Marc Cuniberti I have always said if printing money solves economic problems how come we still have economic problems?
Our money supply, basically our currency the U.S. dollar, is handled by the Federal Reserve.
One of their missions is to assist in the financial stability of the system any way it can. It has limits on what it can do, yet some argue it has exceeded its authority in recent decades.
The savings and loan bailout in the 80’s, the 1997 Long Term Capital Management rescue, the dot com crash combined with the Y2K scare, then 9/11, the 08 real estate crash and now CoVid 19, the reasons for Fed intervention can be argued on each occasion. Interestingly, each subsequent crisis has been bigger than the last, and therefore each intervention by the Fed has encompassed more and more money.
The Fed has a handful of tools it can use to try and juice the economy from what ails it.
They include lowering overnight interest rates so financial institutions can borrow money cheaply. Lower overnight rates bleed over to consumer credit rates making overall borrowing costs cheaper. The Fed can also add funds to the Repurchase Agreement mechanism (REPO) which lubricates the conduit for corporate credit. The REPO market can and has frozen up during times of market stress. The Fed can buy Treasury and agency debt (called Quantitative Easing (QE). QE is often mentioned in the news as a major tool of the Fed. Increasing QE increases the U.S. government deficit. It is seldom argued these tools are outside of the Feds permitted actions.
Where the Feds cross into a grey area is in the purchasing of private debt (corporate bonds and bond funds) or outright loaning money to private for-profit companies that may or may not be listed on the public exchanges. They may also in part be buying individual company stock and stock funds in partnership with the U.S. government.
Much of the Feds monies are used by the U.S. government are used for stimulus checks and programs, projects and direct assistance to consumers.
Each time questions have been raised about the legality of Fed intervention, the reasoning trumps the discussion. In other words, many in Congress may be hesitant to voice concerns over reining the Feds in when Americans are in need of assistance.
It is interesting to note that the Feds obviously feels the tools it explicitly has is not enough if it is tip toeing around in the grey areas of its mandate.
Additionally it has ventured off course in the recent bailouts starting even before the 08 housing crisis without much objection. It may be of the opinion as long as needs are great enough, the rules it operates under should and will be relaxed. After all, it has dipped the proverbial toe in other areas of influence without much fanfare.
The real question may be does the main tool of the Fed, which is manufacturing paper currency (the U.S. dollar) to throw wherever needed, really solve a crisis or is it just “papering over a symptom” of a much greater problem?
Since the bailouts are getting larger and larger with each crisis, are they really using permanent solutions or just pushing the day of reckoning (if there is one) out into the future?
If the next crisis, when it comes, is even larger, can the same tools be used again and again without ramifications?
Experts disagree on the answer to this question but a major concern is inflation raising its ugly head sometime in the near or far future due to the massive increase in the money supply from the bailouts.
Other countries throughout civilization who have tried monetary creation to permanently solve economic crisis have not come out unscathed. The ramifications have run the gamut to moderate inflation, creeping stagflation (economic stagnation coupled with inflation) or a complete currency collapse.
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