I’ve been waiting for this to happen. Usually in times of crisis, buying up government debt is the fear trade. Risk-averse investors pull money out of stocks and other riskier asset classes and put them into bonds. When people retire, financial advisors typically urge senior citizens to allocate more of their wealth to bonds. That’s probably not going so well for them now.
State and local governments panicking about the coronavirus have completely shut down commerce across the country and put millions of people out of work. That has effectively crashed the economy. Usually the government would provide some sort of fiscal stimulus to assist people in these circumstances, and the president is currently negotiating various bills to do that.
Whatever assistance the government provides is likely to be historic now, but it is also likely only grow, as they are going to need to bail out entire industries in a couple months. You may think the airlines are greedy and don’t deserve a bailout, but there is no denying that air travel is systemically important in this country.
As the cost of this manufactured crisis skyrockets by the day, the amount of money the federal government needs to borrow from investors in the bond market also skyrockets. Investors who already own bonds are starting to dump them because they know a deluge in new bond issuance is coming that will dilute the value of their asset. And I imagine they know that with all the typical buyers of treasuries being in a perilous situation themselves, there’s going to be a chance of dysfunctional auctions.
What I find amazing about all of this is that only two weeks ago, the United States unequivocally had the strongest economy in history. It is incredible how quickly idiot politicians and a reckless media that loves to feed panic can trash something like that. This is what economic suicide looks like.