The Fed’s Ticking Timebomb

The consequences of monetary policy decisions made prior to, and during, the Covid crisis are beginning to present themselves, evidenced in part by the vicious cycle of the Fed purchasing billions of dollars worth of securities to maintain market liquidity while simultaneously selling a staggering $992 billion of reverse repos as banks scramble to reduce liquidity for quarter’s end (1).

This unhealthy mix of policies has effectively trapped the Fed between a rock and a hard place, as the slightest attempt to normalize market conditions now threatens to burst one or more of the massive asset bubbles their policies have created (2).

Experts warn the current market equilibrium interest rate is insufficient to support the debt to GDP ratio, with further questions as to whether the US economy can sustain positive GDP growth sans the yearly trillions in stimulus. Analysts also have raised concerns over the Fed possibly repeating its ”ghost of 1937” disaster —which was salvaged only by the US entering WW2— by raising rates before the economy is fully recovered and thereby once again pushing the US into economic depression, leaving an all out war as the only (historical) means left with which to rectify what would be a monumental error in judgment (3).

Despite the apparent predicament the Fed is in, they remain with their head in the sand, promising the world that all is well (4) —albeit finally realizing (admitting) how insufficient their monetary policies are at supporting the economy and balancing the polarizing social and economical inequality their policies helped create (5).

 

References

  1. Do We Hear A Trillion: Fed’s Reverse Repo Hits Record $992 Billion, Up $150 Billion In One Day

  2. Albert Edwards: The Fed Is Trapped In An Epic Bubble, It Can Never Normalize Rates Again

  3. Powell Just Made A Huge Error: What The Market’s Shocking Response Means For The Fed’s Endgame

  4. Multi-Trillion Funding Squeeze On Deck Once Fed Greenlights $140BN In Bank Buybacks Today

  5. BofA: The Fed Finally Conceded That $4BN In Daily Asset Purchases Does Not Reduce Social Inequality