Record Spending and Money-Printing Puts Markets in Uncharted Waters

Back in March, I predicted that the total U.S. economic response to the COVID-19 crisis would be at least $10 trillion.

Between the relief packages passed by Congress and monetary stimulus enacted by the Federal Reserve, we’ve already reached that enormous sum. And yet it still won’t be enough to prevent further economic erosion, according to some economists.

In a letter to Congress signed by more than 100 ppeople, including former Fed chairs Ben Bernanke and Janet Yellen, the authors warn lawmakers that even though “unprecedented levels of economic support” have been set aside for families and businesses affected by the lockdown, “more needs to be done.”

Congress must pass a “multifaceted relief bill of a magnitude commensurate with the challenges our economy faces,” the letter urges.

The record-setting amount of spending and money-printing is understandably giving some finance experts serious concerns. In a tweet yesterday, precious metal commentator Jim Rickards remarked that Bernanke and Yellen’s proposals are not “stimulus” but “slow-mo ruin.”

Jim Rickards@JamesGRickards

These two wrote a letter to Congress (signed by many others) saying $10 trillion (fiscal+monetary) "stimulus" is not enough. We need more, more, more. Would someone please explain to them that we're getting spending and money printing but it's not "stimulus." It's slo-mo ruin.

View image on Twitter

You’re welcome to disagree with Rickards, of course, but there’s no denying that we’re in uncharted financial and economic waters right now. In my eyes, that’s more than enough reason to make sure your portfolio has adequate exposure to gold and gold mining stocks to help hedge against potential inflation, currency devaluation and a collapse in equity prices.

Unintended Consequences of Fed Policies: Zombie Firms?

More than half of the $3 trillion in rescue funds authorized by Congress has so far been distributed, and there are now reports that President Donald Trump is considering a $1 trillion infrastructure package.

Meanwhile, the Fed announced this week that it will begin buying individual corporate bonds on top of the corporate debt ETFs it’s already purchased. It has the ability to buy up to $750 billion worth of corporate credit through its Secondary Market Corporate Credit Facility (SMCCF).

Thanks to all this buying, the bank’s balance sheet has skyrocketed past $7 trillion, representing nearly a third of the entire U.S. economy. That’s up significantly from 6 percent of GDP in 2006, when Alan Greenspan vacated the Fed.

fed blance sheet now at a third of U.S. GDP
click to enlarge