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The Fed is now engaging in the most horrendous money ‘printing’ in world history

Posted by John T. Reed on



Soft-peddle headline in the WSJ reveals monster money printing by fed.
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There is one agency of the Federal government that is responsible to prevent inflation or deflation: the Federal Reserve Bank. No other agency has any authority, tools, or responsibility for the stability of the US dollar.
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The headline is “Fed Breaks Its Taboos To Prop Up The Economy.” Google it to read it.
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The proper role of a central bank was established by Walter Bagehot. Walter Bagehot ( 3 February 1826 – 24 March 1877) was a British journalist, businessman, and essayist, who wrote extensively about government, economics, literature and race. He was the editor of The Economist for 17 years.
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His book Lombard Street: A Description of the Money Market (1873) set forth his dictum on central banks. The Fed is a central bank. Lombard Street in London, England is the British equivalent of the symbolic meaning of Wall Street in America.
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Bagehot’s dictum is
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"to avert panic, central banks should lend early and freely (i.e. without limit), to solvent firms, against good collateral, and at ‘high rates’"
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Panic means a run on the bank. Those were depicted in two Hollywood movies: It’s a Wonderful Life and Mary Poppins. A run on a bank can cause baseless financial difficulty for that bank and it customers. Withdrawals imply that all the banks assets are liquid. They are not. Central banks can provide liquidity that prevents a solvent bank from failing due to customers demanding liquidity that, by definition, renders the bank’s legitimate business model—lending out many deposits—nonviable.
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Bagehot’s dictum lets the central bank lend the bank that is the subject of a run borrow all the money they need to give depositors who demand it, their money back. The Fed takes good collateral for these loans. Solvent banks have good collateral. So the Fed saves the bank from the run by simply lending them the money to fund withdrawals and the Fed gets paid back by the good borrowers on the loans in question.
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It makes sense.
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The Fed also has the duty to supply enough money to enable the economy to function and grow like nail manufacturers need to provide enough nails to building houses and more nails when the nation buildings more houses.
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They must hit a Goldilocks amount of money supply: Just right. If they provide too little as in the 1930s, they create a depression.If they provide too much, as the central banks in Germany and Austria did in the 1920s, you get hyperinflation.
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The Fed is currently “printing” money as if they did not give a DAMN about hyperinflation risk.
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The Fed is ignoring Bagehot’s dictum. It is lending to non-banks at low, not high, rates and with crap collateral. The Journal article say they are supposed to be independent, but are moving into politics, namely keeping the Oval Office incumbent in power.
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The Fed’s portfolio of bonds “purchased” with money conjured out of thin air used to be in the one trillion dollar range. Now they are heading to $8T to $11T. Here is a graph of the Fed balance sheet and the price of gold.
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https://www.macrotrends.net/…/fed-balance-sheet-vs-gold-pri…
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You can see the two prices moving together before 2013 then the Fed going nuts thereafter. And the right-hand side of the graph is not showing the Journal’s $8T to $11T. It is only showing up to April 2020. This is frantic money “printing” to keep Trump in power.
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The Journal points out that these new heights are double those of the 2009-9 subprime crisis and represent HALF of THE ECONOMIC ACTIVITY of the United States. Half of the economic activity of the US is the Fed conjuring money out of thin air to “buy” bonds that no one with real money wants to buy! No such thing happened in either the Great Depression or World War II. Keeping the Oval Office incumbent in power with legal counterfeit money is now considered a higher priority than ending the Great Depression or winning WW II, at least as far as the money being spent to achieve the goal is concerned.
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The graph in today’s Journal story is also quite shocking.
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It is true that the Fed has been given responsibilities that are in addition to and that conflict with the sound money responsibility, namely managing prosperity and unemployment. But to me all that is is an excuse to not fulfil their duty to preserve the stability of the dollar.
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How much bigger is the money “printing” now? during the outrageously inflationary “Quantitative Easing” in 2012 to 2014, the Fed “printed” $85B a month. In the last month or so this year, they have “printed” $2.37T —28 times as much!
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The Fed “printed” money in advance of the 1972 election to help Nixon win his extreme landslide victory and we got the high inflation of the 1970s and early 1980s.
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It used to be that politicians were afraid of monetary instability—inflation or deflation (depression). Now, barely a word about that danger is heard.
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https://www.johntreed.com/…/john-t-reed-s-book-on-hyperinfl…

MACROTRENDS.NET
This chart compares the monthly percentage growth of the Federal Reserve balance sheet (U.S. Treasuries and Agency MBS) against the price of gold back to 2004.

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