Monday, March 23, 2020

$5.9 trillion and counting: the scale of Monetary Easing

Updating my previous post: listing all measures monetary authorities around the world have unleashed in response to the Covid19 crisis:

  • 23/3/2020 Federal Reserve Bank of the U.S.: 
  1. Commitment to continue asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy”. Basically, an open-ended pledge, with no USD amount. This does not move the needle on its prior commitment if USD 700 billion in purchasing, for 2020. But it does expand the program, should the crisis continue unabated, and probably allows for bringing the committed purchases forward
  2. The Fed also will be buying corporate bonds, crucially the investment-grade securities in primary and secondary markets and through exchange-traded funds. Again, this has been pre-committed to, but 'primary' markets operations are something that is truly unprecedented.
  3. An unspecified lending program for Main Street businesses and the Term Asset-Backed Loan Facility implemented during the financial crisis
  4. There will be a program worth $300 billion “supporting the flow of credit” to employers, consumers and businesses 
  5. Two facilities set up to provide credit to large employers
  6. Issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and certain other assets
  7. Expanding Commercial Paper Funding Facility. The program now will include “high-quality, tax-exempt commercial paper” and the pricing will be reduced.
  8. Lower the interest rate on its repo operations to 0% from 0.1%.
  9. My estimate of the 1H 2020 net impact of new measures is in the region of USD200-400 billion.

  • 22/3/2020 Chancellor Angela Merkel’s government plans to increase borrowing up to EUR 150 billion in 2020 and pass a EUR 156 billion supplementary budget. Germany is also planning to set up a bailout fund for critical industries of about EUR 500 billion. While the measures are fiscal in nature, they require monetary policy supports to sustain low borrowing costs and demand for these securities.

These measures moves the needle for global measures from USD4.6 trillion to USD 5.9 trillion.

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