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Will Coronavirus End the Fed?
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September 17, 2019 was a significant day in American economic history. On that day, the New York Federal Reserve began emergency cash infusions into the repurchasing (repo) market. This is the market banks use to make short-term loans to each other. The New York Fed acted after interest rates in the repo market rose to almost 10 percent, well above the Fed’s target rate.

The New York Fed claimed its intervention was a temporary measure, but it has not stopped pumping money into the repo market since September. Also, the Federal Reserve has been expanding its balance sheet since September. Investment advisor Michael Pento called the balance sheet expansion quantitative easing (QE) “on steroids.”

I mention these interventions to show that the Fed was taking extraordinary measures to prop up the economy months before anyone in China showed the first symptoms of coronavirus.

Now the Fed is using the historic stock market downturn and the (hopefully) temporary closure of businesses in the coronavirus panic to dramatically increase its interventions in the economy. Not only has the Fed increased the amount it is pumping into the repo market, it is purchasing unlimited amounts of Treasury securities and mortgage-backed securities. This was welcome news to Congress and the president, as it came as they were working on setting up trillions of dollars in spending in coronavirus aid/economic stimulus bills.

This month the Fed announced it would start purchasing municipal bonds, thus ensuring the state and local government debt bubble will keep growing for a few more months.

The Fed has also created three new loan facilities to provide hundreds of billions of dollars in credit to businesses. Federal Reserve Chairman Jerome Powell has stated that the Fed will lend out as much as it takes to revive the economy.

The Fed is also reducing interest rates to zero. We likely already have negative real interest rates because of inflation. Negative real interest rates are a tax on savings and thus lead to a lack of private funds available for investment, giving the Fed another excuse to expand its lending activities.

The Fed’s actions may appear to mitigate some of the damage of the coronavirus panic. However, by flooding the economy with new money, expanding asset purchases, and facilitating Congress and the president’s spending sprees, the Fed is exacerbating America’s long-term economic problems.

The Federal Reserve is unlikely to end these emergency measures after the government declares it is safe to resume normal life. Consumers, businesses, and (especially) the federal government are so addicted to low interest rates, quantitative easing, and other Federal Reserve interventions that any effort by the Fed to allow rates to rise or to stop creating new money will cause a severe recession.

Eventually the Federal Reserve-created consumer, business, and government debt bubbles will explode, leading to a major crisis that will dwarf the current coronavirus shutdown. The silver lining is that this next crisis could finally demolish the Keynesian welfare-warfare state and the fiat money system.

The Federal Reserve’s unprecedented interventions in the marketplace make it more urgent than ever that Congress pass, and President Trump sign, the Audit the Fed bill. This would finally allow the American people to learn the truth about the Fed’s conduct of monetary policy. Audit the Fed is a step toward restoring health to our economic system by ending the fiat money pandemic that facilitates the welfare-warfare state and the unstable, debt-based economy.

(Republished from The Ron Paul Institute by permission of author or representative)
• Category: Ideology • Tags: Coronavirus, Federal Reserve, Wall Street 
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  1. NO.

    That was the quick answer. To expound, it’s great Dr. Paul is such an optimist, but it’ll take the full destruction of the American Feral government, not just the economy, before this ruinous Statist system goes away. Yes, the economy will explode due to the debt, but there’s no way the Feral Government, with their friends at the private Federal Reserve bank, will be gone. They are likely looking forward to running a 3rd-World country – it’s easier for them.

    Just as an aside, what an uncreative term “repo” is for this repurchasing deal. “Repo” is for “repossession” or “re-position”. It does not stand for “re-purchasing”. It should be “reper” or something.

    • Agree: Adam Smith, Rurik
    • Replies: @WorkingClass
    , @Richard B
  2. by flooding the economy with new money, expanding asset purchases, and facilitating Congress and the president’s spending sprees, the Fed is exacerbating America’s long-term economic problems.

    All part of the plan.

    The Federal Reserve be like…

  3. Crazy Horse says: • Website
    @Adam Smith

    The Fed gives counterfeiters a bad name.

  4. Realist says:

    Will Coronavirus End the Fed?

    No, but revolution might.

  5. JasonT says:

    Under the cover of the coronavirus, the little democracy left in the western world, especially the U.S., will be ended.

  6. Mark G. says:

    There seems to be two lines of argument against the idea that the Fed is responsible for the soon to be recession. One argument is that recessions are inevitable and happen periodically, kind of like the sun rising and setting. Fed policy doesn’t have anything to do with them.

    The other argument is that there would have been no recession at all but for the coronavirus coming along. In a way, the coronavirus is not a good thing because the blame for the inevitable bad result of Fed policies will be shifted over to the coronavirus.

    • Replies: @AaronInMVD
  7. AaronInMVD says: • Website
    @Mark G.

    It seems to be a far deeper, systemic problem. Substantial effort has gone into propping up the pretense that a “service economy” model would be the new thing after industry moved past needing high headcounts. That pretense that busing tables and doing each other’s hair could substitute for industry is unraveling.

