EC US Money Supply – The Pandemic Moonshot

Printing Until the Cows Come Home…

It started out with Jay Powell planting a happy little money tree in 2019 to keep the repo market from suffering a terminal seizure. This essentially led to a restoration of the status quo ante “QT” (the mythical beast known as “quantitative tightening” that was briefly glimpsed in 2018/19). Thus the roach motel theory of QE was confirmed: once a central bank resorts to QE, a return to “standard monetary policy” becomes impossible. You can check-in, but you can never leave.

Phase 1: Jay Powell plants a happy little money tree to rescue the repo market from itself (from: “The Joy of Printing”).

It is easy to see why. Any attempt to seriously reduce outstanding central bank credit will bring about the very situation QE was intended to prevent, i.e., falling asset prices and an economic bust. Seemingly no-one in officialdom ever stops to ask why that should be so. What happened to “self-sustaining recoveries” and “achieving escape velocity”? Could it be the economy is neither a perpetuum mobile nor a space ship?

Before we consider this question, here is what has happened since then: shortly after the double-plus-uncool novel SARS-2 corona-virus traversed several ponds and made landfall in the US, Mr. Powell and his fellow merry pranksters decided to water the money tree with super-gro. Or maybe it was hyper-gro:

The “QE” roach motel, illustrated by the history of the Fed’s balance sheet.

That is a rather noteworthy bout of inflation. Readers may have noticed that in the realms of finance and economics there has also been inflation of verbiage describing never before seen extremes. By its very nature, one would normally not expect to hear the term “unprecedented” very often, but it has become disconcertingly commonplace in connection with monetary pumping, deficit spending, and debt growth.

Impact on the Money Supply 

We were surprised to find out that a number of observers still insist that the Fed does not or cannot “print” money. It can, and it does (here is a comprehensive overview of the mechanics: Can the Fed Print Money?). Confirmation from the horse’s mouth was recently provided by Fed chair Jay Powell himself in a 60 Minutes interview with Scott Pelley:

PELLEY: Fair to say you simply flooded the system with money?

POWELL: Yes. We did. That’s another way to think about it. We did.

PELLEY: Where does it come from? Do you just print it?

POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

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William K. 4 months ago Member's comment

My reference to " dead water-buffalo fermenting in the high humidity and the hot sun. " is about the incredibly nasty aroma of those beasts that had become casualties of a quite unpopular military action in a rather smaller country located a bit west of southern China.

Alexis Renault 4 months ago Member's comment

Thanks William!

William K. 4 months ago Member's comment

Unfortunately the printing of all that money will have one effect, which is bidding up the prices of almost everything. And while higher prices do provide a boom effect for the seller, and possibly even the producer, they are certainly a bust for the buyer who has not gotten any of that extra money. Why is this so hard to understand? OR, is the reality that it is doing favor for friends, and "to hell with those who must buy the product". It certainly has the aroma of the economy being manipulated for the benefit of the few.

The moral corruption has the aroma of a dead water-buffalo fermenting in the high humidity and the hot sun. Those who were "there"in 1970 and 1971 certainly know what I mean. (sorry about bringing back memories, guys)

Alexis Renault 4 months ago Member's comment

For those of us who were not around in the 70's... what are you talking about William? :-)