Desperate Fed: Reveals Massive Debt Monetization Scheme
DEBT MONETIZATION IS HERE TO STAY
A decade has past since Ben Bernanke, chairman of the Federal Reserve, insisted that they were not going to monetize debt with their printing press. Now the new reality is finally coming out and it is not pretty. The Federal Reserve has now come out and said they are going to provide unlimited liquidity within the credit markets. This is known as DEBT MONETIZATION. Also known as currency debasement.
The Federal Reserve has no plans to reverse any of its monetary expansion or even wants to consider deflating the monetary supply, as inflation of the monetary supply is the only tool in the toolbox the Keynesian economists running the Federal Reserve know of. They would rather keep inflating the monetary supply while pretending/hoping that it can revive the economy. Of course monetary inflation does nothing to revive the economy. If it were the case Japan would be well on its way to a healthy economy, as they have pursued endless amounts monetary inflation through various forms for over 20 years with absolutely no success. It has been very evident that monetary inflation is little more than pushing on a string within the economy.
Furthermore we are now witnessing the negative consequences of overloading the economy with unsustainable levels of debt as a cascade of institutions, governments, individuals, pension plans and corporations are spiraling towards catastrophic failure. Bond rating agencies are down grading corporations at a record rate and it will only get worse in the weeks to come.
After maintaining monetary policies which encouraged a massive increase in corporate debt the Federal Reserve kept insisting there was no real risk to the financial system, even while their were many red flags to suggest otherwise. Month after month levels of corporate debt kept surging higher, surpassing the corporate debt levels of the last financial crisis of 2007. After a decade of maintaining policies which encouraged corporation to load up on more and more debt as a means of inflating a new debt bubble, we have reached record levels of debt throughout the economy.
Global debt was allowed to reach levels of extreme risk, which was been completely ignored by the powers that be, including central banks who implemented the policies which allowed this debt bubble to occur. Of course this debt bubble does not only include corporations, but also includes consumers and governments of the world, loading up on massive levels of debt. The average US consumer has nearly no savings but instead a massive debt burden, as they were encouraged to live for the now. Spend, spend spend for today and don't worry about tomorrow. Well tomorrow has arrived and there is a dearth of savings to protect the American public. The world drank a ton of the cheap money elixir the central banks were promoting and in the process got the people extremely drunk on cheap money and the Fed induced debt expansion.
The Federal Reserve has no plans to reverse any of its monetary expansion or even wants to consider deflating the monetary supply, as inflation of the monetary supply is the only tool in the toolbox the Keynesian economists running the Federal Reserve know of. They would rather keep inflating the monetary supply while pretending/hoping that it can revive the economy. Of course monetary inflation does nothing to revive the economy. If it were the case Japan would be well on its way to a healthy economy, as they have pursued endless amounts monetary inflation through various forms for over 20 years with absolutely no success. It has been very evident that monetary inflation is little more than pushing on a string within the economy.
Furthermore we are now witnessing the negative consequences of overloading the economy with unsustainable levels of debt as a cascade of institutions, governments, individuals, pension plans and corporations are spiraling towards catastrophic failure. Bond rating agencies are down grading corporations at a record rate and it will only get worse in the weeks to come.
After maintaining monetary policies which encouraged a massive increase in corporate debt the Federal Reserve kept insisting there was no real risk to the financial system, even while their were many red flags to suggest otherwise. Month after month levels of corporate debt kept surging higher, surpassing the corporate debt levels of the last financial crisis of 2007. After a decade of maintaining policies which encouraged corporation to load up on more and more debt as a means of inflating a new debt bubble, we have reached record levels of debt throughout the economy.
Global debt was allowed to reach levels of extreme risk, which was been completely ignored by the powers that be, including central banks who implemented the policies which allowed this debt bubble to occur. Of course this debt bubble does not only include corporations, but also includes consumers and governments of the world, loading up on massive levels of debt. The average US consumer has nearly no savings but instead a massive debt burden, as they were encouraged to live for the now. Spend, spend spend for today and don't worry about tomorrow. Well tomorrow has arrived and there is a dearth of savings to protect the American public. The world drank a ton of the cheap money elixir the central banks were promoting and in the process got the people extremely drunk on cheap money and the Fed induced debt expansion.
The Fed was hosting a massive debt party and what a party it was. We haven't seen such a debt party since the 1920's. Over the past number of years we have witnessed the effects of cheap money. Stock markets boomed and bond markets were surging to incredible highs on the back of cheap money. Everyone was feeling so good watching the markets go up and up on a daily basis. You could almost hear the happy music of the 1920's.
Much of the market expansion was the result of mass monetary injections by the Fed, both directly and indirectly by allowing firms to borrow money at rates below market equilibrium. In short the invisible hand was prevented from keeping the market in balance. Instead we got a massive debt bubble fueling a massive equity bubble and good times was had by all, or at least all the people who were wealthy enough to profit from the monetary inflation.
Much of the market expansion was the result of mass monetary injections by the Fed, both directly and indirectly by allowing firms to borrow money at rates below market equilibrium. In short the invisible hand was prevented from keeping the market in balance. Instead we got a massive debt bubble fueling a massive equity bubble and good times was had by all, or at least all the people who were wealthy enough to profit from the monetary inflation.
