Nothing’s Fixed: What’s Behind the Corporate Debt Bailout

Nobody knew what would trigger the next financial crisis, but just about everyone knew it would involve the record pile of corporate debt. And so it happened. Now the Fed fixed it…

By Wolf Richter. This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:

Something spectacular happened in April, despite the gut-wrenching phenomenon that 30 million people lost their jobs in the United States: In late February and early March, credit markets were freezing up and corporate bonds, particularly junk bonds and the lowest rungs of investment-grade bonds, were in the process of imploding. But then in late March and in all of April, companies issued record amounts of bonds under blistering demand from once again yield-chasing institutional investors.

Corporate debt has already been at record high levels by any measure going into the year 2020, and the Fed has been warning about it repeatedly, including in its Financial Stability Reports, and people figured this corporate debt bubble would eventually implode and put the economy at risk, and it could cause another Financial Crisis because at the next downturn, credit could freeze up and these companies would run out of cash and wouldn’t be able to refinance their debts, and wouldn’t even be able to make interest payments. And defaults, debt restructurings, and bankruptcies would become the new growth industry.

Corporate leverage was gigantic. But no one cared. And then came February 20, when it began to unravel. And suddenly, people cared. By early March, junk bond issuance was freezing up. And it became clear that these overleveraged companies couldn’t refinance their debt, couldn’t borrow money to fund their losses, and would run out of cash soon, and would default.

Back in 2019, nobody knew what would trigger the next financial crisis, but just about everyone could see that it would involve this record pile of corporate debt.

And so it happened. But then the Fed decided to solve that problem of too much debt and too much leverage with even more debt and even more leverage.

On March 15, the Fed announced that it would mess around with every aspect of the financial markets, buying via its Special Purpose vehicles, or SPVs, whatever wasn’t nailed down, and it expanded those programs to ever more asset classes, including investment grade corporate bonds, fallen-angel junk bonds, corporate paper, commercial mortgage-backed securities, even junk bond ETFs. And all this was hyped in the media with great fanfare.

So the Fed plowed $2.3 trillion in seven weeks into Wall Street, buying mostly Treasury securities, government-guaranteed mortgage-backed securities, and smallish amounts of corporate paper, and a few other things, and hand $440 billion to foreign central banks, half of it to the Bank of Japan, via its central bank liquidity swaps.

But the Fed hasn’t yet bought a single corporate bond, neither investment-grade or junk-rated, and it hasn’t yet bought a single ETF.

Turns out, the Fed was just jawboning about buying corporate bonds and junk-bond ETFs. Every Thursday, since this whole S-H-I-T-show has started, I post an analysis of the Fed’s weekly balance sheet. And no – as of the Fed’s last balance sheet, the Fed still hasn’t bought a single corporate bond, not a single fallen-angel junk bond, not a single junk-bond ETF.

It was just jawboning – which is an official tool in the Fed’s tool box and goes by other terms, such as “forward guidance.”

This jawboning worked like a charm. It triggered a huge rally in stocks and bonds, and particularly in junk bonds and junk-bond ETFs. Banks and hedge funds and others were buying this stuff to front-run the Fed and then sell this stuff to the Fed at a higher price, and stuck-at-home retail investors with nothing else to do were trying to ride up this wave too.

And this rally in corporate bonds, particularly junk bonds, did something else: It re-started the chase for yield, and investors jostled for position to buy bonds offered by companies from Carnival Corporation, with its pariah cruise ships, to Boeing with its 737 MAX fiasco. And demand was so huge that these companies upped their bond offerings and sold a lot more bonds than they had imagined they could.

Boeing became the bond hero a couple of days ago. Boeing is rated triple-B minus, which means one notch above junk. If it is downgraded one notch into junk, it becomes a fallen angel. Not too long ago, it was begging for a $60-billion government bailout for itself and the industry because it had hollowed out its balance sheet by incinerating $43 billion in cash on buying back its own shares since 2012, and now it’s burning huge amounts of cash in its operations.

