The Federal Reserve has broken the few restraints it had before the coronavirus outbreak. It was not long ago that the Fed objective was to reduce its balance sheet from $4.5 trillion in 2017. Now within three months it is approaching $6 trillion. The original charter from the Federal Reserve Act of 1913 is as much of a joke as the limitations on the federal government in the Constitution. Nearly every other day the Fed announces a new program of credit expansion so that any criticism becomes obsolete by the time it is published.
This is everything the Fed has done since the coronavirus crash.
3/3 – Interest rates were cut by 0.5.
3/15- Rates were cut by 1 percent to near zero. The discount rate was cut by 1.5 percent and reserve requirements were cut to zero. Implementing 100 percent fractional reserve banking.
3/17- The Fed announced it would buy short term commercial debt.
3/19- The Fed creates a program for currency swaps.
3/20 – The Boston Fed begins to buy municipal debt.
3/23- The Fed declares its asset purchases to be unlimited, breaking the old limit of $700 billion. Also another $300 billion is created for a consumer and business credit program.
4/6 The Fed will support the Treasury’s Payment Protection Program to artificially prevent layoffs.
4/9- $2.3 trillion will be allocated to Paycheck Protection Program (PPP) loans, artificially expanding more credit and upholding unprofitable employment. Another $600 billion in loans through the Main Street program to medium-sized firms, and $500 billion to buy bonds from municipalities.
After expanding credit for over a decade, inducing malinvestment, inflated stock market prices, and extreme debt, the Fed continues to kick the can down the road. The balance sheet is at its highest level in history, continuing to monetize government and corporate debt.
It has now created a crash that was precipitated by the coronavirus, but not caused, and is brewing the next one. The Fed has declared 100 percent fractional reserve banking and an unlimited balance sheet. The unsustainable policies leave only a few ways the story can end.