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A few years before my father died, he and I studied the expansion of the Federal Reserve balance sheet with growing alarm.
The Fed was pumping money into the economy by buying bonds.
Then it added those bonds to its portfolio, increasing the size of its balance sheet.
As a result, the Fed’s total financial assets were growing by about 40% every five years, and Dad was livid.
“This is crazy!” he exclaimed.
“I started tracking the Fed when I was a young man in the late 1920s. Sometimes I even went downtown to the offices of the New York Fed to pick up the numbers in person. And I’ve been faithfully plotting them on my charts ever since.
“So I can tell you flatly,” he continued, “the Fed has NEVER done anything like this before!
“Even during the Kennedy Administration in the early 1960s, when the Fed expanded its balance sheet to get us out of a recession, the biggest growth I ever saw in the Fed’s assets over a five-year period was under 8%.
“But now look! They’re growing their balance sheet by FIVE times that pace.
“If they think they can keep this going without creating massive speculative bubbles and terrifying financial busts, they’re living in a Disney fantasyland.”
Sure enough, a few years later, we witnessed the greatest stock bubble since the Roaring ’20s — and the greatest bust since the 1930s: The Nasdaq lost nearly 75% of its value. The Dow and S&P followed. And U.S. stock investors saw over $9 trillion of their wealth evaporate in less than two years.
Think that was big? Then fast-forward to the housing bust, when Americans lost more than $17 trillion in home and stock market values — also thanks, in large part, to the Fed’s unprecedented monetary largesse.
But if you think past Fed shenanigans — and the resulting disasters — are shocking, hold your breath and consider what it’s doing today:
This chart is based on the Federal Reserve’s own data, as reported in its most recent Flow of Funds (Table L.108, pdf page 83, line 1, “Total financial assets”), plus its historic yearly data on the same series going back to 1945.
It shows the five-year growth rate in the Fed’s financial assets since 1950.
And it illustrates the incredible, unmistakable, inexcusable progression of the Fed’s role in three distinct eras:
Era of monetary stability (1950 – 1963): On average, the Fed grew its financial assets by only 3.4% every five years.
Result: Inflation and interest rates were very tame. Any speculative bubbles and busts were limited to niche sectors. Recessions were relatively mild. And the U.S. dollar was king in the global economy.
Era of monetary expansion (1964 – 2007): The Fed began expanding its balance sheet at a rapid pace — by an average of 37.2% every five years, or ELEVEN times faster than in the prior era of monetary stability!
Result: Inflation surged and interest rates went through the roof. Moreover, toward the end of the period, two boom-bust cycles and the worst recession since the Great Depression nearly destroyed America’s middle class. The U.S. dollar fell precipitously and America’s global leadership became a shadow of its former self.
Era of monetary EXPLOSION (2008 – present): The monetary authority of the United States of America (the Fed) embarked on the first major episode of outright money printing since the Revolutionary War.
Specifically, it has expanded its financial assets at an average 5-year clip of 194.9%!
That is now FIFTY-SEVEN times faster than the pace of growth recorded during the era of monetary stability!
Result: Unknown and unimaginable!
But my friend Charles Goyette explains some of the most immediate likely consequences below …
What Happens When the Fed Goes Wild
by Charles Goyette
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Before, the Fed printed money in the tens of billions of dollars, at most. Now, its money printing is in the TRILLIONS of dollars.
Until now, every time the Fed cranked up its money-printing presses, it severely limited how much money it would print and even how long it would run the presses.
Now, as Dr. Weiss has shown, the U.S. Federal Reserve has launched a new era of monetary EXPLOSION!
It has effectively admitted that the trillions it’s printed so far haven’t done one darned thing to solve our unemployment crisis — or get the economy growing again.
So it’s going to do more of the same — and expect better results!
It’s going to kick the money-printing presses into overdrive INDEFINITELY!
It’s going to print UNLIMITED amounts of money for an UNLIMITED amount of time!
Look. I have previously been a licensed securities and commodities broker and a registered commodity trading advisor.
I’ve also served as a registered representative with the leading national stock brokerage firm now known as Morgan Stanley and as president of a specialty commodity futures and precious metals brokerage.
Today, I’m helping investors grab very large profit potential through my services.