Well, last week, it approached the bond market, hoping to sell between $10 billion and $15 billion in bonds, with maturities as long as 40 years, according to what some people familiar with the matter told Bloomberg.

These bonds were offered to private investors – so this was not a public offering, which means that filing requirements were much less onerous, and the deal could be pulled off quickly.

The buyers were institutional investors, such as asset managers and insurance companies that usually buy investment-grade bonds, and also some hedge funds, and other investors that are usually focused on junk bonds, according to the sources.

And Boeing offered relatively high yields. A mad scramble ensued to get some of these bonds. Demand for these bonds was gigantic. Over $70 billion were offered to buy these bonds. So Boeing raised the bond sale to $25 billion.

Boeing had already fully drawn its term loan facility at the banks in March, which was over $15 billion, to have the cash ready at hand. This $15-plus-billion in cash together with the cash from the $25 billion bond sale will give Boeing $40 billion in cash to burn and still have some cash left over on its balance sheet.

But it also means that Boeing will have $40 billion in additional debt, and as it burns this cash, its negative net worth will balloon, and while it was fragile and over-leveraged before all this happened, hollowed out by its $43 billion in share-buybacks, it will be a LOT more fragile and a lot more overleveraged going forward.

It has been like this all month.

It was kicked off on April 1, when Carnival Corporation the operator of pariah cruise ships, offered $3 billion in bonds at an interest rate of 11.5%. There was huge demand, with investors offering to buy $17 billion of those bonds, so it upped the bond sale to $4 billion. And it also pulled off a stock sale to raise more cash.

In the week through April 2, issuance of investment-grade bonds surged at an all-time ever record of $111 billion, in just one week. This included the $19 billion in bonds from T-Mobile to fund the acquisition of Sprint.

That weekly record beat the prior all-time weekly record of $109 billion, which was set the week before.

In other words, since the Fed started jawboning the markets without ever buying a single bond, investors bought up everything with ravenous appetite, in part lured by the higher yields, and in part lured by the hope that they could sell it to the Fed for a profit.

Fed Chairman Jerome Powell proudly pointed out the success of the Fed’s jawboning in his press conference on April 29, when he said:

“Many companies that would’ve had to come to the Fed have now been able to finance themselves privately since we announced the initial term sheet on these facilities,” he said. “There’s a tremendous amount of financing going on, and that’s a good thing,” he said.

And that’s true, it’s a good thing that investors funded those bond sales, and not the government and taxpayers, and not the Fed.

What’s not a good thing is this: prior to the crisis, the record amount of corporate debt had made many companies super-fragile and in no position to weather the crisis. And then, when the whole thing threatened to implode, the Fed cut interest rates to zero and moved heaven and earth to enable and encourage these companies to load up on even more debt. See Boeing.

And here is the amazing thing that happened with corporate loans from banks. Commercial and industrial loans are tracked by bank regulators, such as the Federal Reserve. In terms of the total C&I loans outstanding, they had been essentially flat for about a year. At the end of February, there were $2.4 trillion of C&I loans outstanding.

But then companies such as Boeing and many others drew down their credit lines and stand-by term loans to get through the crisis and avoid having their access to cash cut off. From March 3 through the end of April, those C&I loans outstanding jumped from $2.4 trillion to $3.0 trillion. Over the span of eight weeks, they’d jumped by over $600 billion. In percentage terms, they’d jumped by 25% in just eight weeks.

How historic is this? C&I loans always jump during a crisis as companies draw down their credit lines. During big-bad Financial Crisis 1, during peak-panic following the Lehman bankruptcy, C&I loans jumped by 5.8%. This time, they jumped by 25%. This just never happened before in the data going back to 1973.

So now we have this crazy situation where the “next crisis” has arrived, and the next downturn is here, and it’s a bad one, and likely the worst one we’ve seen in our lifetimes. And the record amount of corporate debt, that everyone had warned about and that even the Fed had fretted about publicly, did what it was expected to do, it started blowing up, and the credit markets started freezing up.

And then the Fed came out with about $2.3 trillion of QE in a few weeks, cut its interest rates to zero, and added lots of jawboning about buying corporate bonds, and this has caused and enabled Corporate America to load up on even more debt than ever before.

