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Week 12

Fed Gearing up To Help to Smaller Local Governments

Link: https://www.nytimes.com/2020/04/20/business/economy/fed-local-governments-coronavirus.html

Summary:

This article reflects on the current phenomenon that is ruining our world right now as we know it. The coronavirus has altered life for everyone across the globe from quarantine to unemployment to no sports. As we all scramble and try to stay safe, many are losing jobs and many businesses are losing revenue as lockdown orders are put into place. This pandemic has influenced nearly every aspect of daily life for everyone. This post, however, focuses on the economic impacts of this virus. The article focuses primarily on local companies and municipalities, and examines how our national government is struggling to save our economy as unemployment levels increase and large corporations shut down. The article explains how the Fed aims to work with local governments and companies by buying municipal bonds, while local officials are pushing the central bank to do so. The Fed stated that they will begin purchasing these bonds using their emergency lending powers. The article explains that this move is very radical and controversial as the Fed is supposed to stay uninvolved politically.

Reaction:

To me the article was very interesting because smaller companies are often overlooked by the government in favor of large companies as large companies have more influence. I feel like more attention needs to be drawn to help small businesses because they don’t have the bankroll to support being closed through a pandemic whereas large companies do. Also these small companies employ local citizens so to me it feels personal. Fortunately after reading the article my fears are lessened as the Fed appears to be moving quickly and strong in response to the pandemic. However it is important to see how these decisions affect our economy long term.

Citation:

Smialek, Jeanna. “Fed Gearing Up to Help to Smaller Local Governments.” The New York Times. The New York Times, April 20, 2020. https://www.nytimes.com/2020/04/20/business/economy/fed-local-governments-coronavirus.html.

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‘Here is everything the Fed has done to save the economy’

Cox, Jeff. “Here Is Everything the Fed Has Done to Save the Economy.” CNBC. CNBC, April 13, 2020. https://www.cnbc.com/2020/04/13/coronavirus-update-here-is-everything-the-fed-has-done-to-save-the-economy.html.

Amid the corona virus outbreak it’s no surprise that our economy was negatively effected by it with various markets closing and people being quarantined. According to various experts, while our economy was collapsing it appeared to be on pace to rival that of the Great Depression. People believed this because on March 9th the Labor Department came out with a statement that 6.6 million more Americans filled for unemployment bringing the total up to more than 16 million unemployed in three weeks. For comparison, 16 million workers makes up 10% of the workforce. So you might be asking what happened, the Federal Reserve or Fed stepped in. The Fed stepped in immediately after the labor department made their statement with a statement of their own, stimulus checks. However this wasn’t the only plan the Fed had has as they also implemented lower interest. The Feds actions were quick and strong as it’s focus is short term. These actions saved us from a total economic crisis.

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JPMorgan Chase CEO: Coronavirus to Spark ‘Bad Recession’ in the U.S.

“JPMorgan Chase CEO: Coronavirus to Spark 'Bad Recession' in the U.S.” U.S. News & World Report. U.S. News & World Report, April 6, 2020. https://www.usnews.com/news/economy/articles/2020-04-06/jpmorgan-chase-ceo-jamie-dimon-coronavirus-to-spark-bad-recession-in-the-us.

The article I read was about Jamie Dimon the CEO of America’s largest bank who spoke out on how unprepared the US was for a pandemic. This Dimon started that he expects "a bad recession" and financial stress "similar to the global financial crisis" in future months to come as we recover from the virus and the impact the lockdown has had on our economy. Dimon’s statement isn’t far fetched as it’s being reported that upwards of 29% of the economy is frozen by the virus by US News and world report. Dimon was also reported praising the Feds actions in the wake of the virus when he said “The Fed's overwhelming actions have already dramatically reduced the financial stress in the system, and there is still more they could do if they need to.” The government has had a huge impact on helping to maintain the economy as much as possible with providing stimulus checks costing 2 trillion dollars as well as coping with in a two week span roughly 10 million people filed initial unemployment. This also backs up Dimon’s prediction of a bad recession as the government tries to recover from how much financial support they are providing.  The corona virus has put many Americans out of work and leaves many people who live paycheck to paycheck wondering what’s next unfortunately for the economy Dimon believes a recession.

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Fed to pump in more than $1 trillion in dramatic ramping up of market intervention amid coronavirus meltdown

https://www.cnbc.com/2020/03/12/fed-to-pump-more-than-500-billion-into-short-term-bank-funding-expand-types-of-security-purchases.html

Summary

In the paper. "Fed to pump more than $1 trillion in dramatic market intervention ramping up in the meltdown of coronavirus," reported by Jeff Cox, Cox talks about the Fed's efforts to counter coronavirus. Their main objective was to calm down the market ever since the market became unpredictable. The Fed's move included the injection of $1.5 trillion into the financial system.This shift was "the second day in a row and the Fed has stepped in for the third time this week," cox reports. In addition, "The New York Fed desk will see the second part of the new operations providing $500 billion in a three-month repo operation and one-month activity. The activities will take place weekly throughout the rest of the program," says Cox. The more the corona virus  affects the nation the more money the fed pumps into the economy.

