In EZ we got LTROs and TLTROs plus OMT and SMP. In the US we will see a return to the alphabet soup of liquidity and credit facilities of the GFC - TAF, TALF, etc - as well as massive T-bills purchases and a spectrum of OMO repos - as the Fed did massively yesterday.
Expect also subsidized access to discount window, subsidies to banks to provide credit to illiquid but solvent SMEs as in new TLTRO.
We will soon also get reactivation of swap lines between the Fed and other key central banks such as ECB, BoJ, BoE, SNB etc; and possibly other ones down the line. Swap lines action will deal with global dollar scarcity that is becoming a severe problem.
Malfunctioning & disruption of key liquidity markets - as signaled by widening of FRA-OIS spread and basis spread - will be addressed with much larger OMO Repos by the Fed and other central banks. Even if Fed action yesterday didn't really reverse the FRA-OIS spread widening
Some CBs are already into NIRP & will go more negative. Others like Fed/BoE will not go 2 NIRP. But we don't need CBDC as we got plenty of tools. Eventually CBDC will come & once cash is phased out (effectively already in Sweden/China) CBDC will let policy rate 2 be more negative
But the new true unconventional policy will be helicopter drop/MMT/people's QE that used to be pet idea of leftists academics & policy activists. But now it is called - in fig-leaf style - as "coordination of monetary and fiscal policy" and supported by mainstream economists..
Helicopter drop now renamed as "coordination of monetary & fiscal policy" is now supported by mainstream economist such as Bernanke, Fischer/Blackrock, Buiter, Turner & now even Ray Dalio. So we get backdoor helicopter drop, i.e. permanent monetization of large fiscal deficits.
What is the difference btw MMT/helicopter drop now called "coordination of monetary & fiscal policy" & traditional QE financing of fiscal deficits? Not much. In the former gov bonds are purchased in the primary market; in the latter they are purchased in the secondary market
Also QE is supposed 2 be temporary debt monetization while MMT implies semi-permanent monetization. But semi-permanent monetization is already underway in ongoing QEs of EZ & Japan. So we are already effectively in a MMT world, more so when coming fiscal stimulus becomes stronger
As I argued 4 weeks markets will start 2 reverse some of their losses when, in addition 2 massive monetary stimulus by CBs that's already underway, we get some sensible fiscal stimulus. As now EZ/EU are signaling stimulus coming & as a Pelosi bill coming markets starting 2 rally!
Needed fiscal stimulus is 2-3% of GDP as the collapse of demand now is much deeper & faster than GFC even if this recession may be shorter than GFC if appropriate actions taken. But initially in G10 fiscal stimulus will be less than 1% of GDP, much less than needed.
Initially markets will react positively 2 coming fiscal stimulus & start to reverse part of their losses as is happening today. But soon markets will realize that stimulus isn't sufficient as 2-3% of GDP is needed. Thus markets will crash again till they FORCE right fiscal action