And these companies will burn through the cash they raised from these debt sales because they’re now in deep trouble and losing money. And then the cash is gone, and what’s left over is the additional debt.

This record amount of new and additional debt is piled on top of the record amount of debt that was already weighing down these companies before the crisis, which already made these companies overleveraged and way too fragile going into the crisis, and that’s why they couldn’t handle the crisis.

And now these companies will be even more overleveraged and more fragile, in what will be a very rough economy for quite a while. And that record pile of corporate debt has become a lot more explosive and a much bigger risk in just a couple of months than it already was before. That’s where we’re at now. Nothing has been solved.

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  72 comments for “Nothing’s Fixed: What’s Behind the Corporate Debt Bailout

  1. Tim says:

    1) buy yourself a truck.

    2) load it with surplus army rations, blanket or two, and such.

    3) ….then add 20kg silver, 1kg gold… and some chocolate

    4) drive to your nearest disused (Welsh) slate mine.

    5) set up the lot in the disused slate mine

    6) hire a dragon to guard the entrance.

    • Cas127 says:

      I have a dragon for sale – just arrange for transfer of .75kg of gold (it is a used dragon) to Julius Baer in Switzerland…

      No USD please.

      • The artist formerly know as Marcus says:

        I would recommend holding out for a better deal. The used dragon market is about to crash – sales are already down 58% for the first quarter and that includes the months before things went to heck in a straight line. The subprime used dragon market was already at record default rates in January… you’ll be able to get one for 0.5, maybe 0.3kg of gold in no time.

        • Cas127 says:

          Well, sure, maayybbee, but it he acts right now, he can participate in our dragon buy back program, where we *guarantee* to buy back our dragons (we stand behind our product…with a shovel) at a minimum of 70% of purchase price, payable in USD…

          Or perhaps Sir would like to participate in our dragon repo program, where Sir can obtain a loan (secured by his/our dragon…we reserve the right to rehypothecate our/his dragon) in order to purchase a second dragon…

        • The artist formerly know as Marcus says:

          Woah woah woah Cas… that’s a lot of fancy talk. Can’t you put this in terms I can understand such as monthly payment. I like to make my depreciating asset purchases over 70+ months. 96+ months if it means I get a sweet extended warranty and keep the monthly payment below 50% of my income. I’m very responsible as you can see.

    • We often- smug Americans literally have total idiots running our country. As we see more and more of our fellow citizens fall upon very hard times, to include the infamous soup line, we will wonder why such a once-great country would become indifferent to the sound sailing of the Ship of State and allow the financial system and economy to be run by failed bankers. We have robbed at least three future generations of a decent standard of living in America, hearken back to the 1950’s/1960’s as your measuring stick.


      • david ward says:

        dave, I agree with you 100%, but it’s going to take organization..nothing will change until there is an organized group of committed individuals .. it’s like 1776 all over again

      • Canadian says:

        In the 1950s, a good 75% of Americans had no prospects at all.

        Women couldn’t work. Black people were segregated under Jim Crow. Gay people were imprisoned or lobotomized.

        It was far from paradise.

        Current generations would also absolutely rebel at the standard of living of the era, even if they were in the group not treated miserably.

        1 car — a low end Plymouth, Chevy or Ford with crank windows and a manual transmission? That’s no fancy $60K Tesla.

        1 TV in the living room with only broadcast channels.

        Weekly trips to the grocery store for staples. Eating out was far less. No exotic groceries. No “organic food” and other pricey flim-flam.

        Heck, even the living standards of the 1980s, the supposed peak of the “lucky” Boomers, would elicit shrieks of rage and deprivation from people today. Only a couple TVs? No internet or cell phones? No fancy overseas vacations to exotic destinations? Buying clothing from Sears rather than from a fashion label? No on-demand delivery services? A 1,500 square foot home? Heaven forfend!

  2. Dano says:

    The serial arsonists at the Fed have created and injected both too much money and too many ‘promises’ of covering everyone’s hind side no matter what happens. Now they ‘own it’ all.