    What comes probably isn’t going to be happy for most. The war on terror is getting displaced with a war on death at a point in time where most humans are pointless. Wat do?

  8. @AaronInMVD

    Great comment, Aaron. I’d said it similarly – all the lots of the American economy is is people selling each other gourmet burgers and craft beer. It’s the young people mostly that don’t have too many choices, so they work in the “hospitality” “industry”, and they spend all their disposable income at the same type of establishments.

    I do remember when we were told, back in the early 1990s that this service economy deal was going to be just peachy. I didn’t believe it even then.

    BTW, some article had the phrase “war on death” in it, but dang if I can remember who it was. Do you remember it, or was it from one of your other comments?

    • Replies: @Cortes
  9. @Cortes

    Thank you, Cortez. That was it.

  10. @Achmed E. Newman

    “…but there’s no way the Feral Government, with their friends at the private Federal Reserve bank, will be gone.”

    Agreed. So remove yourself from their jurisdiction. Think nullification/secession.

    • Agree: Achmed E. Newman
  11. @AaronInMVD

    Hey again, Aaron in Mountain View! I wanted to write that we seem to agree on about everything, It’s nice to see one more of the few Libertarian-leaning guys on here (at least by MY definition of Libertarian). I see you just started commenting here, so welcome, and keep in mind that the Sailer/Epigone/Kersey/Paul/Derbyshire/Buchanan regulars are an archipelago of sanity within a world of Commies, pure Anti-Americans crap, and just general other stupidity on the site. I always appreciate proprietor Mr. Unz’s great respect for free speech, but he has a great respect for insanity too!

    Anyway, as I read the great C.F. Hopkins article and was going through the comments beneath, I noticed you live in Uruguay. That’s something that’s exciting to me. I have always thought of that as a possible American-SHTF bug-out place, even before John Derbyshire mentioned the country a few times. I’ve always been into geography and Montevideo somehow has been in my head since 6th grade (Western Hemisphere) as a place I wanted to go.

    I can see that your comments about it are not completely rosy, and I appreciate that honest assessment. I would like to ask you more in the future. I and my family have been to Santiago, Chile a couple of years ago for a week, so maybe you have comparisons. Uruguay seems stable, but I know in all of Latin America, there is a tendency for any country to go Commie on a whim, and then endure miserly for some unspecified time, and end up going all military junta in the other direction.

    I don’t need to get the whole story now, but maybe I can learn more over the next while when reading your comments.

    • Replies: @AaronInMVD
  12. AaronInMVD says: • Website
    @Achmed E. Newman

    Thank you. I’ve been reading Unz for a while and blogging elsewhere for years. The present mass hysteria has me reaching out more than I’ve been. Anyways MVD is the local airport’s code.

    I got here in 2017, but Uruguay just emerged from 15 years of commie rule on March 1st. Democracy brought the commies into power here, democracy kicked them out. The new president Luis Lacalle Pou’s had an excellent first month in office, amplified by his response to the pandemic panic. I’d prefer if he’d take Bolsonaro’s tack a bit more, but the local left has been trying to get him to fall into the mandatory quarantine trap so they can hang him later for having done the martial law thing.

    An acquaintance came down here in December to pick up some hardware from my failed free speech ISP effort, and the combination of his fresher eyes with my knowing where things are helped produce quite the photo tour.

    Now that what had been known as the civilized world is ending, and lacking anything better to do I’ve started trying to grow a local English language news rag.

    Anyways, feel free to send the questions. Given the current state of things it seems like the best time to get to a bug out location is… peacetime.

    • Replies: @Achmed E. Newman
  13. @AaronInMVD

    Sorry, Aaron, I forgot to get back to you on this. I read through your friend/customer’s travelog about his visit to your adopted country from Panama. I will peruse your own blog more in the future. It will be the ideal way to try to understand the place. Thanks.

  14. Richard B says:
    @Achmed E. Newman

    They are likely looking forward to running a 3rd-World country – it’s easier for them.

    For a number of reasons I find this impossible to disagree with.

    However, it’s still possible to respond to the above quote in a different way.

    And that is to say that, in fact, it’s not easier, it’s much harder.


    Because a third world country is easier to control exactly because it’s so lethargic it’s not even unproductive. It’s simply non-productive, or, aproductive.

    Another related point. Even in a reasonably functional first world country social management is looked at, with reason, as an exhausting task and unrewarding responsibility.

    But in a third world country there’s not much to really manage cause there’s nothing doing.

    Above all, though, there’s something even more foreboding.

    The world is more complex and unpredictable than ever before.

    And a complex, unpredictable world, an inflexible, authoritarian form of social management, and an unproductive people, well, they all just do not go together.

    No one in their right mind would look at that and say, “Now THAT’s a recipe for success and a sure fire guarantee of survival for the human race!”

    In short, we shouldn’t laugh at the dinosaurs for getting themselves extinct.

    After all, they lasted a lot longer than we have so far.

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