Reflection

As a 20 year old who has a basic understanding of the market, I find it counterintuitive to spend a trillion dollars into our economy when we are already trillions in debt. If I were asked why the fed would spend money on the market I would have to assume to keep us out of a total economic collapse during this global pandemic and as a form of regulating the economy. One question that I do take away from learning about the fed is how does it function while under such debt?

JeffCoxCNBCcom. (2020, March 12). Fed to pump in more than $1 trillion in dramatic ramping up of market intervention amid coronavirus meltdown. Retrieved from https://www.cnbc.com/2020/03/12/fed-to-pump-more-than-500-billion-into-short-term-bank-funding-expand-types-of-security-purchases.html

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Journal entry February 11th
When looking for articles I happened upon one about the US economy called “US weekly jobless claims drop to a 9-month low.” The article was published February 6th by CNBC and it interested me because it pertains to one of our course objectives of understanding how unemployment effects the economy as well as gives a look at the market. This article was published after Americans unemployment benefits decreased by 15,000 in the fourth quarter for the lowest it’s been since April 2019. This is a good thing for the economy and is important because it indicates that the American economy is going to get better. This can be attributed to the fact the American productivity also rose 1.4%. This effects the economy as well as the government who pays out unemployment. More workers effects the economy as it means there are more people who are self sufficient enough to be buyers in the market. In the article it states “But the pace of job gains is more than the 100,000 per month needed to keep up with growth in the working age population.” This means that job rates are picking up faster than expected and shows promise for the economy in the future.

“US Weekly Jobless Claims Drop to a 9-Month Low.” CNBC. CNBC, February 6, 2020. https://www.cnbc.com/2020/02/06/weekly-jobless-claims.html.

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Journal entry February 5th
The article I read was “China Has a Big Economic Problem, and It Isn’t the Trade War.” The article was posted January 17th 2020 and written by Yasheng Huang, a teacher at MIT. The article doesn’t pertain to the coronavirus like the title seemed to suggest to me but instead it is about a different problem within China. The issue Huang is talking about is the Chinese government is taking power away from the private sector and investing it into the state sector. This is a serious decision because Chinas state sector is relatively weak where as the  private sector is credited by Huang as “the countries growth engine” for a good amount of time. However, there is a very plausible cause for this. China notoriously has one of the worst issues of distribution of wealth. This mainly can be credited to the private sector as private companies make manufacturing plants in China because of the low wages they have to pay workers. However despite trying to help its citizens they are ultimately hurting their own government as the state sector business are far less efficient than private. This happens no matter how much money China’s government gives its state sector. But this is not to say it won’t help the pay gap. The pay gap which exploits child labor and low minimum wage requirements in China is one of the worst in the world and needs to be fixed.

Huang, Yasheng. “China Has a Big Economic Problem, and It Isn't the Trade War.” The New York Times. The New York Times, January 17, 2020. https://www.nytimes.com/2020/01/17/opinion/china-economy.html.

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Journal entry January 28th
The article I read was “GDP Boost Solid But Not Sustainable”. It’s from July 27th 2018 and I found the article at usnews.com. The reason I choose this article was because it’s a reliable source and to better understand gross domestic profit or GDP. The article is after the 2018 second quarterly report when the US economy clocked in at 4.1.  However the purpose of the article is because economists believe that the GDP will be unsustainable. They cite various pieces of evidence for their belief of the inevitable drop of the market but the most prominent evidence was the market went up because of impending trade restrictions with Canada and China on steel and aluminum and those were two markets had the highest rate of change.

The article was created after the US clocked in at 4.1 GDP at the second quarterly. This relates to our course objective of GDP because it’s strictly on gross domestic profit. The boom of the gdp is great for the economy however as I learned after reading the article, gdp can also be misleading. Throughout the article economists say why they don’t think the market will be as good next quarter. This is because steel and aluminum markets boomed as tariffs on these markets loom over the country’s head and encouraged consumers to buy now before prices rise. When the prices rise demand will drop and the market will become less profitable and contribute much less to the GDP. Another reason why the market was fluctuated was government spending in the second quarter. Which people don’t think will continue into the third quarter because companies “would rather have trade certainty than a temporary handout” and republican lawmakers have been stretched too much to allow these spending habits of president Trump. In conclusion the GDP being recorded at 4.1 is really good for the economy but that number should be expected to drop in following quarters along with the markets trump plans to put tariffs on.

Soergel, Andrew. “GDP Boost Solid But 'Not Sustainable'.” U.S. News & World Report. U.S. News & World Report, July 27, 2018. https://www.usnews.com/news/economy/articles/2018-07-27/goldilocks-gdp-number-solid-but-not-sustainable.