zcase
Joined 13 years ago
Joined 13 years ago
The first order effects weren't so large to stem the selloff (first order meaning the PV effect of lowering discount rate).
As for second order effects (rate cuts to spur economic activity), I'm not even bullish about the mechanism to transmit rate cuts to the real economy normally, but I think in a quarantine situation, those mechanisms are even more diminished as there's less economic activity. Thinking out loud, demand will probably just hit a wall--there's no elasticity here when people are worried about their lives.
The only mechanism that sounds plausible to flow through to the real economy is fiscal. Government buys Pampers, burns them, buys them again. Or keep lowering rates to raise asset prices by a purely mechanical lowering of discount factor.
https://www.sanjoseinside.com/wp-content/uploads/2020/01/Cre...
The message seems to be: this is a nice thing, I can't readily access it, so nobody should have it. Like the kid taking his ball away after losing at soccer. Except this is someone else's ball?
Open to changing my view