    There are no markets anymore, only manipulations.

    Got gold?

  3. Michael Gorback says:

    Nothing’s fixed because conceited fools won’t let the system repair itself.

    “The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would no-where be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

    Adam Smith

    • timbers says:

      Great quote. I’m sure one of our distinguished stenographers of the MSM will share that in the form of a question directed to Powell at the very next Fed meeting with “reporters.”

  4. Tim says:

    And, should you have some forethought, load said truck again with useless currency to burn. Currently Zimbabwean whatevers, but, well, looking forward, who knows?

    • Cas127 says:

      Worst children’s stories ever…”Zimbabwe Ben Bernanke and His Miraculous Helicopter” , “Zimbabwe Ben Bernanke and His Magical Print Press”

  5. Timothy Lewman says:

    Wolf, so has the Fed painted itself into a corner and will be forced to buy these bonds as the start to default? Or can it jawbone another round of private buying? – punt for another round and hope the situation revolves itself with a miraculous economic recovery.

    • The idiotic Fed is running out of ammunition. Who will buy our Treasuries and hold anything Dollar denominated if they expand their disguised Balance Sheet/National Debt another $5 to $10 Trillion as America cruises to 150% Debt to GDP. U.S. Dollar the prettiest witch in the covenant AT THIS SECOND, but against real money, gold, the Dollar is headed into the wastebasket of Failed Currencies. China and Russia will make sure it is no longer the world’s primary reserve currency in the next 5 years. Fed out of bullets without accelerating the depression and financial/economic crashes underway. Thanks, FedHeads.

      • intosh says:

        One has to wonder if Trump, the Fed and their cronies work for these other nations to ensure that within the next 20 years, the low wages manufacturing jobs are indeed back in the US, while the best and brightest for the knowledge economy look to China and Co. for a better future.

        One scene in the movie Looper stuck with me: one of the characters says to another “I’m from the the future. You should go to China.”

      • paul easton says:

        The Fed can’t fix the mess, but it didn’t cause it. The proximate cause was the financialization of the economy. Behind this was the rise of mass communications, which allowed the upper class to take control of the national conversation, which in turn allowed them to take full control of the political system. This made it possible for them to tune the economy to an unstable state where money always flows from the poorer to the richer. The rich actually like this wild volatility because it accelerates the flow.

        To restore some kind of balance between property rights and democratic rights would take big changes in the Constitution, or maybe a completely new one.

        • sierra7 says:

          Paul Easton:
          Thank you!
          Very close to saying it all.
          “Manufacturing” jobs are not “coming back to the US.” They’re gone for good… the lowest common wage denominator.
          The greedy in this country have sold us all out while we have been entertained by the same that run the MSM.
          Welcome to the future.
          Get used to it.
          Get your two wheeler out and the plastic bags and start cycling for trash along the roadsides.
          Americans have been bought with less trinkets than were paid to the Native Americans for the territory of Manhattan.

        • e says:

          sure, it’s always easy to blame the fed and MSM (what’s that really anyway these days). the problem i believe is a combination of automation and ease of transport of material to markets where labor is cheap. as an example, see article by bloomberg regarding a new steel plant in austria where 14 people produce 500,000 tons of steel/year. steel plants used to employ thousands.

          automation is a function of capital investment not of labor, so returns go to capital not labor.

        • Canadian says:

          It wasn’t “greed” that eliminated manufacturing goods — it was competition and automation.

          An AMC factory in Southern California in the 1950s took 20,000 workers to build 50,000 cars a year. The Chrysler factory in Mexico cranks out 250,000 cars a year with only around 2,000 workers.

          Consumers don’t care either — even ones who complain about greed. You could, up until recently, buy a smartphone or computer made in the USA or Canada by union labor… but it wasn’t the luxury Apple brand (rather Motorola, BlackBerry and Dell), so people refused to buy. The factories closed and the products are no longer made here.

