Congress Must Pass $2 Trillion TARP Or Face Global Depression: Minerd

Tuesday, March 17, 2020
By Paul Martin

by Tyler Durden
Tue, 03/17/2020

Guggenheim Investments’ CIO Scott Minerd has been very vocal about policymakers’ and the markets’ cognitive dissonance regarding its extreme fragility and the impact of the virus on the global economy.

Having seen central banks and politicians begin to address the issue – and fail so far, Minerd warns in his latest note to clients that “shock and awe has fallen short…”

Where are we now?

The Federal Reserve’s (Fed) attempt to go for shock and awe seems to have been made with the idea that doing something unusual on Sunday night, after the market closed out strong on Friday, would be good for confidence.

Of course, the market didn’t take it that way.

Instead of inspiring confidence, the market seemingly responded as if the Fed knows something we don’t know and it’s actually worse than we think.

Monetary policy is not designed to deal with pandemics. Monetary policy is designed to provide adequate liquidity to the financial markets to keep them functioning, and I think the Fed is doing a pretty good job at this.

The Fed still has a number of tools at its disposal that haven’t yet been implemented. Probably the most important of these is Section 13(3) powers.

Section 13(3) can only be invoked with the approval of the Treasury in the first phase. The second phase would allow for the establishment of programs like the Troubled Asset Relief Program (TARP) and the Term Asset-Backed Securities Loan Facility (TALF), only with the passage of legislation in Congress.

Given the size of our economy relative to where it was 10–15 years ago, it would probably be appropriate for Congress to pass a TARP-style program of $2 trillion.

Then on the back of that, the Fed would have the ability to introduce a TALF-style program again.

So, it’s going to take some major firepower to resolve the forthcoming problems or the slide will continue.

What is your economic outlook?

My expectation is that there is no economic growth in the near term, that we’ve probably already entered a global recession.

The Chinese, for the first quarter, will print a gross domestic product (GDP) number which will not truly reflect the economic damage to their economy. Our best estimates are that the Chinese economy is contracting in excess of 15 percent at an annualized rate, and I’ve seen numbers as big as negative 40 percent.

Europe is probably already in a fairly severe recession at this moment.

If the United States is not already in a recession, it will enter one shortly.

While shutting down restaurants, schools, and major events, a lot of people are going to be without a paycheck—people who probably don’t have $500 of savings in the bank—and they won’t be able to cover next month’s rent, their car payment, and their living expenses. Given this dynamic, I see this getting much worse.

The risk is that for the first time since the 1930s we are facing the possibility of a downward spiral into something akin to a global depression.

The Rest…HERE

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