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Extraordinary Federal Reserve Policy Began Over a Year Ago

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On Sunday evening, the Federal Reserve announced additional extraordinary emergency measures in an attempt to keep at least some of the air in the bubble economy. But in fact, the Fed has been engaged in extraordinary emergency monetary policy for over a year.

“The Federal Reserve is prepared to use its full range of tools to support the flow of credit to households and businesses,” the FOMC said in a statement.

In other words, “We are desperate to keep people spending money they don’t have to prop up the economy just a little while longer.”

The measures announced Sunday include a 100 basis-point rate cut that sets interest rates effectively at zero. Interest rates are now at the same level they were at the height of the Great Recession. The Fed apparently plans to keep rates at zero indefinitely.

“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals,” the FOMC statement said.

The Federal Reserve also plans to expand quantitative easing (QE) with the purchase of another $700 billion worth of Treasury bonds ($500 billion) and mortgage-backed securities ($200 billion.) This is on top of the $1.5 trillion in repo operations and bond purchases announced last week. In effect, we now have the resumption of full-blown quantitative easing. (Also know as creating money out of thin air.)

Additionally, the Fed reached an agreement with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank to lower the interest rates on currency swaps. In effect, this makes it cheaper for foreign central banks to borrow dollars. The last time the Federal Reserve made such a move was during the European currency crisis of 2011.

The Fed didn’t even wait until its scheduled FOMC meeting this week to announce the rate cuts and QE. The central bank canceled the scheduled meeting.

Avatrade chief market analyst Nadeem Aslam told CNN “for this extraordinary time, we need extraordinary measures.”

But in reality, extraordinary measures started over a year ago when the stock market showed cracks in the fall of 2018.

As the Federal Reserve was trying to normalize interest rates in 2018, the stock market tanked that fall. Before the last Fed rate increase in December 2018, Peter Schiff predicted it would be the last hike and that the central bank would turn to rate cuts. Sure enough, the Fed slashed rates three times in 2019. Peter also predicted the Federal Reserve would soon cut all the way to zero, and here we are.

At the time, the Federal Reserve was also decreasing its balance sheet. In late 2018, balance sheet reduction was “on autopilot.” But the Fed quickly ended that policy as stocks tanked. Then last September, the central bank relaunched QE. Of course, the Fed swore it wasn’t QE. But it was QE in effect, if not in name.

In other words, while Sunday’s Federal Reserve measures seem extraordinary — and they are — they are really just an extension of the extraordinary monetary policy that the Fed launched more than a year ago as the bubble began to deflate. This is further evidence of what Peter Schiff has been saying – coronavirus is nothing but the pin. The economy was on the precipice of collapse months ago.

To put this in historical perspective, in December 2007, the interest rate was at 4.25%. As the 2008 financial crisis unfolded, the Fed cut rates six times through 2008 before making the final slash to zero in December ’08. During the recovery, the Federal Reserve only managed to push rates back up to 2.5% before the air started leaking out of Bubble 2.0. When the coronavirus panic hit, the rate was at 1.75%. It took less than two weeks to go to zero.

This is a panic of epic proportions.

And now the Fed is out of ammo.

Jerome Powell says the Fed has no plans to take rates negative.

Want to bet?

In a tweet Sunday evening, Peter Schiff said gold is about to go through the roof.

The fact that gold is barely up shows how clueless everyone remains. They think because QE and ZIRP worked last time they will work again. They only ‘worked’ because everyone thought the policy was temporary. When they finally realize its permanent, gold will go ballistic.”

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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