  6. Cordelia V says:

    The worst thing is that by jawboning markets into buying all this debt, the Fed has implicitly promised that it will continue to backstop the debt. Ultimately they are going to have to do it or there will be a financial crisis bigger than the last one. I don’t think that the Fed will let that happen until after the pandemic is mostly past. But what can’t go on has to stop. Ultimately there will be a lot of insolvent corporations and a mountain of bad debt, and a lot of people’s retirement money will go up in smoke. Interesting times.

    • paul easton says:

      It makes me feel better about having blown my retirement money on good times. Now that I have nothing I can feel carefree.

    • Person X says:

      It’s terrible because it means we can’t invest with any confidence and in the meantime earn nothing. It just seems it should have crashed long ago but especially this time …. so will/ how they ever run out? …and I mean that within a reasonable time frame, not 20-30 years. I need the reset now but it seems like they might get away with another 10 years or more of this nonsense no matter how ridiculous it is and the current administration (if you can even call it that) has no interests other than looting and will push all this same stuff and worse.

  7. WES says:

    The Fed doesn’t seem to be too worried about all of this increase in debt.

    Probably because they are planning to move the decimal 3 paces to the right introducting us to what comes after trillions, quadrillions!

    • MonkeyBusiness says:

      I’ve been told by smarter people that:
      1. 2% inflation is something that only smarter people understand.
      2. The Fed knows the exact dollar amount that will or will not cause hyperinflation.

    • John Taylor says:

      I tend to wonder if they’re just buying time to make sure the connected insiders and banks aren’t left holding the bag.

      Basically, they just need to give them time to safely sell it all to pension funds and 401k’s – then let it fall.

  8. MonkeyBusiness says:

    Wait till the left hand starts buying from the right hand i.e. Fed simply buying straight from the Treasury.

    I wonder what Wolf will say then.

    • dr spock says:

      MB, the fed’s hands are filthy and no amount of soap and water will wash them clean. They have been an intimate part of deregulation and financial engineering with their money creation greasing the wheels for outsourcing of our precious manufacturing jobs and insourcing of foreign workers to replace americans that are making too much for their purposes. The loss of these quality american jobs is massively deflationary and has greatly subdued the massive amounts of money created by them and helped to push interest rates to record lows. The US trade deficit is surreal and foreign governments with trade surpluses are buying up our country’s assets and not our debt……….as they sell their manufactured junk to us

  9. Chris says:

    “And that’s true, it’s a good thing that investors funded those bond sales, and not the government and taxpayers, and not the Fed.”

    It is good, because The Fed actually buying Corporate bonds would be outrageous. It’s one thing for the Fed to buy up UST’s, quite another to buy up the bonds of some Joe Blow busted corporate entity. If the Fed does that anyone in USA has the right to expect the Fed to clear their own personal debts. Because we’re now in the realms of what makes the likes of the Boeings of this world any more special than some “little person” living in a trailer park owing $500 to some loan shark? So what if Boeing creates jobs, when it’s so badly run that it can only survive by taking on more leverage to kick the can down the road. Bailing out Boeing would simply be pouring cash into a black hole, it would keep needing more and more cash to burn. Short of nationalising Boeing, it should be put into chapter 11.

    • timbers says:

      Actually, I don’t agree with that statement by Wolf. It is NOT good Fed jaw boning is making more and more take on more and more debt. The Fed is injecting QE by buying treasuries, only to jawbone that QE into financial pyramids supported by dubious companies that might better off be bankrupt. Zombie Nation USA.

      • MonkeyBusiness says:

        Well here’s the thing though. It’s true that the Fed is NOW jawboning, but if later on they don’t follow through with their pledge, you can see this happening:
        1. Stock market will crater. Faster than you can say crater. Forget the low we recently had. Dow will probably fall below 15K.
        2. All sorts of bonds will lose value super quickly. All the junk bonds will go to the barber to get “haircuts”.
        3. All sorts of derivatives will get triggered in unexpected ways.

        In other words, Zombie Nation will BLOW UP because confidence in the tooth fairy is lost.

        It’s fine for Wolf to point that out i.e. the Fed’s not been buying, but again are we supposed to believe that the Fed will not follow through. After all that 2.3 trillion?

