To “save the world’s economy” in the 2008 World Financial Crisis (WFC), the Federal Reserve led the world’s central banks in printing money, hiking its holdings of T-bills and other bonds – some quite specious – from $900 billion to $4.5 trillion, a five-fold increase.Fed spokespersons repeatedly said that its Quantitative Easing (QE) was only an emergency, and that the Fed would later “normalize” its balance sheet by selling off some of its holdings.
And, starting in early 2018, the Fed did sell, as indicated in the chart above.
However, in September 2019, the Fed reversed its position and again fed (pun intended) money into the system. But it wasn’t another QE, we were assured. The Fed was only using repo agreements to bring down the fed funds rate from 10%, which it had spiked to.
Not much talked about, though, is that the Fed is now buying $60 billion a month and will continue to do so into the second quarter of 2020. It’s objective: to rebuild the level of reserves in the system to nearly $1.5 trillion that prevailed in early September. Not QE, though, according to the Fed.
Money printing is the mother’s milk of precious metals bull markets. While it took the US’s killing of a top Iranian general to propel gold to a new five-year high, recognition of renewed money printing will keep it well above $1500 in my opinion. This is a bull market that started in December 2015.
The public is focused on stocks, including the president. Venezuelan stocks were up ~ 4600% in 2019, HOWEVER this was in local FX terms. No one is adjusting US stocks to real terms yet, but I suspect this math will become more common by the end of this cycle.
Yes the S&P500 is at an all-time high now in 2020, however in real terms versus gold, stocks peaked 20 years ago, and few realize this.