The Good, the Bad and the Ugly of Federal Reserve Rescues
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Rescues by the Federal Reserve and aggressive monetary policies have helped stock and bond investors, but the degree of money printing will be paid for by future generations.
The Federal Reserve (Fed) rescued the economy from total collapse in 2008. Now it’s stepping up again to rescue victims of the current pandemic. The Fed is our hero, but before we order that Superman cape, we need to be aware that there are costs that we all will pay for those rescues. Ambulances do not show up for free. As shown in the following picture, the Fed rescued us from recessions, but the money printing will lead to inflation.
It’s complicated, and many will not agree with my concerns, which is good – let’s discuss.
2008 financial crisis
Due to the housing loan crisis, the gears of the economy locked up heading to a total collapse in 2008. The Fed came to the rescue with quantitative easing (QE) that pumped $4 trillion into the economy and created the longest bull market ever in stocks. We had a quick recovery from a recession and market crash.
In addition to the catastrophic loss of human life, the COVID-19 pandemic has crippled many industries and put millions out of work. People are struggling to buy groceries and pay their bills. Enter the federal government with $3 trillion of relief in 2020 and another $3 trillion coming in 2021, most of it in “helicopter money” sent to almost everyone. This humanitarian relief is much needed; that’s the “good.”