Federal Reserve’s Endless Bailout Continues, with Market or Bank Holiday Possibly Next
March 13, 2020 (EIRNS)—The U.S. Federal Reserve continued its bailout operations today after Treasury Secretary Steven Mnuchin told CNBC that he’s in constant communication with Federal Reserve System Chairman Jerome Powell, and “There will be liquidity available—whatever we need to do, whatever the Fed needs to do, whatever Congress needs to do, we will provide liquidity. There will be a massive amount of liquidity.” The New York Federal Reserve Bank injected about $90 billion into the interbank lending market first thing this morning; then proceeded after breakfast to buy $37 billion in Treasury securities from the banks, known as quantitative easing or “QE.” In other words, QE is no longer on its $60 billion/month schedule any more; rather it can be $37 billion a day. This strongly inflationary money-printing will continue next week at least until Wednesday, March 18, when the Fed clearly intends to lower its key interest rate to zero.
A credit crunch has gripped the U.S. Treasury securities market, supposed to be the biggest, deepest, most guaranteed liquid market in the world for more than a century. This result eventually had to come from more than 10 years of constant money printing by all the world’s big central banks to support the City of London- and Wall Street-centered giant private banks, finally crushing credit for the real economy entirely.
Add the attack of the novel coronavirus pandemic, and we are entering a severe recession. The Organization for Economic Cooperation and Development (OECD) says world economy may lose $2 trillion in product, and grow at only 0.5% in 2020. Global machine producer Caterpillar reported its North American sales dropped −11% in January and another −12% in February; its Asia sales fell −2% drop in January and then plunged −17% in February, CEO Jim Umpleby said the drop was continuing in March. Bloomberg today published an estimate that China’s economic activity is now at 80-85% of previous years’ level at this point in the year. Electricity plants’ consumption of coal has reached about 80% of that previous level. But China now also faces phase II: demand shock in Europe, its biggest trade customer, and depressed demand in China itself. Trade volume through the port of Hamburg is 40% below 2019, and that is through the first week of March, according to Axel Mattern, CEO of Port of Hamburg Marketing. The same is true for Europe’s largest dry port, Duisburg, which is also a key Eurasian Land-Bridge rail terminus from China.
As for Wall Street, it threatens the economy now. The financial site Zero Hedge reported the evening of March 12, “Today’s total liquidity injection, ... the Fed has injected a total of $276.5 billion in liquidity. [But] what is ailing the market is not access to the Fed’s balance sheet, but an overall recession that will collapse revenues, profits and cash flow, and which the Fed’s liquidity injections are powerless to prevent.... Absent another emergency bailout attempt, we may very soon have a market—and bank—holiday.”