Kudlow explains that King Dollar is strong and reliable
I want to start this evening with some thoughts on today’s Senate hearing with Treasury Secretary Janet Yellen and fed chair Jay Powell and the utterly terrifying title of this hearing is: “CARE Act Oversight of the Treasury and Federal Reserve: Supporting an Equitable Pandemic Recovery”.
I want to note that during the emergency period of this pandemic, as of February 2020 last year, the Federal Reserve has actually done its part to pump cash into the economy.
By our calculations over the past 18 months, the Fed has basically doubled its balance sheet from $4.1 trillion to $8.3 trillion. Essentially, they injected more than $4 trillion of new cash into the economy.
Another way to look at it is through the M-2 money supply, which has grown from $15.5 trillion to $20.5 trillion – a gain of $5 trillion or 32%.
Now, these are numbers you guys probably don’t care about. We’re going to be in the weeds here, but I love weeds.
I began my career 48 years ago in the weeds of open market operations at the New York Fed. The only reason to put these numbers on the table is to show you how big they are.
In other words, while emergency pandemic relief fiscal policy spent about $4 trillion last year, another $2 trillion last winter and possibly $6 trillion in the next month or two (Save America. Kill the Bill). The Fed was doing its part by pumping in $4 trillion of high-powered cash — which led to a $5 trillion jump in the money supply.
Now, all of the Fed’s money has basically been lying idle for most of last year. In the middle of the pandemic, with the government shutdown, most people were playing a game of hesitation by hoarding cash and risk aversion.
Therefore, the money supply was not inflationary, but as the economy reopened, through Vaccination The miracle of “Operation Distorted Momentum” as the Fed continues to pump—in fact—begins to threaten long-term inflation problems.
Extra money is different from pandemic shortages. While it has taken longer for market forces to fix those supply chain problems, the Fed continuing to inject cash is a different matter and a worrying matter.
There is a correlation between massive Federal over-spending and massive Federal Reserve over-pumping. While the budget deficit continues to widen, the Fed is funding government spending and borrowing.
In the past 18 months, the central bank has made 57% of new, marketable purchases. TeaReinsurance loan issued. 57%! It shouldn’t be like this guys.
Going back to the Fed-Treasury Agreement of 1951, where the Fed stopped holding long-term interest rates and stopped buying war-time bonds.
In fact, you can go back as far as 1913 with the original Federal Reserve Act, where the purpose of the central bank was to provide institutional currency elasticity, but not to finance government spending and lending.
I remember that well. I was there.
In Latin America and some other places, central banks buy debt, print all the money, inflate the economy and destroy the currency. Luckily, we’re not there yet.
In fact, the King Dollar is strong and reliable. There has been no change in gold for a long time. Commodity prices are rising, suggesting that Powell and Company are too lax and that even the CPI break-even in the inflation-adjusted Treasury bond market is showing higher inflation expectations.
So, I’m worried.
The Fed should have stopped buying mortgage bonds six months ago. Maybe they’ll reduce their portfolio purchases in a few months, but who knows. The rise in long-term bond rates in recent weeks may be signaling to the Fed that it is time to raise its target rate before a serious inflation breakout occurs.
Meanwhile, the Fed and I think the White House Dallas and Boston were right in dumping the presidents of the Fed for trading stocks and bonds. It’s a real big no-no.
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By the way, we could not do this in the executive branch. I am genuinely concerned that greater federal spending and greater borrowing are more and more pressure on our central bank to finance the work, wages, welfare dependence attack on the Democrats’ big-government socialism from the cradle of big-government socialism to the grave. Puts. Prosperity.
The Fed has a tradition of independence, but if they fulfill the Dems’ far-left progressive wish list and finance it, they will lose their independence. We will lose the race for inflation and we will lose the King Dollar in the process and that will be most unfortunate.