Mar 27, 2020

Axios Markets

What do you have planned this weekend? I've got a bike ride and then an exhilarating nap scheduled for Saturday afternoon. What about you? Let's chat -

Was this email forwarded to you? Sign up here. (Today's Smart Brevity count: 1,059 words, 4 minutes.)

🎙"I'm always making a comeback but nobody ever tells me where I've been." - See who said it and why it matters at the bottom.

1 big thing: Fighting coronavirus with trillion-dollar platinum coins

Illustration: Aïda Amer/Axios

The growing throng of critics who have assailed the Senate's $2.2 trillion spending bill as avarice, insufficient and disappointing have an alternative.

Enter Michigan Congresswoman Rashida Tlaib and the Automatic BOOST to Communities Act, a bill so audacious and unparalleled in scope that one of its primary authors asserts "there is no number that would be meaningful to estimate" its cost.

Details: Tlaib proposes sending a debit card to every single person in the U.S. loaded with $2,000, then reloading that card every month with $1,000 "until one year after the end of the Coronavirus crisis."

  • The process would be funded by minting $1 trillion dollar coins.

Why it matters: There is rising opposition to the idea that government debt is harmful, and more support for programs that dedicate government stimulus money to people rather than business. Tlaib's bill currently has very limited support in Congress, but that could change.

  • "It seems to me that we’re going through the conventional means at the moment and if that doesn’t work then it will lend to more discussion of these alternative measures," Gennadiy Goldberg, U.S. rates strategist at TD Securities, a primary dealer that does business directly with the Fed, tells Axios.

Between the lines: It would be a "money-financed fiscal program," Rohan Grey, a J.S.D. candidate at Cornell Law School who worked with Tlaib's office to draft the bill, tells Axios.

  • That means there would be no government debt issued to pay for the program — the coins are the payment.

Yes, but: Potential harms include runaway inflation, destabilizing the U.S. financial system, displacing the dollar as the world's funding currency, and undermining institutional confidence in the Fed, market analysts say.

  • "It’s a fun idea, but it’s a gimmick, not really a reasonable plan for financing the government," Thomas Simons, money market economist at Jefferies & Co., tells Axios.
  • "It suggests that the government can just deliver unlimited amounts of cash to anyone who wants it for any reason. That's dangerous."

Yes, but, but: Grey foresees a situation now that could be far worse than the Great Recession — unemployment as high as 20%, wide-ranging and permanent destruction of businesses, mass bankruptcies and more.

The last word: Like many advocates of the Modern Monetary Theory, Grey points to World War II when the U.S. ran up tremendous deficits but also utilized much of the country's available resources, including the lion's share of its human capital, remaking the American economy.

  • "We need to make sure we do everything it takes," he says.
Bonus: How it works

The #MintTheCoin plan proposes to account for the direct payments — a back-of-the-envelope calculation suggests $6.5 trillion is a conservative cost estimate — by having the U.S. Treasury mint a series of "$1 trillion platinum coins."

  • The coins would be created by the Treasury and then sold to the Federal Reserve, which would credit the U.S. Mint’s account at the Fed with $2 trillion in reserves.
  • That money could then be loaded onto debit cards by the Treasury and sent directly to every person in the country, including children, undocumented immigrants and the homeless.

The intrigue: "The goal is to prevent fear mongering," Grey, who is also president of the Modern Money Network, tells Axios.

  • The way the U.S. currently finances spending, by issuing debt, "gives people who do want to fight these false austerity battles ammunition to say, ‘Look, we’ve added all this money to the government’s credit card and now we have to pay it back.'"

Be smart: The plan is legal, as U.S. law gives the Treasury secretary the power to mint new coins "in qualities and quantities that the Secretary determines are sufficient to meet public demand."

  • And market experts like Goldberg and Simons tell Axios the trillion-dollar coin idea works, functionally. Though they also say it would be foolish.
2. Catch up quick

G20 finance ministers and central bankers pledged to inject over $5 trillion into the global economy and “do whatever it takes to overcome the [COVID-19] pandemic.” (Reuters)

Assets on the Fed's balance sheet rose by $586 billion in the week ending March 25, bringing total holdings to more than $5 trillion for the first time. (Reuters)

The U.S. has taken the lead in the global number of coronavirus cases, while fatalities have surpassed 1,100, giving it the sixth highest death toll in the world (The Washington Post).

3. How to understand the nightmare chart
Expand chart
Data: St. Louis Fed; Chart: Axios Visuals

This is a picture of what happens when a huge swath of the economy comes to a very sudden stop, Axios' Felix Salmon writes.

  • But it tells us very little about how bad this recession is turning out to be. We're not going to get useful data on that for another month or so.

The big picture: In a recession, millions of people become unemployed. But in a normal recession, that process can take months or even years. This time around, the layoffs are being squeezed into a matter of weeks.

4. Bear market over!
Data:; Chart: Axios Visuals

The Dow rose from a bear market on Thursday, officially beginning a new bull market thanks to a 6.4% gain, and the S&P 500 recorded its largest three-day gain in close to 90 years.

What's happening: The impressive climb happened despite the blowout in initial jobless claims that was announced before the market opened and shortly after Fed chair Jerome Powell went on national television and said the United States “may well be in recession.”

  • The rally may have been underpinned by the expectation that the Senate's spending package will be passed on Friday.

By the numbers: The Dow gained 1,352 points, ending a bear market that lasted 11 trading days — the shortest in history for the blue-chip index. It reached its bear-market low three days ago.

More numbers: WSJ points out, "Dow industrials are still down 21% for the year, despite climbing 21% in the past three days — the largest three-day percentage gain for the index since 1931."

5. The rush to money market funds

Data: Investment Company Institute; Chart: Andrew Witherspoon/Axios

Thursday's stock market jubilation came in stark contrast to the general malaise that has gripped investors for much of this month.

Driving the news: Money market funds, which are effectively savings accounts, saw their two largest weeks of inflows in history, as investors flooded into the safety of cash, data from the Investment Company Institute shows.

Details: A total of $286 billion was pushed into money market funds in the week ending March 25 — a 7.3% increase over the previous week's total and the largest inflow ever in terms of amount and percentage gain.

  • This week's record increase was in comparison to last week (ending March 18), which was a 4.2% increase from the week before and had been the largest weekly percentage gain in history.
  • The past three weeks ranks as three of the top five largest weeks of inflows to money market funds ever recorded.
6. Getting less confident

Data: Civic Science survey over eight weeks; 56,263 total respondents; MOE ± 2%; Chart: Axios Visuals

The stock market's rough ride in recent weeks has many Americans losing significant confidence in their retirement accounts, new data from CivicScience shows.

Quote: "I'm always making a comeback but nobody ever tells me where I've been."

Why it matters: On March 27, 1948, inimitable jazz singer Billie Holiday played in front of a sold-out crowd at Carnegie Hall for which 2,700 tickets were sold in advance (a record number at the time) even though she didn't have a current hit record.

  • The concert was notable in that it came just 11 days after her release from Alderson Federal Prison Camp in West Virginia for possession of narcotics.