The Federal Reserve has already bought more than $622 billion in treasuries in less than a week. This is more than 2.9 percent of the US GDP. This is the biggest quantitative easing that has ever been seen in the United States. This is not QE1 or QE2 but you can only call it infinite QE where the FED is pumping cash to the economy without any limitations. This pumping of cash into the economy will leave the Federal Reserve with unexpected levels of debt and deficits. It will be almost impossible for the US government to recoup these trillions of dollars this year considering the fact that investors and foreign central banks are dumping the US treasuries at a rate never seen before. This will be problematic considering the fact that the Federal Reserve will have to bail many companies that will go bankrupt during this economic collapse.
In the past decades, the Treasury bonds were the most secure assets and with this unlimited QE, it is clear that everyone has lost confidence with the system. Investors fear that this continuous pumping of cash by the government will unleash a tsunami of debt that has never been seen in the history of the United States and it will be almost impossible for the FED to contain it. As usual, the Federal Reserve will inject this cash by printing more dollars and this is dangerous to the well being of the economy. Basically, we will have a lot of cash chasing few products in the market place and at the end, prices will have to increase based on the law of supply and demand. This will easily get out of control and it will turn out to be an hyperinflation that will cause an economic collapse.
In the past, quantitative easing programs have served the economy very well, but now everyone is concerned that this emergency response by the Federal Reserve will not benefit the economy in the long run. This emergency response by the FED is alarming because it is playing out in just weeks instead of months. At the same time limits in bond purchases has been scrapped and this is marking the market very unstable. In a recent interview by CNBC, the Federal Reserve chair Jerome Powel emphasized that the Fed will aggressively maintain the efforts to stabilize everything. The FED has promised unlimited buying of bonds. Powel’s comment came just hours after the European Central Bank announced that they are scrapping some of the bond buying limitations in their program to save the European economy.
President Trump has just signed the $2 trillion fiscal stimulus package that will be a relief to the US economy. At the same time, the Economic Security Act (CARES Act) gives the Federal Reserve the power to issue up to $4.5 trillion in additional debt and this means that if the there is a possibility that the government will pass another bill in the future if the economy does not stabilize. This injecting of cash into the economy means that we will have the biggest spending spree in the American history. This comes when millions of Americans have lost their jobs and this emergency bailout act is expected to help these people. But the question that most people are asking is for how long can the FED do this if the economy will not open up for people to go back to work. The FED is bailing out many companies using debt and all this at the expense of the American taxpayers.
The current economic collapse is not only affecting the United States economy but also the entire global economy. Many economic powers like China have experienced a dramatic economic decline. The Chinese economy has reported that the industrial profit has hit record lows and profit from the manufacturing sector has plunged by -38.3 percent in the last two months. This is a historic drop that has not been experienced in China for many years. Global supply chains have been disrupted in one way or the other and in the process many economies have suffered. Actually economists are predicting that the global economy will lose up to $14 trillion while the US economy alone will lose $4 trillion. This is the worst economic meltdown in history and experts are warning that the worst can happen if the health problem is not contained. This economic meltdown can easily end up being a global depression if things don’t improve in the next 2-3 months.
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