        • timbers says:

          Yes good points, and will add what others have mentioned – the Fed, having “jawboned” it will buy garbage without really doing it, may have forced itself to soon actually do so. Ugh.

        • The Fed has some of its many, highly paid lackeys reading articles on the internet about how illegal the SPV’s really are, just a sham entity to violate the language and intent of the Federal Reserve Act, as amended. Since the politicians are even slimmy-er than the Fed, as we swirl down the vortex, finger pointing and blame gaming will be very fashionable. Corporate bonds, IG or Fallen Angel or Toilet Paper Grade to the realm of stinkier than Junk are toxic for the coming Congressional sideshows, and even these arrogant Fed Heads can see the pitchforks a coming.

        • Portia says:

          Are you saying everyone will realize “jawboning” means “lying”, and “forward guidance” means “yanking your chain”?

      • cb says:

        Correct. The FED is known to be a bunch of larcenous liars. Their actions drive the agenda simply because they can digitize money and inflate.

        • polecat says:

          ‘Everybody’s got something to hide, ‘cept for Powell and his On-keys’!

      • Wolf Richter says:


        Please don’t disagree with me out of context. This is what I actually said (see the text above or listen to the podcast):

        “And that’s true, it’s a good thing that investors funded those bond sales, and not the government and taxpayers, and not the Fed.

        “What’s not a good thing is this: prior to the crisis, the record amount of corporate debt had made many companies super-fragile and in no position to weather the crisis. And then, when the whole thing threatened to implode, the Fed cut interest rates to zero and moved heaven and earth to enable and encourage these companies to load up on even more debt. See Boeing.”

        • But Wolfe, the Fed has ipso facto committed securities fraud, the kind that the S.E.C. has locked people up on, including Margaret Stewart. These overpaid clowns are not outside of the law. The Banana Republic of America, get those wheelbarrows ready to pay for a loaf of bread! The term, Abuse of Power comes to mind, also.

  10. Wes says:

    The fireman and the arsonist are the same person? The government and the money man are the same man?

    • dr spock says:

      Wes, the very ultimate in cognitive dissonance. Orwell would be proud of their”exemplary work”.

      • cb says:

        Orwell would be disgusted with the simpletons who are confused by such obvious conmen.

  11. Prof. Emeritus says:

    I will be honest: I like the game FED is playing so far. Not all badly-run companies are evil, I’m pretty sure some can seize the moment and use this opportunity to restructure, replace awful managers with competent ones, fix money-sinkholes and keep floating. And yes, there will probably be some that are the exact opposite and keep behaving as if we are living in the golden days. What will be the ratio of the two? I’m only hoping we won’t have to ask that question or someone comes up with a better solution for this problem by then.

    • cb says:

      Why not let someone else seize the moment, after those badly-run companies properly go bankrupt?

  12. kitten lopez says:

    [since this is actually a continuation of a conversation on the AUDIO version of this story, i’m here telling Petunia and noname that i didn’t wanna add what’d be a non-sequitor here, and just now responded to them at the very bottom of the prior in audio form…]

  13. Sydney Collin says:

    None of those companies needed to take the Fed’s jawboning bait. As it currently stands, those who did were essentially conned by the Fed.

    Always being backstopped by Fed bailouts just makes them cosplay capitalists, playing dress up in a pretend “market” where we never have price discovery.

    How about some tough love for those who selfishly did share buybacks? Like a good old fashioned bankruptcy?

    • Portia says:

      I just can’t see the “job creators” applying the concept of selfishness to themselves, ever. It’s those takers, you know, the people who do the work, who are the selfish ones, actually wanting to get paid, and have a safe place to work, and all. The poor job creators are just out there trying to survive for the good of all, dontcha know.

    • Cas127 says:

      “cosplay capitalists” – nice.

  14. timbers says:

    “Always being backstopped by Fed bailouts just makes them cosplay capitalists, playing dress up in a pretend “market” where we never have price discovery.”

    Kind of the like the vaunted Credit “Market” which is a laugh riot joke IMO.

