Scott Minerd, CIO of Guggenheim Investments contends

What could go wrong with my outlook? We are already in uncharted territory and another black swan might emerge in the midst of a very fragile market. Or a second-order event could create irreversible damage such as large default volumes in the emerging markets. Risks from reopening the economy are two-sided: State and local governments could ease up on lockdown restrictions, the spread of the virus could prove to be manageable, and the economy could come roaring back—unlike what we’ve predicted, which is more of a checkmark-shaped recovery than a V-shaped recovery. On the other hand, the easing of restrictions could lead to a second spike in the coronavirus that is even worse than what we have already lived through, leading to a new leg down for the economy and markets.

Another risk is the Treasury itself. The Fed will need to conduct another \$2 trillion of QE this year to keep the Treasury market functioning given the size of the deficit. Net coupon issuance for the rest of 2020 will approach \$1.5 trillion, and net bill issuance could add another \$2 trillion. There is just not enough available credit in the world to absorb all of these Treasury securities without crowding out other borrowers. If at some point markets begin to question the efficacy of QE, or the Federal Reserve is perceived to be behind the curve in making necessary asset purchases, we could very well get a tantrum in the Treasury market, which would likely spill over into a tantrum in corporate credit, and into the stock market.

  1. Is Minerd correct the world doesn't have "enough available credit" "to absorb all of these Treasury securities without crowding out other borrowers"?

  2. Has US Treasury publicly addressed this crowding out? Do they also think they'll crowd out private investments? If so, how will they counteract?

  3. Same question as 2, but for Federal Reserve?

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