With its $700 billion bond-buying expansion in response to the COVID crisis, the Federal Reserve has thrust itself into the limelight. Like a sixteen-year-old with a credit card, the Fed is salivating over what money-printing powers it shall seize next. How is the prudent investor to respond?
First, what the Fed’s already done: pushed interest rates to zero and expanded into “unlimited” buying of assets, now reaching to corporate bonds and local government bonds. These bring the same concerns we had in 2008: trillions in new money to dilute the spending power of current savers, along with the risk of “moral hazard” where government covers the losses for corporate, and government, irresponsibility. Continue reading
Everybody realizes the US economy is in a bad spot. But most people still seem to believe it will bounce right back once we deal with the coronavirus.
Like addicts who cannot control their cravings, financial analysts cannot stop themselves from seeking some analog situation in the past which will clarify the swirling chaos in their crystal balls. So we’ve been swamped with charts overlaying recent stock market action over 1929, 1987,2000 and 2008–though the closest analogy is actually the Oil Shock of 1973, an exogenous shock to a weakening, fragile economy. 
As the media begins to roil with reports of bank delays in the distribution of business recovery loans from the government plan to save business from the effects of quarantine and closure, it is important to ask if there is more to the story than the mere miserly attitude of the run-of-the-mill bank.
