Very quickly we may be seeing the Federal Reserve’s balance sheet reach $7 trillion! That’s a big number. What’s crazier is we may see it reach $10 trillion by the end of the year…
This is happening due to the purchase of corporate bonds, municipal securities, and loans made to medium–sized businesses to the tune of $2.3 trillion. This does not include PPP programs or any other programs initiated during Covid-19. Prior to Covid-19 the federal reserve had been injecting money into the markets for most of 2019 by way of their “quantitative easing” initiatives and resulted in roughly $4 trillion.
It seems it does not matter who the face of the chairman to the fed is but the solution to our economic problems is always the same. Throw some more money at it. I am not by any means as educated as these people we trust are but man, do I have my doubts in their ability to be our saviors.
The US economy has gone through several crashes in the past 40 years, the savings and loans crash of 89’, the Dot-Com bubble of 2000, and the housing bubble of 2008. All of which we solved by the federal reserve throwing money at what was unbeknownst to us, the next bubble. Since 1995 the Fed Funds’ interest rate has steadily gone down from 7% to our current rate which is .25%. All of these measures are sold to us for the purpose of saving us. Time and time again, they are saving us.
The consistencies I see are, the fed always has an answer, the answer seems to lead to the next problem. This leads me to the following question, is the bond market the next bubble? While we continue to be flooded by Covid-19 news and fear, the markets continue to operate. Investors continue to win and lose Covid or no Covid. The Dow Jones has crawled back up to close to $26,000 as of today. This is not reflective of our current business conditions, specifically when it comes down to shut-downs and restrictive measures to businesses like we saw with last week’s closure of stand-alone bars. It does not reflect the mounting defaults in mortgages, car loans student loans, and credit cards by the common citizen who has been out of work for 2-3 months with a family of 3. Even if they did receive a whopping $1200 to get them through 10 weeks.
The American public decided to take a chance with an administration partially because they made a great case for fiscal responsibility. Since 2016 we have gone from a national debt of about $19 trillion to $21 trillion. Our national GDP is $20.54 trillion, which means, our national debt is now more than our national income. While this is partly due to many of the administration measures during the past 4 years, the federal reserve is the real culprit. The Federal Reserve obtains its power to conduct these shadow monetary policies from congress. It does not need approval or oversight; it acts autonomously from any input of the people. So, if there is no accountability whatsoever, how can we know if they are our savior or our grim reaper?
Either way, I’m going to blow up some fireworks this weekend in celebration of our great country and all those who have served it. USA, USA, USA!!!