    Does anything the Fed touches resemble “market” nowadays?

    There is no “Credit Market” only a Fed backstopped insiders game rigged against working folks.

    These days, it seems anything with the work “market” in it is exactly the opposite of what that word once meant. Market – just one big, rigged, manipulated system of fraud.

  15. nick kelly says:

    So the downside to the Fed’s pretending to buy dubious bonds is just that the companies are more indebted? How about the people who bought the new issues? Were they all fat cat hedge funds etc. or did some pension funds get involved? Is there more collateral damage from the Fed’s head fake?

    • cas127 says:


      Well, we’ll find out as the transiently saved companies incrementally bleed out over time…which might (hopefully) be the game that the Fed is trying to play…to spread the consequences of the crisis over time, so that all sectors of the economy are not slammed at once, but rather go BK in stages over years.

      Flattening the curve, as it were.

      One small, fugitive hope for stable money proponents…the Fed did let hundreds of energy companies go to the BK blade from 2015 to date, without mounting a Desert One style rescue mission.

  16. Fred Flintstone says:

    If we do not raise the limit for the payroll tax massively or some other revenue producer, raise the pay roll tax for medicare and most importantly cut defense massively we will not survive. Even moderate republicans should be in a panic to do something. There will be a political revolution without action which will not favor them. For example…..forced to choose between having no rifle or having a twenty percent cut in benefits…..folks always choose their pocket book.
    Our congress folks all know this…….a game of chicken is being played.
    Thinking that benefits will be cut is fantasy……. soon over 25% of the US population will be receiving benefits, another 10% will be within 10 years of receiving benefits. Those under 18 do not vote and the 18 to 30 year olds have low turnout …… of the voting population over 50% will be social security sensitive in a strong way.
    Somebody better do something soon or it is going to get real messy real fast.

    • Portia says:

      They’ll do their best to burn it all down and up as fast as they can, I am sorry to believe. And they will jawbone to allay suspicion that this is what they are up to. The Coronavirus taskforce was disbanded, but that didn’t go over, so now it is a thing again (really?). The PR tax cuts are something Arthur Laffer was pushing when he had the ears of the WH in early April. I wish I did not think we are so screwed, but I don’t see “Somebody” coming along and doing what needs to be done to stop the Extinction Brigade, but I don’t see those tax cuts happening yet.

    • WES says:


      I know it is hard to believe but the Fed still hasn’t yet run out of fools to fool!

  17. Tony says:

    so….what you’re sayin is….if you cross the streams, life as we know, will stop. A total protonic reversal?

  18. andy says:

    CEOs do buybacks so they have stocks to sell when market hits bottom. It’s counter-intuitive for non-CEOs.

    • Saltcreep says:

      Those stocks aren’t for crudely selling on the market to the hoi polloi, Andy, they’re intended to back all those stock options remunerations used to compensate the CEOs for their incredible performance in eviscerating equity! And the buy-backs are to ensure that same CEOs can offload their compensation packages back into corporate treasury at a nice gain, to be loaded up for their next round of compensation.

  19. Fat Chewer. says:

    There goes my superannuation fund. I still can’t believe that even though they know that it’s worthless junk, they still buy it. There is not even very much yield. Apparently there are laws which force them to buy it. That law needs to be repealed immediately. Idle capital does the devil’s work. How long will it be until we can all invest in something worthwhile?

  20. Mike says:

    I find more and more I’m taking my pulse to find out if I’m still alive in this insane world.

  21. NotBogle says:

    Hussman seems to be under the impression that the Fed buying junk is illegal, because only Congress has fiscal power.

    • Wolf Richter says:

      The Fed isn’t buying junk. The Fed lends to the SPV (which is an LLC, a corporation) and the SPV buys junk. That’s the fig leaf the Fed is using, and that Congress encourages it to use.

      • sunny129 says:

        Is SPV a proxy for the Fed to trade on bond ETFs? For deficit spending-addict Congress, whatever needed to continue deficit spending. they could care less, imho!

        What about the new CCF? Is it operational or pending?

