On February 11th, 2020, without warning, the stock market in the United States registered its first drop of the year, which culminated in a 34% fall in the following three weeks (graph 1). Concomitantly, the GDP tumbled by a startling 34% (graph 2), and within two months - from March 14 to May 9 - 31 million people were unemployed, nearly 15% of the labor force (graph 3). What caused such an unexpected mayhem? The culprit was singled out without delay: COVID-19. This gave rise to the shortest, unexplained recession.
Let's hand it to the Trump administration: the rescue operation was beautifully choregraphed and flawlessly executed. In ten days, Republican Senators managed to have Congress approve the "largest economic relief bill in U.S. history": $2.2 trillion - the figure is staggering, 10% of the 2019 gross domestic product (GDP). The Senate approved it unanimously on March 25. It was passed via a voice vote in the House the next day, and signed into law by President Donald Trump the following day (March 27). Common folks received $1,200 per person, plus $500 for each dependent. Unemployment benefits were expanded from 26 to 39 weeks with an additional $600 per week. Quite a feat! And should anyone doubt the officials' intentions, the name of the bill was meant to reassure the skeptics: The CARES Act, short for "The Coronavirus Aid, Relief, and Economic Security Act". The truth is that the package has little to do with the common folks and a lot with the stock market. The beneficiaries were the banks and the corporations, thanks to the Federal Reserve.
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By March 4th - the last day of the stock market crash - COVID-19 had yet to kill its first victim (graph 4). Similarly, unemployment had not begun to rise by the time the crash was over (graph 5). This raises questions as to what the main driver behind the CARES Act might be, in as much as through February and March, the Federal Reserve was busy rescuing the banking sector through repurchases of Treasuries and mortgaged-back securities on the open market (graph 6). In fact, the Federal Reserve had been busy buying securities since mid-September 2019. On September 17th, the overnight interest rate shot up to 10% at around noon-time, forcing the Federal Reserve to intervene decisively to bring it down to 5.25% by the end of the day (graph 7).
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