So over the last few months a lot has changed in the investment world, interest rates have plunged to zero, trillions of dollars have being printed into our economy to be able to lift it back to life, however throughout all of that, one thing has remained constant and that would be the Federal Reserve continued efforts to make sure that our economy does not entirely collapse and turn into a big pile of loop.
How in an unprecedented action that has never happened before in the history of history. The Federal Reserve is going to be buying an unlimited amount of junk bonds and inadvertently bailing out the stock market if people can get stimulus check, small business can get interest rates free money, big corporations can get billions of dollars, then why can’t the stock market get some of those coupon 100 and that’s what beginning to happen because early this month, News started coming out that the feds were about to buy corporate bonds and that can potentially change the outlook on the stick market once this happens.
So in this article, I’m going to be doing my best to explain exactly what they’re doing, why they’re going it, what this does to the stock market and then how this affects you and me.
And thus all starts have later this month, when the Federal Reserve announced that they would be purchasing unlimited assets in order to support the market and then literally since they say the market has slowly but surely began growing back in price.
Now if you’re confused what unlimited support to purchase assets means, well it’s really simple and here’s the gist of it, if the city or a company is in need of money, they can go an issue what’s known as a bond, which is a very fancy term for I owe you.
It’s just an agreement that days we’re going to be borrowing this much money and we’re going to pay you, this much in interest and we’re going to lay you back by this date, it’s really no different than your buddy Jimmy going back to you, asking to borrow a $100 and then promise he’ll pay it back $110 a week from now, that’s pretty much how bonds work as well, but what happens when your buddy Jimmy needs that $100 because he’s out of work and he needs to keep his business afloat and no one wants to lend him money because everyone is just holding on to their cash.
Then in that case your buddy Jimmy doesn’t get any money and with no money he might not be able to keep his business open, which means his business might shut down and other business that rely on his business might shut down and that could lead to a negative diminishing effect across the entire economy.
So From the Federal Reserve perspectives it’s in Jimmy’s best interest that he gets the $100 so that he can keep his business afloat and other business that rely on his can keep going and others can carry on as usual. Now I know that a very basic example about how binds works but in a way city, states and business Di the exact same thing and here’s how that works.
When companies need to take on some debt in order to stay afloat and expand, they do so by issuing bonds, which like I said Is $100, so when this begins spreading everyone else who ordinarily would have bought those bonds and let those companies Mindy basically just held their cash.
Well that’s not good for the company who just shut down, is in need of money and has bills to pay and if those bills can’t get paid it spirals into a loan for everybody, so the Federal Reserve stepped in and they said they would buy those bonds.
Now technically when the fed does this, they are issuing loans that at some point needs to be paid back but because they control the interest rates that they loan the money. They can pretty much give people interest free money and the deal is that those loans will help keep them and when the deal is done those loans and debt can be paid back.
It’s no different than you going to your parents for money and they give you a $100 and they just say, you know what don’t worth about it , just pay us back the $100 in the future and we’re good.
But when thus gets unusual is that big the feds will have to start buying corporate bonds, which us another word for saying they lend money to companies directly and not just to states and cites , and even more alarming they’re going to have to start buying corporate bonds. Which is another word for saying they’re lending money to companies directly and not just to states and cites.
Now there are chance of them being able to repay back those loans, this is also where some of the drama cones In because when it was announced on March 23, that the feds would provide unlimited resources to help companies and apparently each people concern so much that investing just begins pulling back into bonds because they felt it the feds going to be going and buying them, then they probable should too.
And that single message meant that once prole started buying bonds again, then there’s really no reason for the Federal Reserve to step in and actually the fed would step in to give companies money like this, if no one else is why to step in and give then money, but as soon as the fed says the unlimited bonds purchase, theirs is able to just back off and let the market do their thing again.
Now the fed can’t go and openly just by corporate bonds like this because if they do that directly it’s going to be in violating of the Federal Reserve act of 1913, which prohibits them from taking any direct ownership of any companies debt, so instead, they’re trying to circumvent the existing law by loaning money to a new company called special purple vehicle.

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