Now that Super Tuesday is over, let's check out the excitement in the stock and bond markets.

First the Stock and Bond Market News

1. Over the last few days, the SP500 has gone down around 12%.

2. The price of long-term bonds (i.e. 10YR Treasury bonds) often goes up when the stock market goes down. When people take their money out of the stock market, they have to put it somewhere. If they are really afraid, they put it all into cash. But, more often, they put it into bonds. This drives the price of bonds up and the yield on bonds down.

• As of Feb 14, the yield on the 10YR Treasury was at 1.59%
• As of Feb 28, it was at 1.13%.
• Now it's at 1.00%. 

3. When the yield on LT bonds goes down, the Fed may push the yield on ST bonds down even further.

• On 2/20/2020, the 3mo TBill was at 1.55%. 
• On 2/28/2020, it was at 1.25%.
• Now it's at 1.00%.

Now for some analysis

When the yield curve inverts (i.e. when 10YR Treasury yields are below 3MO TBill yields) that's very bad for banks. It's also a sign that a recession is in the offing.

Now, I don't want to mention any names here. But, hypothetically speaking, if I were up for re-election then I wouldn't want the stock market to crash in the month's leading up to the election. Similarly, if I were the Fed Chair and I wanted to please the president who put me there, then I wouldn't want the stock market to crash either.


Also note that the Fed's power to lower short term nominal interest rates goes away when nominal interest rates reach zero-percent. This is one reason why I've suggested that we put the technocrats at the Fed in charge of what I call Robinhood Fiscal Policy.

In short, the idea is to give the Fed the power to stimulate aggregate demand by giving them the authority to tax the rich and subsidize everyone else (or at least lower income consumers and poor).

References

Let's Put the Fed in Charge of Robinhood Fiscal Policy
https://innovationmemes.blogspot.com/2020/02/lets-put-fed-in-charge-of-robinhood.html