The printing press is running. The Fed did not wait until March 22 and launched the money pump at full capacity. The most powerful credit impulse in the history of the Fed is that more than $ 300 billion per week was issued to banks under various loan programs through the Fed. If you do not have the money pump but are willing to earn more you can always test your luck by playing live casino. And your chances to win will be way higher than in today’s stock market.
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In just one week, we neutralized 60% of the balance reduction program, which lasts almost 9 months! The very program that was announced and implemented was the Fed’s commitment to fighting inflation.
Madness Or Tactic
To measure the size of the monetary frenzy… this is often an unprecedented volume. During the COVID crisis, the utmost weekly injection on credit programs was a touch quite 80 billion. During the 2008 crisis, within the second week after the bankruptcy of Lehman, the Fed issued banks 146 billion.
This week, the Fed issued twice the maximum amount, which speaks volumes about the size of the opening within the banking industry.
After the bankruptcy of Lehman Brothers on September 15, 2008, the Fed gave banks quite $810 billion + $100 billion within the repo (repurchase agreement) over the course of nine weeks. And this is often all the help that was received during the foremost acute phase of the crisis. Additionally, over $500 billion was arranged through swap lines with foreign central banks to take care of dollar liquidity.
If we aggregate all categories of the Fed’s record, then in 2008, within the first three months after the collapse of Lehman, the accumulated assistance altogether amounted to about $1.3 trillion. Later this volume was replaced by the QE program in 2009-2010 by a comparable amount but at a way lower intensity.
The Covid crisis began to thrash with liquidity from the start of March, mainly through share buybacks. During the primary three months of the COVID crisis, within the most acute phase, $2.8 trillion was hammered in. Besides, securities plus $2.1 trillion, swap lines – $446 billion, loans to banks – $100 billion, loans to companies – $65 billion, bank REPO – $70 billion.
This time, under the new BTFP program, 12 billion were issued, 147 billion through a reduction window, and another 143 billion during a “secret” loan in cooperation with the FDIC.
How Might It End?
Well, it looks like the fun started even earlier than predicted here. They did not wait for serious problems with unpaid debts, they did not bother with the fight against inflation either.
It seems that everything was predictable. But the scale and timing were! In general, of course, all this speaks of a catastrophic reduction in the planning horizon in Western economies. Momentary problems are solved at the expense of the long-term stability of the entire system.
Moreover, the accumulated volume of problems is increasing every year. Letting the least disciplined banks and companies go bankrupt now would be the lesser evil. Yes, at some stage it would still have to be stopped. But at least the most problematic debts would have been written off and non-viable actors would have left the market, this would have made it possible to establish some semblance of a new balance in the system, albeit at the cost of a significant economic failure.
Turning on the printing press now, when major problems have not even had time to start, will certainly help to avoid them on the short horizon, but will only aggravate the situation on the medium and long ones.
All this will end badly.
