In the US the zombies are awakening as the consequences of the Federal Reserve board’s unprecedented interventions in credit markets continue to emerge.
Despite Hertz's bankruptcy retail investors, given confidence by the Fed's interventions, are buying its shares and those of other distressed companies.The Fed has been buying securities in exchange-traded bond funds to keep corporate interest rates low. On Monday it announced the start of a new program under which it will buy, initially, up to $US250 billion of corporate bonds directly.
It was instructive that on Monday, before the Fed’s announcement of the start of direct corporate bond purchases, the US sharemarket was down as much as 2.5 per cent. It closed up nearly 1 per cent. The surge in borrowing in the US is another, albeit deliberate, consequence of the Fed’s actions, one that will complicate any pathway to more normal settings in a post-pandemic environment and weigh on the US economy in future.
More concerning, since the financial crisis - even as the debt levels have climbed - there has been a steady deterioration in the quality of the credit. About a third of the corporate bond market is now in the form of leveraged or non-investment grade bonds.
Source: News Formal (newsformal.com)
The Fed has created a monster they can no longer control. As hard as they try to bail out the rich time and time again, their day of reckoning will come. And hopefully J Powell will be the poster child for the disaster.
I'm sure that was meant to mean something profound.
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