This is just a short note to follow up on a post I made a couple days ago about the Fed balance sheet setting new all-time highs. In it, I claimed that the Fed had only just begun on expanding its balance sheet to record highs. Well, not only is the aggregate amount setting new highs, but the pace at which it is doing it is also setting all-time highs!
Jay Powell is throwing the monetary "kitchen sink" at trying to avoid what Dr. Doom is calling "The Greater Depression." It may, in fact, work. But he's likely to literally break economics as we know it in the process. After these actions, "moral hazard" will never work the same. Investment institutions might as well just become gambling institutions because, if they fail, the Fed can just bail them out anyway. So why not always go for the 10x investment instead of the slow and steady incremental returns that have formed the foundation of the post-war American expansionary tale. Shoot, why not just go for 100x gambles? It doesn't matter!
Here is the data. The Fed balance sheet is up a record $586 billion in one week, measured from Wednesday close to Wednesday close.
The Fed is flying by the seat of its pants, hoping against hope that it is doing the right thing and there won't be any long-term consequences. But there will be. Boy, don't you wish we had raised interest rates a whole lot more back in the middle of that epic bull market?
I do.