They started to change in 2008, when Congress and the Federal Reserve threw unprecedented money at the economy to keep it from collapsing.
They’ve done it again this year, with even more money. Trillions and trillions of dollars. It was a huge debate in 2008. It’s much less controversial today.
My theory is that once a new kind of stimulus is tasted it becomes a permanent feature of how downturns are handled.
This isn’t about the technical details of stimulus.
It’s not even about whether you think it works.
It’s about the perceptions of struggling people who demand something be done, and their knowledge of what can be done.
Morgan Housel proving once again why he’s one of the best writers and thinkers in finance – now that we’ve all seen the vast capabilities of the Fed and Treasury working together to throw money at an economic catastrophe, the pressure will be on future Feds and Treasurys to not repeat this playbook. Politically, it will be more difficult to make the case for not throwing checks at everyone.
A bell can’t be unrung and a bomb can’t be undropped. Grappling with the future implications for a world in which everyone’s seen rapid, massive stimulus in action – that’s your job as an allocator now. Because they won’t unsee it and they won’t forget it’s an option for the next time things get bad. What does that mean for investor psychology? Market multiples? Business models? Risk taking? Prices? Confidence? Expectations?
The game has changed. We are on the other side of something extraordinary, into what new sort of game, we cannot know.
It’s one thing if people think policymakers don’t have the tools to fight a recession. But now that everyone knows how powerful the tools can be, no politician can say, “There’s nothing we could do.” They can only say, “We chose not to do it.” Which few politicians – on either side – wants to say when people are losing jobs.