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The Fed: Money Printing to Infinity and Beyond

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After the June Federal Open Market Committee (FOMC) meeting, Fed Chair Jerome Powell committed to “do whatever we can, for as long as it takes.”

Nothing has changed — the July meeting was rewind and replay.

“We remain committed to using our tools to do what we can and for as long as it takes to provide some relief and stability to ensure that the recovery will be as long as possible and to limit lasting damage to the economy,” Powell said as the July FOMC meeting wrapped up Wednesday.

The FOMC meeting nor Powell’s press conference brought any big surprises. But while the Fed made no significant moves and didn’t say anything earthshaking, the effect was to double down on the monetary Hail Mary it’s been engaged in since the pandemic began. The Fed effectively assured the markets that extraordinary monetary policy will remain in play to infinity and beyond if need be.

The central bank left interest rates at zero and gave no hint that it will ever raise them. It also said it will continue to purchase at least $120 billion in Treasuries and mortgage-backed securities each month. In a separate note, the FOMC extended its dollar liquidity swap lines and repo operations for foreign and international monetary authorities through March 31, 2021.

As Peter Schiff put it in a tweet, “Today Powell eased policy even further. To reassure markets during his last press conference he said the Fed was not even thinking about thinking about raising interest rates. Today he said the Fed was not even thinking about thinking about thinking about raising interest rates.”

Officially, the FOMC said, “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.”

In other words, there is no end in sight.

All in all, the FOMC said nothing to provide any real forward guidance, but the central bankers made it clear they are committed to the new status quo – QE infinity. In other words, the money printing press will keep right on humming, and currency debasement will continue unabated.

As we reported earlier this week,  money supply growth hit a new all-time high for the third month in a row in June. The only time we’ve seen money supply growth anywhere near this level was during the inflationary years of the 1970s.

Some analysts expected Powell to address the specter of inflation and give some hint as to what might trigger a rate hike. Powell did no such thing. In fact, he downplayed the inflation threat, calling the current crisis a “deflationary shock.” In another tweet, Schiff said Powell couldn’t be more wrong.

The US is about to experience one of the greatest inflationary periods in world history. Any credibility the Fed has left will be lost. Federal Reserve Notes soon won’t be worth a Continental.”

As far as the economy goes, Powell offered a rather gloomy outlook. He said, “Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year.” And he expressed concern about the resurgence of COVID-19, saying, “The path forward for the economy is extraordinarily uncertain, and will depend in large part on our success in keeping the virus in check.”

Powell also tried to dampen expectations of a quick recovery, even if we get a handle on the virus, saying, “Even if the reopening goes well — and many, many people go back to work — it is still going to take a fairly long time for parts of the economy that involve lots of people getting together in close proximity.”

But Powell’s tunnel-visioned focus on COVID-19 misses the bigger picture. Even if researchers found a cure for the virus tomorrow, the economy still wouldn’t spring back to life.

As we’ve been reporting, there are numerous signs that the economy has suffered fatal wounds. Permanent business closures are rising as the economic impacts of the coronavirus-induced government shutdowns continue to ripple through the economy. And it’s not just the problems facing small businesses. We’ve reported on the looming tidal wave of evictions, the increasing number of mortgage delinquencies, the rising number of over-leveraged zombie companies, and the tsunami of defaults and bankruptcies on the horizon. Given the deep wounds inflicted on the economy by the shutdowns, we should expect a quick bounceback even with a vaccine. As we’ve said over-and-over again, curing the coronavirus won’t cure the economy.

And then there is the dirty little secret Powell will never admit to. As Peter Schiff put it in a recent podcast, the Fed doesn’t have another rabbit to pull out of its hat. The “cure” that the Fed is offering up is actually killing the patient. Ultimately the Fed’s monetary policy is going to collapse the dollar.

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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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