Under the outbreak, the federal reserve has taken a series of measures.

On April 9, 2020, the federal reserve announced a new $2.3 trillion credit rescue program.Purchases of corporate bonds and corporate loans for large corporations are capped at $750 billion (PPMCCF and SMCCF);Asset purchases of loans to smes are capped at $600bn (MSELF and MSNLF);The bond-buying program for local governments is capped at $500 billion in Municipal Liquidity facilities;The asset-backed securities purchase program, which mainly targets loans to families and small businesses (student loans, car loans, credit card loans, etc.), is capped at $100 billion (TALP).The wage protection program for employees, run by the federal small business administration, provides $350 billion.That adds up to just $2.3 trillion.Notably, these assets are outside the traditional Treasury purchases.

Even compared with the huge assets already in place, the size of the rescue plan is staggering.But the scope, not the scale, was the main feature of the operation.The credit for the bailout includes households, small and medium-sized enterprises, large enterprises, state and local governments, and basically all entities in the real economy.In terms of tools, the fed's asset purchases this time have expanded to include corporate loans, corporate bonds and municipal bonds.The fed also bought debt issued by fannie mae and Freddie MAC during the 2008 financial crisis. It also bought some mortgage-backed securities (which fannie mae and Freddie MAC are required to guarantee), but most of its purchases were of Treasury bonds.The sale of troubled assets ($700 billion) was made by the Treasury (through TARF), not the federal reserve.It is not hard to see that the fed's asset purchases this time are a big break from the past.

Moreover, the fed is no longer restricted to buying from the secondary market, but can participate in the primary market (that is, lending directly to desirable borrowers), giving it the ability to directly feed the real economy.Buying from the secondary market is equivalent to giving blood to financial institutions, but whether financial institutions are willing to give blood to the real economy again, that is, to lend money to the real economy, is beyond the fed's control.From 2008 to 2015 end of quantitative easing, the fed's balance scale to nearly $five trillion, but a slow recovery, the most important reason is that financial institutions after gaining a lot of money from the federal reserve, not to expand credit loans to the real economy, it is mainly from the United States bank assets you can see clearly.It is unprecedented for the fed to reverse course and pump money directly into households and businesses on a massive scale.

In many people's minds, the high point of the fed was under Alan greenspan, even though the near-legendary fed chairman took some of the blame for the 2008 financial crisis.But in my view, under successive "boring" fed presidents, the fed's ambitions have changed.Instead of relying on the fed chairman's inspiration, as in "greenspan," it has become capable of lending directly to households and the economy on a massive scale.In a sense, the fed is now both a central bank and a commercial bank.This is a qualitative change, and we are witnessing an unprecedented large-scale experiment by the central bank.

Our economic activity can normally be well organized through a spontaneous market order.However, in the face of some huge shocks, it can be severely disrupted, and although markets have a self-healing function, the process of repair can be painful and lengthy, and people may lose confidence in the market economy in the process, as we have seen many times in history.The novel coronavirus forced the suspension of some economic activities. However, people in these industries would be severely affected, and their deteriorating financial situation (such as the inability to pay the mortgage) would affect other sectors, such as the financial system, and then affect the whole economy.At this time, it is necessary to mobilize the national forces to carry out systematic relief.The market economy works well in the product market, but the monetary system and the capital market are highly unstable factors in the process of economic coordination. The modern market economy is inseparable from it, but it sometimes ACTS like a wild beast out of control.We saw its destruction in 2008, with no more than $1 trillion in subprime mortgages, no more than $300 billion in real losses, but it shook up the world economy and took a long time to recover.

But the implementation of the fed's plan also faces daunting challenges, not least how to address nepotism in the allocation of funds.Historically, the fed has restricted its purchases of assets to Treasury bonds to avoid interest payments.To lend to thousands of businesses these days, you can imagine the administrative difficulties in the middle.The fed has taken the approach of using private financial institutions, through which the vast majority of its loans are made.On the issues of information disclosure, incentive mechanism, accountability and supervision, congress, the Treasury Department and the federal reserve have set up corresponding agencies and measures.Thanks to better transparency and the rule of law, the plan seems to be working.