The Fed is Going to Create the Mother of All Bubbles
The Fed just announced that it is going to attempt to create the Mother of All Bubbles.
Last Thursday, the Fed announced it would be providing $500 billion in loans to small businesses. In addition to this, the Fed announced it would provide $500 billion to local and state governments. And the Fed announced it would be spending an additional $1.3 trillion expanding various other programs it has already started.
So that’s $2.3 trillion in additional funding. To put this into perspective, this is larger than the GDP of Brazil.
This comes after the Fed has already announced it would:
- Make its quantitative easing (QE) program “unlimited.” Meaning it would simply print money and buy assets ad infinitum.
- Increase the scope of its QE program from simply buying U.S. Treasuries and mortgage backed securities to include:
- Corporate debt (debt issued by corporations).
- Corporate debt-related ETFs (stock funds linked to corporate debt).
- Municipal debt (debt issued by states, counties, and cities).
- Expand its money market QE to also include a “wider range of securities” including certificates of deposits (CDs).
- Expand its commercial paper QE program.
- Introduce a new QE program to buy any asset-backed security (ABS) including student debt.
- Soon begin a bailout program for small- and medium-sized business.
- Lower the interest rate on its repo programs from 0.15% to LITERAL ZERO (meaning NO interest charged).
So the Fed is now effectively backstopping every asset class on the planet.
The only thing left for the Fed to do is announce that it is going to begin buying stocks directly (though it is already doing this in the sense that it is buying corporate bond ETFs that trade on the stock market).
The Extreme Consequences of Extreme Policy
As a result of this, the Fed’s balance sheet has EXPLODED upwards by nearly $2 TRILLION (with a “T”) in the last six months. And that’s NOT including the additional $2.3 trillion the Fed said it would be printing to pay for its new monetary programs.
As I write this today, the Fed’s balance sheet is over $6 trillion in size. If the Fed was a standalone country, it’d be the third largest in the world behind the U.S. and China.
If the Fed balance sheet can hit $6 trillion, why not $8 trillion or even $9 trillion?
Back in 2017, I wrote in my book The Everything Bubble: the Endgame For Central Bank Policy that I expected the Fed’s balance sheet to hit at least $8 trillion. But by the look of things, it could go much higher.
Put simply, the Fed is printing a staggering amount of money. And it could induce the MOTHER OF ALL BUBBLES: a situation in which stocks go to EXTREME highs while the economy collapses.
I’ll outline how this will work in tomorrow’s article. Until then…
Editor, Money & Crisis