Ten Remarkable Financial Events of 2020
Excerpt: Uncertainty about the policy response to Covid-19 initiated the cascade of financial market extremes, but expansionary monetary policy was a profound accelerant as lockdowns took hold. The US government spent roughly $7 trillion in 2020, with the Fed having committed between $3 and $4 trillion to programs intended to keep markets functioning. It also lowered the Fed Funds rate to zero, gave forward guidance indicating that it would keep rates low until inflation materially exceeded the 2% level, opened international swap lines, reopened some 2008 Financial Crisis programs, and embarked upon a Main Street Lending Program reminiscent of Great Depression-era policies. On the fiscal side, the US budget deficit was approximately $865 billion in June 2020 alone––an amount exceeding the entire debt incurred by the United States government between 1776 and 1980. Beyond representing curiosities and the awesome distorting power of central bank largesse, each of the aforementioned extremes demonstrates that however well-designed a particular market is, and however carefully a regulatory oversight structure may be crafted, the sometimes-unpredictable nature of human action can and does lead to unintended consequences. And when, on those rare occasions, confusion and fear reach an apex, unforeseen events do not only occur, they cluster together. [Neither having a significant portfolio nor much expertise in financial workings, I was largely unaware of these happenings at the time they occurred. It sounds as if we were much closer to total financial disaster than I realized. I think I’m glad I didn’t know–it would’ve scared the crap out of me. Ron P.]
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