        ‘ It was technically illegal for the Fed to do this as the Federal Reserve Act of 1933 expressly forbid the Fed from buying corporate bonds and other risk-assets.

        The Fed got around that legislation by setting up a credit facility with the Treasury called the Corporate Credit Facility of CCF (there are actually two of these now, one for buying investment grade corporate bonds and the other for buying corporate junk bonds).
        In its simplest form, the Fed would print new money and then funnel this money into the credit facility. The Treasury, not the Fed, would then take the money and use it to buy corporate bonds and corporate bond ETFs on the open market.

        Looking forward to your reporting on this issue – what’s on Fed’s balance sheet!?

  22. MC01 says:

    Here is what happens when a junk-rated debt queen meets the day of reckoning and needs bailing out.

    On Tuesday one of my polemic idols, Norwegian Air Shuttle (NAS), reached an agreement with creditors.
    $1 billion worth of securities will be converted in equities. NAS stocks have been circling down the drain for a while but creditors had a choice between being left with nothing and with nearly nothing.
    Existing shareholders will be further diluted by the issuance of $30 million worth of new stocks which will be priced at NOK1 each, or a 79% discount on the Tuesday stock price: they should be left with about 5.5% of the company.
    This will allow NAS to further tap a NOK3 billion ($300 million) lifeline extended by the Norwegian government: NAS had spent about 10% of it before popular uproar in Norway forced the government into demanding a debt restructuring deal before handing over more money.

    NAS is basically a dead man walking: even in the best case scenario they won’t be able to resume flying for a year outside of a few token flights in Norway to keep on tapping into that lifeline. By comparison Wizz Air has already restarted a small number of flights and Ryanair will surely do the same as soon as Michael O’Leary gets what he wants from governments or understands that spring has run dry.
    NAS was a “momentum company” that was able to keep on issuing equities and securities to fund its cash-burning model by flashing around big growth numbers. Those big growth numbers are now gone for good: regardless of when air travel will recover, NAS won’t be there to grab a share of it.

  23. Kasadour says:

    The FED announces “funding secured” and everyone comes running like Pavlov’s dogs.. Where’s the SEC when you need it?

    Moody’s and S&P are reviewing companies for downgrades- Moody’s already targeted 311 companies for downgrade with more to come. When, not if, the FED follows through with TALF, it’ll end up holding mountains of worthless paper.

  24. NAS is basically a dead man walking: even in the best case scenario they won’t be able to resume flying for a year outside of a few token flights in Norway to keep on tapping into that lifeline.

  25. Lisa_Hooker says:

    “I will gladly pay you Tuesday for a hamburger today.”

  26. Raymond Rogers says:

    From what I understand the FED had an intent buy those junk bonds in May. The problem is that if they buy across the board, there are too many companies to cover, and spreading the money evenly will not help out any particular company’s books.

    So then if these companies declare chapter 7 bankruptcy then the FED may actually end up with other assets (worth a small fraction of what was given by the fed). Then I guess the FED has a yard sale?

    • BuySome says:

      “I must have mis-understood. I thought you were selling your yard and the neighbor, his garage! All I see is a bunch of old clothing and household goods.”

  27. Sound of the Suburbs says:

    The economics of globalisation has always had an Achilles’ heel.
    In the US, the 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics.
    Not considering private debt is the Achilles’ heel of neoclassical economics.

    When you use an economics that doesn’t consider debt, debt looks like the solution to every problem.

    • sunny129 says:

      It ALSO has been ‘debt based consumption’ and also trying keep up the style of ‘middle class’ life style for the majority of bottom 60-80% of the society since late ’80s. No significant wage-growth since then either.

      DEBT has been used as a panacea for ALL the financial problems in the public and private sectors, world wide, resulting in the current, 3rd largest ‘everything’ bubble. In fact this was supposed to be cure for the two, previously busted bubbles! Now Fed’s in the creation of the 4th bubble, as a cure, again!

      • Concerned American says:

        And our wonderful Fed’s solution to this current crisis is to blow an even bigger debt bubble. But watch out. Once this new debt bubble blows there will be one heck of an explosion.

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