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| the economic bubble |
In addition to the recent ups and downs in the stock market, a lot of things have happened in the financial sector, including a series of bail-out measures including major central banks, the liquidity test of the bond market, and even more, terrible data show that even Wall Street hedge funds, everyone Confused about the current situation.
The bubble-filled world of financial assets has triggered a domino effect. The Fed experienced a repurchase that began in September 2019. After a shortage of market funds, it has been printing money to save the market. The crazy bailout should be temporary. Until February 14, 2020, the Fed issued a statement saying that it will gradually reduce the bailout to the repo market from 120 billion to 100 billion per day, and will seize the market for 14 days of repurchase from 30 billion to 20 billion. This move may bring liquidity pressure to the market. In turn, it will cause turbulence in the stock market, I did not expect this day to be so fast!
In the single-day repurchase market on March 4, 2020, the Fed provided 100 billion US dollars of bailout funds, which is not enough. The main institutions have applied for 111.4 billion loans in the repurchase market! And in the 14-day repurchase market on March 5, 2020, the Fed provided 20 billion liquidity as planned to save the market, and major institutions applied for 72.5 billion loans. In other words, the number of liquidity applications, which is 3.6 times the amount of Federal Reserve assistance. By the way, the repo market requires a lot of liquidity from the Fed, which is very unusual in itself. Not to mention that the market is still short after bailouts. It started as early as February 25, 2020, so the Fed decided to lower the interest rate by 0.5%. Not only are there more ways to stimulate the economy and reduce liquidity pressures in the repo market, but the problem is that the shortage of funds in the repo market is not because banks have no money, and they dare not invest in the repo market.
Therefore, the impact of emergency interest rate cuts on this shortage of funds is the first time since the 2008 financial crisis that the Federal Reserve united the Central Bank of Australia and the Bank of Canada to jointly reduce interest rates. After the interest rate cut, the stock market reacted like this, because the emergency interest rate cut was different from 2008. The financial crisis in 2008 was to deal with bad debts and low-quality loans. This time, the emergency interest rate cut must be dealt with, from the supply chain to the supply chain. Two-way destruction.
JP Morgan’s latest global index report shows that the manufacturing index and the service industry index plummeted in February 2020 to the lowest point since the financial crisis in May 2009. The decline was the second-highest in history, and the first high point was in After the events of September 11, 2001, although the impact of the current event on global GDP has not yet appeared. However, compared with the composite index, GDP is usually delayed. If the composite index continues to fall, the impact of this event on GDP is obvious. And this 0.5% emergency interest rate cut cannot motivate people to get rid of the fear of spending and cannot solve the supply chain problem.
The Fed and major central banks have shown the true severity of the incident. The few Fed and Bank of Canada in history have lowered interest rates by more than 0.5% in the same month. What followed was the global financial crisis. Will this be a repeat of history? Has the economic bubble burst?
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