Tang Yao: How is the US financial risk under unlimited quantitative easing different from 2008

Tang Yao: How is the US financial risk under unlimited quantitative easing different from 2008
On the morning of March 23, Eastern Time, the Fed announced a series of names, dazzling, and a huge range of measures to stabilize the economy.For discussion purposes, many market participants refer to these policy simplifications as unlimited quantitative easing (QE).The measures introduced this time can be summarized into two points from the preset point of view.One is to buy U.S. Treasury bonds and mortgage-backed mortgage securities (MBS) to invest money and liquidity in an unlimited way to support the economy; the second is to support large employers, households, and small and medium-sized enterprises by buying corporate bonds, buying municipal bonds, and buying studentsLoans, car loans, credit card debt, and financial assets backed by small business loans, purchase other debt-related financial assets, and provide loan facilities to large and medium-sized enterprises.The former is the reproduction of the third phase of quantitative easing (QE3) from 2013 to 2014, that is, continuous expansion of liquidity until the economy has improved significantly; which is basically the innovation of the Federal Reserve, which greatly expands the types of private sector debt supported in liquidity investment.This US liquidity crisis is significantly different from the 2008 financial crisis.First, the relationship between entities and finance is different.The exposure of subprime problems in the financial system in 2007 caused the liquidity of the overall financial system to disappear in 2008. The accompanying credit contraction and panic sentiment caused the collapse of demand, but did not impair the short-term replenishment capacity of the real economy.During this crisis, the real economy was hit by the epidemic, and demand and supply were reduced simultaneously. There was a serious problem with the cash flow of enterprises and residents, and a large number of private sector debts might default.In fact, the manifestation is different.The crisis in 2008 was mainly manifested by the fact that some large financial institutions and real economy enterprises were unable to revolve their debts and closed the liquidity crisis. Some of the companies were insolvent and at the same time offset the solvency crisis. These “big but not down” companies dragged downThe overall economy.In 2020, the new crown epidemic has led to a large number of large and medium-sized enterprises that may block the liquidity crisis and solvency crisis, which directly involves a wide range.Again, the Fed ‘s involvement is different.From 2007 to 2009, financial risks were gradually exposed, some large financial institutions gradually fell into crisis, and the US Treasury and Fed institutions gradually sought solutions.In this liquidity crisis, because the Fed’s intervention was very early-some market observers once thought they were a big deal-and introduced a systemic liquidity delivery policy, there are no systematically important financial institutions in 2008.Crisis.Due to the uncertainty of the impact of the epidemic on the US real economy, financial risks may still rise further, and even a large-scale financial crisis may erupt.The Fed ‘s policy has been focused on assuming liquidity and avoiding a debt crisis.Judging from the performance of the stock market, the epidemic hit cash flow, and without cash flow there is no pricing, and the downward trend of stock prices in the shock has not changed.Under the crisis, the Fed is like a star player with unlimited fire rights on the basketball court, but he cannot defeat the new crown epidemic alone.Tang Yao is an associate professor in the Department of Applied Economics, Guanghua School of Management, Peking University, and a research fellow at the CITIC Reform and Development Research Foundation.He received a Ph.D. in economics from the University of British Columbia, Canada. He taught at Bowdoin College in the United States from 2009 to 2017 and obtained a tenure of tenure.The main research directions are macroeconomics, international economics and Chinese corporate strategy.Editor Xu Chao proofreading Wang Xin