The Federal Reserve and Treasury just ended the bailout – here’s what you need to know – Enjoy! Sign up to Morning Brew today for FREE: https://cen.yt/morningbrewgrahamstephan7 – Add me on Instagram: GPStephan
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END OF THE BAILOUT:
This new decision pulls $455 BILLION DOLLARS away from the Federal Reserve, it ends several key loan programs from functioning after December 31.
On the one hand, the Treasury – who decided to END this bailout – said that the program worked as intended, it’s no longer needed, and even though they had $454 BILLION DOLLARS AVAILABLE…only $20 BILLION DOLLARS had ACTUALLY been used.
But, on the OTHER hand…The Federal Reserve says this money is ESSENTIAL in terms of acting almost like an insurance policy for the economy, where – even though you might not need it – everyone FEELS safer just knowing it’s there and can be used at any time, and THAT was the purpose of this money to begin with.
When the Treasury announced their decision to pull back this $450 Billion Dollars, it goes what’s called a “General Fund,” where it could then be used for other purposes in the future…HOWEVER, when this money is placed in the “general fund,” it can ONLY be accessed and spent with approval from CONGRESS – which, right now, isn’t looking so likely to pass new spending. The HOPE is that this money could INSTEAD be used towards helping small businesses and unemployment…instead of helping out big corporations in need of cheap money.
The main concern when it comes to all of us, is that the PURPOSE of this entire fund – as I mentioned – was just to make investors feel safer about investing and lending money. One of the major reasons that the stock market STOPPED DROPPING was the FED coming in and, inadvertently, propping up the economy by “doing whatever it takes to keep it afloat.”
As of now, EVEN THOUGH – YES, cases are rising, unemployment is still high, and we might continue to see further shut downs…the MARKETS are working as expected…investors have felt more comfortable, companies are beginning to stabilize, a vaccine is on the horizon…and, we’re SLOWLY getting through this. This “program” was designed to grease the wheels, so to speak, that was it.
So, long story short…even though this money WAS used as a “Training Wheel” of sorts to keep the economy moving on…the Treasury is taking the side that the markets are strong enough to move on their own, they don’t need all of this money just sitting there, and NOW – we can re-purpose it potentially something else.
The biggest RISK that I see is that, IF something were to happen…and we encounter another March-Like panic…then, we won’t have the same backstops we do now because we wouldn’t have the FED to step in and say “DON’T WORRY, EVERYONE…We got cash, how much you need?”….BUT, that’s not to say that we can’t reinstate these LATER IF NEEDED, albeit it will probably take a little more time to go back into effect.
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