Last week, the world’s largest central bank – the United States Federal Reserve (Fed) announced the immediate start of purchases of Listed Funds (ETFs) that hold corporate bonds. The Fed can do this and more for the (illegitimate) privilege of creating money “out of thin air” (actually, from debt) to “save” the economy. Recall that, unlike other monetary authorities, the Fed has a dual mandate of price stability and to maximize employment.
This is the perfect excuse to abuse its power to create money, for which it manipulates the most important prices in the economy interest rates through massive buying and selling in the bond market. In fact, the fact that the Fed is rescuing companies by buying their corporate debt through ETFs, poses a great moral hazard, since companies now know that they can be less responsible in their credit issues, as each time they face unexpected situations As a major economic crash – in this case as a result of the COVID-19 pandemic and confinement they will be saved.
The point is that the Fed’s “rescue” is nothing more than a cunning manipulation of the markets, from which it takes “good money” to help over-indebted companies that, if they cannot sustain themselves, should disappear.