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Bill’s By The Number$

Posted by: Lisa Navarro | Posted on: June 29th, 2020 | 0 Comments

1. EVERYTHING CHANGED – President Trump declared a national emergency as a result of the COVID-19 pandemic on Friday 3/13/20, nearly shutting down the US economy. Retail sales in the country in April 2020 ($413 billion) declined 22% from retail sales in February 2020 ($527 billion) (source: Commerce Department).

2. MASSIVE JOB LOSSES – First-time applications for unemployment benefits in the last 3 months through 6/20/20 (47.2 million) were more than 15 times the number of first-time applications for jobless benefits filed (3.1 million) in the 3 months before the pandemic struck the United States (source: Department of Labor).

3. QUICK RESPONSE: Over a 4-week period ending Friday 4/10/20, Jay Powell and the Federal Reserve launched or reopened 8 lending facilities to provide more than $2 trillion of loans to distressed corporations, municipalities, states, investors, investment companies and money market funds (source: BTN Research).

4. CARES ACT – President Donald Trump signed the $2.3 trillion CARES Act on 3/27/20, including $301 billion of direct payments to individuals, $349 billion in loans/grants for small businesses, and $454 billion given to the Treasury Department to provide a backstop on $4.5 trillion of Fed loans to big businesses (source: CARES Act).

5. BUYING ASSETS – The Fed is projected to buy $3.5 trillion in Treasury securities by 12/31/20. Technically, the Fed does not buy Treasuries directly from the government, but rather it buys previously issued Treasury securities from 21 “primary dealers,” i.e., commercial banks and brokerage houses that are trading counterparties of the New York Federal Reserve (source: Federal Reserve).

6. HE SAID IT – Scott Pelley of “60 Minutes” asked Fed Chair Jay Powell on 5/17/20 “where does it (the new money flooding our system) come from?” Powell responded “We print it digitally. So as a central bank, we have the ability to create money digitally. And that actually increases the money supply” (source: 60 Minutes).

7. WHERE IT COMES FROM – The money used by the Federal Reserve in its lending programs and asset-buying programs was “digitally created” by the Fed, i.e., the Fed does not technically “print” money (it does not have a printing press) but rather it creates money with the press of a button on a keyboard. The Fed is forecasted to create $5 trillion of new money between March 2020 and December 2020 (source: Federal Reserve).

8. MONEY MULTIPLIER – When the Fed acquires assets from banks, e.g., Treasury securities, the Fed issues electronic credits to the banks in exchange for the assets. Banks can then use the money from the asset sale to make loans equal to 10 times the amount of money digitally created by the Fed (source: Federal Reserve).

9. GETTING A LOT BIGGER – The Fed’s balance sheet reached $6.14 trillion as of 6/24/20, up from $3.89 trillion as of 3/11/20, largely the result of purchases of Treasury securities (source: Federal Reserve).

10. USED ONE OTHER TIME – The Fed has “digitally created” money to buy government securities once before – during the 2008 global real estate crisis. Between 11/05/08 and 10/29/14, the Fed’s balance sheet grew from $490 billion to $4.2 trillion as a result of 3 “Quantitative Easing” programs (source: Federal Reserve).

11. LOW COST – The 2008-14 “Quantitative Easing” programs were designed to lower long-term rates for mortgages and other debt after the nation’s 2008-09 recession. It worked – the yield on the 10-year Treasury note and the average interest rate on a 30-year fixed rate mortgage both fell to all-time lows in 2012 (source: BTN Research).

12. MONEY SUPPLY – The nation’s money supply (M1) has increase from $3.73 trillion as of 3/11/20 to $5.23 trillion as of 6/15/20, a function of the Fed’s “digital creation” of money and of low interest rates motivating consumers to borrow money at historically low rates (source: Federal Reserve Bank of St. Louis).

13. PRINTING TOO MUCH? – Some, but not all economists, feared that our “digital creation” of money in 2008-14 and again in 2020 could lead to hyperinflation, something that occurred in Germany in 1921-23, in Argentina in 1975-1990, and in Zimbabwe in 2007-09 (source: BTN Research).

14. TEXTBOOKS AREN’T ALWAYS RIGHT – Economic textbooks agree – creating “too much” money that chases “too few” goods will lead to inflation. But it did not happen after 3 “Quantitative Easing” programs in 2008-14. US inflation averaged just +1.8% per year over the 5 years from 2015-19 (source: Bureau of Labor Statistics).

15. IF RATES WENT UP – Rising interest rates (as a result of rising inflation) would raise the government’s funding costs. The US is paying an average of 1.983% on its “interest-bearing” debt today. $20 trillion of our $26 trillion national debt is interest-bearing (the other $6 trillion is debt the government owes itself). Every 1% swing in our cost of money would result in $200 billion of additional interest costs per year (source: Treasury Department).

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