Submitted by Taps Coogan on the 1st of April 2020 to The Sounding Line.

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The Federal Reserve’s balance sheet has swelled by a historic $1.5 trillion since repo markets first blew out in September 2019, the fastest such expansion in history.

The majority of the expansion in the Fed balance sheet has been a result of three programs: its repo facility whereby it ‘prints’ money and borrows treasury securities, its ‘Not-QE’ program whereby it ‘printed’ money and bought treasury bills, and its ‘QE-5’ program whereby it ‘prints’ money and buys treasury bonds and mortgage backed securities.

Speaking exclusively of the Fed’s purchases of treasuries, since September 2019, the Fed has borrowed a net $352 billion of treasuries and purchased another $883 billion, a combined total of $1.24 trillion. During the same period, the national debt has increased by ‘just’ $900 billion. In other words, the Fed has indirectly monetized every single penny that the Federal government has borrowed since September, and then some.

Fed Repo Holdings

Fed Treasury Holdings

With the Fed pledging to buy unlimited amounts of an unconstrained buffet of financial assets in order to “stabilize” financial markets, it should be expected that much of the explosion in the national debt that arises from the $2 trillion ‘helicopter money/corporate bailout’ stimulus plan will also be monetized by the Fed. So will the debt that arises from the inevitable surge in unemployment claims and the decline in tax revenues.

Putting aside technical definitions (the Fed is still buying its treasuries in the secondary market, etc…), if it feels like the Fed has embarked upon Modern Monetary Theory (MMT) and helicopter money, that’s because it has. Welcome to the new ‘new normal.’

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