When governments started locking down economies in response to the coronavirus pandemic, the Federal Reserve sprung into action. The central bank immediately cut interest rates to zero and launched what we’ve called “QE infinity.” Since then, the Fed has ballooned its balance sheet by nearly $3 trillion and increased the money supply at a record pace. Along the way, Powell and Company signaled they were surrendering to inflation, moving the inflation targeting goalposts to allow for the inevitable increases in consumer prices. Meanwhile, the federal government has run the national debt to over $27 trillion.
The question is how long can this go on?
How long will the Fed continue this extraordinary monetary policy? Or as economist Pavel Mordasov phrased it, “How long can the Fed keep this timebomb from exploding?”
In the following article, Mordasov provides a bird’s-eye view of the Fed’s moves and tries to answer the question — even as the fuse continues to burn.
The following article by Pavel Mordasov was originally published at the Mises Wire. The opinions expressed are the author’s presented for your consideration and do not necessarily reflect those of SchiffGold or Peter Schiff.
Since the outbreak of the coronavirus, the United States has experienced one of the most unprecedented economic interventions in all of its history. Since March and April both the Federal Reserve and the US federal government have injected trillions into the economy in hopes of stabilizing it and reducing unemployment. At the expense of the public, both institutions have handicapped themselves for the future, and it will be extremely difficult to ever return to a “normalized” policy situation without triggering a larger economic crisis.
On February 11, 2020, Federal Reserve chairman Jerome Powell delivered a semiannual report wherein he laid out the present risks that both the Fed and the federal government face. Some of the risks addressed were low interest rates spurred by the Fed and burdensome debt from the federal government that would limit the ability of both institutions to provide the necessary stability when an economy goes into a downturn. By the next day, the Dow Jones had reached an all-time high of 29,551.42. The rise in equity prices sparked confidence in the market and, for the most part, overlooked the risks that the coronavirus had in store for both the nation and the world.
Source: SchiffGold
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