What is the Federal Reserve doing to your money?
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…Money and Markets, October 15, 2012 by Martin D. Weiss, Ph.D.…
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. 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!