Quantitative Overdose
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(above is a graph of the amount of assets that the federal reserve holds; the start date is 3NOV2016)
Again we are faced with more quantitative “easing”; an issue we have discussed before. This time though it seems it is not just easing but rather an overdose on the prescription, money just dumped into the market from the Fed. During this COVID19 crisis the reaction by the government has been just one wrong step after another. Here in this graph alone, from the St. Louis Fed., we see just how much the Fed is holding. Having gone from a low, during this period, of $3.7 trillion to skyrocketing in 5 months to nearly $6.8 trillion. The government is putting all this effort into trying to correct a problem they created. What makes it all worse is that they are patting themselves on the back telling each other how much of a good job they have done. How can they do this?! Are they just that ignorant? Are they evil? The moves they have made are a complete disaster that will be felt for a long time.
Just last week we discussed how the food shortages are being caused by government intervention in the free market. It’s time and time again that we see the government trying to “fix” something and yet they make things worse. What is it now? The stock market to be specific. When the COVID19 crisis hit the US shores the bottom dropped out of the stock market losing nearly 40% in just a couple weeks. We have been told though that for years the economy and the stock market are strong so what happened? The economy simply isn’t on the best footing and strong like we were told, and that stock market has been propped up for years by the Fed buying up stock thus inflating their value above what it truly should be valued at. This is how the largest bubble in history was made, we have talked about this before.
What happens at the first sign of trouble that worries investors? All that money from the Fed via quantitative easing just burns. The bubble popped and with it the stock market dropped 40%. If the economy were much stronger the initial dip wouldn’t have been that bad, but since the stock market was built on just money pumped into it to simply increase it’s value that initial dip was a burst. The government, which made this entire issue much worse with all the quantitative easing over the last 10 years or so did what it knew best. They did it again.
This time though it was more of an emergency measure as opposed to the long term plan as periods of easing before this event. This emergency reaction by the government is why we see that huge spike at the right-hand end of the graph. The market was getting the “high” from the Fed money dumped into it and has become addicted. When times were tough it crashed and the only way to get that high back, at least according to the “experts” in DC, is to give it more and more money. If you’ve ever dealt with an addict you can see the similarities here, and sadly there will be an overdose.
How do we combat this though? It is up to us to become more self-reliant and educated. Learning about these policies and those that make them is the first step. Telling your co-workers and friends perhaps the next. You won’t find a playbook here but starting out by learning about these disastrous policies is always the first step. Education is power in this area, and we need more and more people to be educated on this matter. Oh and another tip, don’t just dump money into investments that aren’t worth much just to try and increase their value.
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Keep that coffee warm for us
LWS
