Is a Great Reset of Monetary Policy Coming After Massive Money Supply Expansion?

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In response to the coronavirus pandemic, the Federal Reserve took extraordinary and unprecedented action to cushion the economic blows resulting from the global health crisis.

Over the past two years, the central bank expanded the money supply by more than $6 trillion. The pandemic-era round of quantitative easing led to the creation of nearly 50 percent of all new U.S. dollars ever created in the nation’s history.

When Congress approved trillions of dollars in new government spending, whether it was the $2.1 trillion CARES [Coronavirus Aid, Relief, and Economic Security] Act or the $1.9 trillion American Rescue Plan (ARP), the Treasury Department issued fresh debt to cover the enormous shortfall. That prompted the central bank to issue new units of currency to purchase the debt.

The Fed didn’t stop with just buying Treasury debt. The institution also acquired mortgage-backed securities and corporate bonds. This increased its balance sheet to a record $8.9 trillion.

In a March 2020 interview with “60 Minutes,” Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, noted that the Fed has “unlimited cash,” assuring the public that the financial system possesses enough money.

Uncle Sam’s Wallet

Critics charge that the Fed has enabled officials to embark upon enormous deficit-financed spending efforts by monetizing the debt. This could exacerbate America’s finances, resulting in fiscal consequences for the federal government and the American people.

The national debt has topped $30 trillion, the federal deficit is projected to remain above $1 trillion for the next decade, and the government is contending with $200 trillion in unfunded liabilities and expenditures. But financial experts warn that debt-servicing payments could skyrocket in the coming years, especially if the Fed keeps raising interest rates to combat inflation.

Last year, for example, the U.S. government spent more than $500 billion on interest for debt held by the public. With the benchmark fed funds rate projected to reach 3.4 percent by the end of 2022, officials will be paying more to service the national debt. By 2031, Washington’s net interest costs are predicted to increase to nearly $1 trillion per year (based on a 2.8 percent interest rate on the 10-year Treasury by the current administration).

By Andrew Moran

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