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Originally Posted by Paper1
I'll be the 1st to admit I am not an economist but today I read an long article about the relationship between government spending, the Treasury, and the Federal Reserve. They were trying to explain in terms even I could understand how the Fed monetizes debt. I really was shocked to believe this was legal. I think I now understand why stock market is recovering regardless of record unemployment and record federal debt. I guess I question if stock market is a good long term investment. CD's and savings bonds will never pay more than 1% until some kind of crash occurs. Like I said I'm not an economist.
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Trump likes to say that the Democrats embrace Socialism. What we have now is Sociaiism where the benefits flow mostly to the wealthy. In the past, the Fed was only permitted to purchase riskless assets like Treasury bonds. Now in cahoots with the Treasury, they have a workaround called special purpose vehicles (SPVs) where the Fed can purchase investment grade corporate bonds and even junk bonds. If these default, the taxpayer through the Treasury will suffer the losses. When you have a price insensitive buyer like the Fed in the capital markets, you get price distortions and misallocation of capital. If the stock market tanks again, I have confidence that the Fed will create another SPV to buy stock. While the government has thrown a few bones to the general public in the form of stimulus checks, more money by far has been devoted to bail out corporate America, which will never be held accountable for bad business decisions like the borrowing binge of the last few years to do stock buybacks.