Major corporations were borrowing billions and billions year after year, not to buy capital infrastructure such as factories or machines , but instead to finance massive share buybacks as executives were focused on their bonuses. This is an important fact that people need to realize. Major corporations loaded up on massive debt to buy back shares, which pushed up the price of stocks, but did nothing for the company in question in terms of competitive operations. These executives left their businesses over burdened with debt and without any form of a rainy day account in case things turn downwards, knowing the taxpayer would bail them out if things got bad. In the end the executives made massive bonuses due to the rise of share prices, while the tax payers will get the bill for failed business models.
A prime example of this reckless behavior is Boeing who has become the poster child of corporate malfunction. This is a business that has been farming out many of its core operations offshore as a means of cutting costs while unfortunately also seemingly lowering quality control, which allowed the 737 Max to be sold ....but what about all those savings. That must be a good thing right? In fact if the high quality of the product was maintained and those savings were poured back into the company it would have been a great thing.
Unfortunately that did not happen. Boeing used those savings along with the addition of massive amounts of debt to conduct share buybacks. Today Boeing is on their hands and knees, mere weeks after the COVID-19 took hold, begging government for a bailout as they are at the edge of bankruptcy. Of course the Fed will bail them out because that is what the Fed has turned into. A free money bailout machine.
Unfortunately that did not happen. Boeing used those savings along with the addition of massive amounts of debt to conduct share buybacks. Today Boeing is on their hands and knees, mere weeks after the COVID-19 took hold, begging government for a bailout as they are at the edge of bankruptcy. Of course the Fed will bail them out because that is what the Fed has turned into. A free money bailout machine.
The Keynesian economist disaster of encouraging massive debt expansion has left the markets extremely vulnerable as they were inflated to astronomical levels even while the economic fundamentals did not support it. The markets became extremely dependent on cheap money and debt expansion to survive. If the economy was not continuously infused with so much cheap debt we would have quickly seen what was mistaken for strength in the economy was in reality nothing more than an illusion.
Of course if you lend anyone a ton a cheap money, with little to no conditions, they will have the ability to appear pretty wealthy in the short term. The problem comes when it is time to unwind this debt. There is simply no way to do this for a huge segment of the US economy. It is saddled with huge amounts of debt that can not be paid back. In fact when it came to the point that the injection of cheap money slowed down the Keyesian debt bubble system became very unstable. An example of this was witnessed back in mid 2017 when Janet Yellen and the Fed tried to convince us they could normalize without incurring any problems. They said it was on auto pilot. They said it would be as boring as watching paint dry. Of course this did not turn out to be the case. You can not tapper a Ponzi Scheme.
The current market instability started to appear in the summer of 2019. The Fed begun sudden repo operations in earnest back in September 2019. They insisted it was only a very short term temporary action to inject some liquidity to the markets. It would only be a blip in an otherwise strong and healthy economy. Of course as time went on the repo operation just grew bigger and bigger, week after week and then month after month and what was said to have been a short term temporary action has in reality turned into a longer term permanent action.
Cracks of the debt bubble started to appear then, and even while the Fed insisted this capital injections were not a form of QE, it was in fact another form of capital injection of monetary inflation by the Fed. Call it what you will. It was a form of expanding the Fed's balance sheet. It was the start of yet another round of debt monetization. The purchasing of assets (see: debt) by the Fed is exactly what it is, using money printed out of thin air as a means of keeping the debt bubble from collapsing. This course of action by the Federal Reserve was taken long before the COVID-19 virus was an issue. By the end of the 2019 the Federal Bank's balance sheet was expanding again at a rapid pace. So let's keep this reality in mind as we watch the grand debt bubble collapse further today and the days and weeks ahead.
Cracks of the debt bubble started to appear then, and even while the Fed insisted this capital injections were not a form of QE, it was in fact another form of capital injection of monetary inflation by the Fed. Call it what you will. It was a form of expanding the Fed's balance sheet. It was the start of yet another round of debt monetization. The purchasing of assets (see: debt) by the Fed is exactly what it is, using money printed out of thin air as a means of keeping the debt bubble from collapsing. This course of action by the Federal Reserve was taken long before the COVID-19 virus was an issue. By the end of the 2019 the Federal Bank's balance sheet was expanding again at a rapid pace. So let's keep this reality in mind as we watch the grand debt bubble collapse further today and the days and weeks ahead.
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| Total Assets of the Federal Reserve - $4.66 T as of March 18, 2020 |
As we moved into 2020 the Corona Virus started to take hold and cause further economic strain on the global economy the Fed was already trying to stabilize asset purchases of newly printed money. The Fed has since reacted with 2 emergency rate cuts bringing us back down to a Fed Funds Rate of 0.0% to 0.25%. In addition they have announced massive injections of more money into an already over leveraged system.
IN REALITY THE FED HAS ONLY ONE MOVE
The Federal Reserve has made several announcements of massive injections of money over the past month. The system continues to unwind as the debt bubble is giving way. The Fed has introduced massive money printing operation after massive money printing operation. Debt Monetization is in full swing. Currently they are printing an additional 125 Billion dollars a day. Let that sink in. In short this is pure DEBT MONETIZATION, as the Fed gets more and more desperate to prevent their massive debt bubble from imploding.
As of March 18, 2020 the Federal Reserve's balance sheet was at 4.66 TRILLION DOLLARS and it is growing rapidly in almost daily jumps in additional capital injections are required to keep the debt bubble going. It is expected to exceed 5.2 TRILLION DOLLARS in the coming days.
We are in the era of massive Debt Monetization and Currency Debasement. This is the behavior of a desperate central bank of a nation with a greatly weakened monetary system. It is no surprise that more and more people are protecting themselves with non fiat based money.
