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Tuesday, June 2nd, 2020 MST

Fed chairman admits flooding the market with money

This past Sunday, Scott Pelley interviewed Fed Chairman Jerome Powell on 60 Minutes.  Below are some excerpts.

PELLEY: Fair to say you simply flooded the system with money?

POWELL: Yes. We did. That’s another way to think about it. We did.

PELLEY: Where does it come from? Do you just print it?

POWELL: We print it digitally. So, as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

During Germany’s famous hyperinflationary period (1921-1923), the Reichsbank had to fell trees, turn the lumber in to paper, slap ink on it, and distribute to the various banks.  Today’s Fed faces no such obstacles.  A clerk simply sits at computer keyboard, types in billions of dollars, and the Fed owns the debt of hundreds of companies.

Consider also this observation by Powell:

And the same thing with businesses. Keeping them away from Chapter 11 if it’s avoidable. It’s not going to be avoidable in many cases. But if it’s avoidable, the more of that we can do, the stronger the recovery will be. The less this period will weigh on economic growth going forward.

The above suggests that the Fed will keep even zombie companies alive. Never mind that these companies are operating at losses and that their business models aren’t viable.  (Such companies are called zombie companies because they are the “walking dead.”)

As noted in Another coronavirus relief package in the pipeline, $4 trillion dollars was just a start.  Now House Speaker Nancy Pelosi wants another $3 trillion to be printed.  Any wonder that gold and silver prices have been so strong in the past few months?

 

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