Tag Archives: Balance sheet expansion

Jubilee, by Robert Gore

Posted on August 9, 2020 | 11 comments

The debt dam is crumbling as central bankers and government officials frantically refill the escaping lake with eye droppers.

As background to this article, it would be helpful to read an article I wrote in 2015, “Real Money.”

The foundation of the world financial system is debt. Every currency in the world is debt whose value is not tethered to any real value. In a rare display of official truth-in-packaging, right there on the instrument itself a US dollar bill tells you it’s debt: Federal Reserve Note. A note is a debt. What do holders of Federal Reserve Notes, officially creditors of the Federal Reserve, get for repayment of the debt they hold?

Federal Reserve Notes have no maturity date, pay no interest, and can never be redeemed. If you go to a Federal Reserve branch and try to redeem one, they will either not accept it or they will exchange it for an identical Federal Reserve Note. Why would anyone accept this peculiar instrument? Because you cannot refuse it. Also right there on the dollar bill it says: THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE. For American transactions, it’s reject the dollar, go to jail. The American government even levies punitive measures on foreign governments that just say no.

Because central banks and governments can repay their debt with more of their own debt, they have been unconstrained in the amounts they produce. You and I would do the same thing if we were so empowered. Governments, central banks, and debt are a ménage à trois from hell. The US ménage has debased the currency’s value against real goods and services at least 95 percent since the establishment of the central bank in 1913. The ménage’s ill-gotten gains are someone else’s loss—gullible savers and creditors who believe promises by politicians and central bankers that they will not engage in the debasement they have every incentive to promote.

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Posted in Academia, Banking, Business, Collapse, Currencies, Debt, Debtonomics, Economics, Economy, Financial markets, Governments, Politics, Taxes

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Takeover, by Sven Henrich

Posted on April 13, 2020 | Leave a comment

The Fed’s frenzied balance sheet expansion is laying the groundwork for the next bubble, which will be even more detached from reality than the present one. From Sven Henrich at northmantrader.com:

We can’t print ourselves out of this crisis again, but that isn’t stopping the Federal Reserve from trying. Thursday’s intervention program, the latest in a string of panic moves to keep the financial system afloat, constitutes a complete takeover attempt of the market ecosphere, only the buying of stocks directly is last missing piece of eventual complete central bank control of equity markets. But seizing control of the bond market is the nearest equivalent step.

Not only that, the Fed is buying junk corporate debt propping up companies that should be let to fail as Chamath Palihapitiya pointed out poignantly this week. But not this Fed, no, with its actions it is again setting up the economy for yet another slower growth recovery, financed by even more debt.

QE doesn’t produce growth, that is the established track record:

Nobody wants to talk about the consequences to come following this crisis, but that doesn’t mean the consequences won’t be a real and present reality.

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Posted in Banking, Business, Collapse, Debt, Economy, Government, Uncategorized

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When Money Died, by Doug Noland

Posted on April 13, 2020 | Leave a comment

The consequences—economic, financial, and political—of the Federal Reserve’s massive expansion of its balance sheet will haunt generations to come. From Doug Noland at zerohedge.com:

Sitting at the dinner table, our eleven-year old son inquired: “If a big meteor was about to hit the earth, how much money would the Fed print?” I complimented his sense of humor. Yet it was a sad testament to the historic monetary fiasco that will haunt his generation.

Federal Reserve Assets surpassed $6.0 TN for the first time, having inflated another $272 billion for the week (to $6.083 TN). Fed Assets inflated an astonishing $1.925 TN, or 46%, in only six weeks. Bank of American analysts this week suggested the Fed’s balance sheet could reach $9.0 TN by the end of the year.

M2 “money supply” surged another $371 billion for the week (ending 3/30) to a record $16.669 TN. M2 expanded an unprecedented $1.136 TN over five weeks (up $2.123 TN, or 14.6%, y-o-y). For some perspective, M2 has expanded more during the past six months than it did during the entire nineties (no slouch of a decade in terms of monetary inflation). Not included in M2, Institutional Money Fund Assets expanded an unparalleled $676 billion in five weeks to a record $2.935 TN. Total Money Fund Assets were up $1.375 TN, or 44%, over the past year to a record $4.473 TN.

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Posted in Banking, Business, Collapse, Debt, Economy, Government

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With Heroes Like This, Who Needs Villains? by Michael Maharrey

Posted on March 29, 2020 | Leave a comment

Who knew that conjuring fiat debt from thin air was a heroic act? From Michael Maharrey at schiffgold.com:

According to Owen Ullmann in an op-ed published by USA Today, there are some unsung “heroes” in the battle against the coronavirus pandemic – the brave and courageous bankers at the Federal Reserve.

I think Ulmann misspelled “villains.”

Ulmann writes that the Fed “has taken extraordinary steps to prevent the global economy from crashing into irreversible catastrophe as business around the world grinds to a virtual halt.”

This is like praising the arsonist for trying to put out the fire he set by throwing more gasoline on it.

The Fed certainly has taken extraordinary steps. Just a few days ago, it announced QE infinity. It committed to buy an “unlimited” amount of US Treasury bonds and mortgage-backed securities. It also announced a new program to buy corporate bonds for the first time ever.

In Ulmann’s Keynesian wonderland this is fantastic news.

The Fed can create unlimited amounts of dollars — that’s right, trillions, if required — to ensure that banks have enough funds to make emergency loans to businesses large and small.”

Yes indeed. Printing new money out of thin air so companies, governments and individuals already drowning in debt can borrow more money is the prescription for saving the economy! Free money for everybody!

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Helicopter Money for Wall Street, by Wolf Richter

Posted on March 27, 2020 | 2 comments

In case you were worried that Wall Street might catch the coronavirus, fear not. An insane amount of central bank balance sheet expansion is meant to keep Wall Street feeling chipper. Time will tell if it does so. From Wolf Richter at wolfstreet.com:

Fed’s assets spike to high heaven to bail out the imploded Everything Bubble it had worked so hard to inflate over the past decade.

Total assets on the Fed’s weekly balance sheet, released this afternoon, spiked by $586 billion in one week, to $5.25 trillion. This doesn’t even include yet the bulk of the mortgage-backed securities (MBS) the Fed bought over the past two weeks because the Fed books them when its trades settle, and MBS trades take a while to settle. So they will show up later.

Over the past two weeks, total assets have ballooned by $942 billion – again not including the bulk of the MBS it bought during that time, which will be booked when they settle. Money creation at its finest:

If the Fed had sent that $942 billion it created over the past two weeks to the 130 million households in the US, each household would have received $7,250. But that didn’t happen. That was helicopter money for Wall Street.

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Posted in Banking, Business, Debt, Economy, Financial markets, Government

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