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How The Fed Turned $454 Billion Into $4.5 Trillion: Visualizing The Fed's "Multi-trillion Dollar Helicopter Credit Drop"
Last Friday, to bipartisan cheers - and one sole, rational dissenter who was promptly silenced after asking "if $6 trillion is fine, why not $350 trillion" - Trump signed into law a $2.2 trillion corporate, hedge fund and bank bailout fiscal spending package, which quickly became the main topic of the current new cycle. What was not at all discussed, purposefully so due to the complexity of the underlying math, is that in parallel to the Treasury's 2 trillion package, the Fed received a green light to lend up to $4.5 trillion in new credit (which is where Kudlow's misconstrued "$6 trillion stimulus" comment came from).
And as usually happens with matters Fed related, the fact that the Fed received permission from the Treasury to "stimulate" by more than twice the full amount of the CARES act, flew right over America's head. Which, if to be expected, is lamentable, because by giving the Fed a green light to inject money at will, the US government officially launched helicopter money.
Or rather, "helicopter credit" as Wrightson ICAP chief economist Lou Crandall put it.
So how do we get to $4.5 trillion? Here's how it happened.
The roles of the Treasury Department and Federal Reserve are different in a bailout. The Treasury Department is part of the Executive Branch. It receives its funding from taxpayers. It is accountable to Congress and to the President. It just received $454 billion in the CARES Act. The Federal Reserve, in contrast, is a private, bank-owned agency which pretends to operate on behalf of the people but in reality makes sure the financial system and the commercial banks that dominate are viable and profitable (if they aren't they are bailed out).
As a result, the Fed's members and private owners are banking institutions who keep massive reserves on deposit at the Fed. The Federal Reserve has many roles in the economy, but none of them is to take on credit risk. So how do you get the Fed to establish a “loan” facility, as contemplated in the CARES Act, if it will not take on credit risk? And not just any loan but $4.5 trillion in loans?
This tsunami of credit (the helicopter comes next… and last) is made possible by the $454 billion set aside in the aid package for Treasury to backstop lending by the Fed. The Treasury’s contribution, as Tom Barrack explained recently, you can think of as "equity" — that is, Treasury will stand in a “first loss” position on every loan made to corporate America.
The Fed will contribute the "leverage" — the money that will help make loans using the Treasury's equity and be levered 10-to-1. Such leverage assumes no more than 10% capital losses (on "AAA-rated" paper), as the Fed is not allowed to be impaired. Of course, in a real crash the losses will be far greater but we'll cross that particular bailout of the bailout when we get to it. The loan fund, now levered up ten-fold thanks to the Fed's own $4.1 trillion, will then make loans to businesses.
"Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans." Fed Chair Powell said in in a rare nationally-televised interview last Thursday morning. “When it comes to this lending we’re not going to run out of ammunition" and he is right - the Fed can apply any leverage it wants; after all the value of the collateral it lends against is whatever the Fed decides!
Visually, the magic of the Fed's 10x leverage looks as follows-Cap#2
In practice, the Fed - which can "print" an infinite amount of dollars in exchange for any collateral including baseball cards, turds or oxygen - can lever up 20x, 50x, even 100x or more with zero regard for the underlying collateral.
SEC. 4009. TEMPORARY GOVERNMENT IN THE SUNSHINE ACT RELIEF. (a) IN GENERAL.—Except as provided in subsection 8 (b), notwithstanding any other provision of law, if the Chairman of the Board of Governors of the Federal Reserve System determines, in writing, that unusual and exigent circumstances exist, the Board may conduct meetings without regard to the requirements of section 552b of title 5, United States Code, during the period beginning on the date of enactment of this Act and ending on the earlier of— (1) the date on which the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 20 U.S.C. 1601 et seq.) terminates; or (2) December 31, 2020.
https://www.zerohedge.com/markets/how-turn-454-billion-45-trillion-visualizing-feds-multi-trillion-dollar-helicopter-credit
yep.. still cool now. ridiculous though
chek't
if you stay away from the bullshit political hack pieces it's still ok for the charts and graphs, but not much else …wasn't always like this. Got bad after it was sold.
no such thing as that on a large scale-especially relating to finance, have to take what we can get and work with it. I usually take the analyst comments out of everything since they are just spouting a script.
goodnight faggots.