Yesterday, Jerome Powell announced that the Fed will soon launch another round of quantitative easing. Except he insisted it will not be doing quantitative easing.
This is not QE. In no sense is this QE.”
What the Fed will be doing, according to Powell, is expanding its balance sheet. Powell said details of the process will be explained in the following days, but it will involve the purchase of Treasurys.
This sounds an awful lot like QE, as Peter Schiff emphasized in his podcast.
There’s an old saying that never believe something until it’s been officially denied. And Jerome Powell went out of his way today in his statement and in the Q&A that followed to emphatically say the Fed is not doing QE … Except in every sense its QE because it’s exactly QE. There’s also an old saying, ‘If it walks like a duck, looks like a duck, and it quacks like a duck, it’s a duck.’ Well, this looks like QE, it smells like QE, it quacks like QE, it walks like it — it’s QE.”
The Fed’s move is in response to the recent meltdown in the overnight repurchase market. The Fed began repo operations a couple of weeks ago and then upped the ante last week in an attempt to inject cash into the banking system. During his press conference yesterday, Powell said, “As we indicated in our March statement on balance sheet normalization, at some point, we will begin increasing our securities holdings to maintain an appropriate level of reserves. That time is now upon us.”
Already? In March they said, ‘At some point.’ Did anybody back then think ‘some point’ meant now?”
Back in March, the Fed had barely wound down quantitative tightening. We only have to go back a few more months and balance sheet reduction was on “autopilot.” Yesterday Powell said the upcoming balance sheet expansion won’t be the same as the “aggressive” balance sheet expansion we saw during the three rounds of QE. This will be a “more organic procedure,” similar to Federal Reserve operations before the financial crisis.
So, in other words, because this is not aggressive expansion of the balance sheet, then it’s not QE. Except in the last three weeks, the balance sheet has grown by $176 billion. I mean, how can that not be defined as aggressive? How can Powell say that’s similar to what the Fed was doing before the financial crisis?”
Before the 2008 crash, the Fed balance sheet was around $800 billion. It took the central bank nearly 100 years to get its balance sheet to $800 billion. It just added $176 billion in just three weeks.
In fact, based on the last three weeks, the Fed is now expanding its balance sheet even faster than it was when it had a specific program. So, basically the only reason that what the Fed is now doing is not QE is because the Fed decided that it wasn’t going to call it QE.”
Powell said the reason for balance sheet expansion is to maintain an “adequate supply of reserves.”
Which is really code for, ‘We want to keep interest rates low.’ I mean, that’s what they’re trying to do. They need an adequate amount of reserves to artificially suppress interest rates. Well, that’s exactly what quantitative easing was. That was the policy goal. It was to artificially suppress interest rates, to have an interest rate that was lower than what the rate would be without the Fed intervening, without them doing quantitative easing.”
And why did the Fed want interest rates low? To encourage borrowing and inflate asset prices.
They wanted stocks to be higher. They wanted real estate to be higher. So, why are they doing the same thing now and not calling it quantitative easing?
Well, they’re trying to artificially manipulate interest rates so that they’re lower than they would otherwise be. The goal is to keep the cost of servicing all this debt low and to prop up asset prices — prop up stocks and prop up real estate. So, they’re basically doing exactly what they did under QE for the exact reasons they did it when they were doing QE, except they’re not calling it QE. And the reason they’re not calling it QE is because they don’t want to admit that they’re having to rescue the economy again. Because the success of quantitative easing was predicated on the fact that it was temporary. It was predicated on the Fed being able to reverse course.”
It’s clear now that temporary was not the reality. It was not temporary. And Peter has said before the scheme isn’t going to work again.
How can they claim that this policy was a success if they couldn’t reverse it? The whole rally in the dollar, the whole decline in gold, was all predicated on people believing the Fed. Well, the Fed are a bunch of liars.”