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IPFS News Link • Federal Reserve

The Fed Has No Way Out

• https://www.zerohedge.com, Via SchiffGold.com

In fact, it never could extricate itself from the extraordinary monetary policy it launched during the Great Recession. Today, we're merely witnessing the same policy on hyperdrive. And there is still no way out.

After blowing up its balance sheet to over $4 trillion during the Great Recession, the Fed tried to pull back. Through quantitative tightening, the Fed managed to get it down to just over $3.7 trillion before the stock market tanked in late 2018 and the central bank abandoned its plans to normalize monetary policy. At that point, it ended balance sheet reduction and dropped interest rates three times the following year. Not only that, it relaunched quantitative easing, although the central bankers kept insisting it wasn't QE.

Most people assume the Fed started growing its balance sheet again as an emergency measure in response to the COVID-19 pandemic. But the balance sheet was already back over $4 trillion before coronavirus even reared its ugly head. The pandemic pressed the easy-money accelerator to the floor and today the Fed balance sheet is over $7 trillion

Since 2008, the Federal Reserve and the US government have pumped more than $36 trillion into the US economy. But they have "bought" very little in terms of economic growth with all that massive "investment." The Fed has pumped in roughly $12 of liquidity for every $1 of economic growth.

You see this cycle more clearly if you go back to 1999 at the height of the dot-com bubble. Each boom created by the Fed's monetary intervention has failed to attain the level of economic growth seen in the previous. In other words, as the level of money printing rises during each crisis, the level of growth in the preceding boom falls. Just like the addict suffers diminishing returns and needs more and more of his drug to get him high, the economy needs more and more stimulus simply to maintain the currently tepid level of economic growth.


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