So please believe me when I say that unlimited money printing can only mean one thing: Unlimited increases in the price of gold, silver and other key assets — and unlimited profit potential for investors who own them now!
Let’s say you have a gold coin worth $1,000. If Fed money printing reduces the value of the currency by half, the price of goods you purchase with it will double, including the price of gold.
The fact is, gold is already becoming the world’s reserve currency.
Former GOP presidential candidate and Forbes magazine publisher Steve Forbes said in 2011 that the U.S. will likely adopt a gold standard within five years.
Jim Grant of Grant’s Interest Rate Observer says the gold standard is the only answer to the question, “If not the dollar, then what?”
Robert Zoellick, president of the World Bank, has called for the reintroduction of gold in the world monetary system and notes that “markets are using gold as an alternative to monetary asset today.”
Meanwhile, legislators in a dozen statehouses across the country, most notably in Utah, taking note of the Constitution’s long-forgotten Article 1, Section 10 (“No state shall … make any Thing but gold and silver Coin a Tender in Payment of Debts”), have begun to take steps to advance the remonetization of gold in their home states.
In short, QE-Infinity means “Gold-Infinity” … “Silver-Infinity” …
And it’s also likely to drive certain resource stocks higher.
This is why I’m set to help you harness these QE-Infinity Bonanzas immediately.
Sadly, not every investor will chose to join us as we harness the power of the Fed’s latest — and greatest — money-printing scheme. Many will choose to fight the Fed, instead … and pay a high price for doing so.
I sincerely hope you are not one of them.
Instead, I hope you will join me as I pull the trigger on not just one, but two exciting new trades — trades designed to start multiplying your money faster than you can say “QE-Infinity!”
Best wishes,
Charles
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
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The cool thing about the king and queen of science is that the facts are the facts and faith is irrelevant. There are two equations in economic science that provide the answers.
From Irving Fisher’s equation MV=PQ, we find that M is the supply of actual money and V is the number of times it changes hands in a given year. V is predicated on the DEMAND for money. Your analysis ignores V (the velocity of money) and is, therefore, incomplete. Or maybe you are just taking it on faith that Freidman’s assertion that the velocity of money remains relatively constant? Instead of relying on said faith, why not instead rely on the empirical data? The facts.
The facts show that the velocity of money has been moving in inverse proportion to the growth of M since the financial crisis began! So the money supply has not exploded as you claim. Milton Friedman has been proved wrong!
Bernanke has no power to set fiscal policy, he can only react to it with his monetary policy. If he did not increase M and buy Treasuries to keep long-term interest rates low, we would be in a horrific economic depression at this moment in history. It is a lousy policy, but he has no choice!
According to the macroeconomic accounting identity equation, the federal budget deficit is dependent on NET PRIVATE SAVING and the TRADE DEFICIT. The empirical data during the Clinton presidency demonstrate that the economy can suffer from increasing trade deficits and still reverse the federal budget deficit if the net private investment (i.e., negative net private saving) is large enough to offset the trade deficit. How much credit Clinton can take is disputable, but he was in the oval office when the internet “tsunami” struck. The telecom companies were laying fiber everywhere and the router companies were connecting the massive new internet backbone together.
It wasn’t because of monetary policy that we had the tech boom of the 90’s, it was a classic Schumpeterian innovation wave that required massive private investment and that provided the huge demand for money. Now, we have no massive innovation wave for corporate America to spend it’s accumulating cash on. The huge hoards of cash being saved by corporate America is driving net private savings sky high. And again, that plus the trade deficit MUST equal the federal budget deficit.
Obama meekly implemented his GREEN ENERGY idea, but that innovation wave is, in fact, still growing. New venture capital money is flowing to alternative energy and software start-ups, primarily. The massively growing mobile internet market (demands software) and the potential market for alternative energy is the best place for a new innovation tsunami to heal our economy. The government has always played a role in passing tax legislation (fiscal policy) that can expedite the private investment in new waves of innovation. However, unless they also pass a fairly large tax increase on the high income-earners once the new wave strikes, we will end up with another asset bubble that bursts and the innovation wave won’t have lasting benefit.
The bottom line here is that appropriate tax policy will drive the solution and monetary policy, as usual, will only be reactive.