just has to cross the finishing line into a Western country and they have free money for housing and healthcare straight away, they then can make a claim for residency, with that in hand they can start applying for cheap credit, use that to buy a house on more cheap credit, then claim they are worth $1 million in assets, borrow more money and send it back to their relatives in said poor country. Relatives then buy land in the poor country and make preparations to start moving younger relatives to the West. Rinse, repeat.
People need to realise we live in a global system. Money created in the US leaks out to the entire world within seconds. It does not go to US citizens in the US first.
“…unprecedented intervention by the Fed at key moments has kept the economy and the financial system relatively stable.”
Handicapping the capable, and putting the idiot on a pedestal, is an example of natural upheaval, not of benevolence.