The Fed Can’t Bail out Anyone in a Currency Crisis
Intervention into markets by the Federal Reserve and the US gov’t started in 2008 with the mortgage crisis. When it began, central bankers at the Fed said that it was a one and done ordeal and that we’d eventually normalize interest rates, but once a market becomes accustomed to cheap money, it’s impossible to take that away without triggering a crisis.
Below is a graph of the size of the Fed’s balance sheet.
The truth is that the Fed was lying from the beginning. They should’ve known that it was impossible for normalization to ever occur, but they consistently promoted propoganda in order to kick the can down the road, delaying consequences.
In 2018, everyone was talking about how the Fed was going to raise interest rates, reduce the size of its balance sheet, and that doing so would be as boring as watching paint dry. Well, after a couple 25 basis point raises, the Fed immediately reversed course as markets started to tank. Then, because everyone had racked up so much debt because rates were so low for so long, when the Covid lockdowns were implemented, cash flows declined and almost nobody could service their debt. In response, the Fed implemented the most drastic and extreme monetary policy experiment in modern history.
Many have been praising the Fed’s response to this crisis, but in reality we’ve only set ourselves up for an even bigger crisis. This money printing and spending is not free. It is only pulling forward future consumption (meaning we’re borrowing from our future to consume in the present). It’d be like if we were stranded on an island with a limited food supply and the Fed told everyone to eat as much as possible before knowing where we’d be able to find food in the future.
Although the propoganda agents at central banks have been trying to hide inflation by focusing peoples’ attention on a basket of goods that hasn’t seen huge price increases, people are waking up. We’re headed for extended periods of perpetual price increases that will impoverish low and moderate income Americans.
Yesterday, Reuters published an article about how the Fed can’t bail out banks in every crisis. Most are still debating whether or not they should be bailed out, but the reality is they can’t. The Fed can only bail out people by printing dollars. When dollars fall in value, so does the ability to bail them out with dollars.
What ultimately is going to put a stop to this excessive money printing and political spending is the foreign exchange market. Right now, politicians are praised by the number of dollars they can shove into a bill, but eventually when people see the dollar collapse in price and their cost of living rise, spending money is not going to be as popular.
These next few years we’re finally going to have to pay the piper when it comes to the fiscal and monetary irresponsibility of the past. Be prepared for price controls, shortages, rationing, and social unrest.