{"id":1619705,"date":"2022-08-23T06:49:17","date_gmt":"2022-08-23T10:49:17","guid":{"rendered":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1619705"},"modified":"2022-08-23T06:49:26","modified_gmt":"2022-08-23T10:49:26","slug":"is-a-great-reset-of-monetary-policy-coming-after-massive-money-supply-expansion","status":"publish","type":"post","link":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/is-a-great-reset-of-monetary-policy-coming-after-massive-money-supply-expansion\/","title":{"rendered":"Is a Great Reset of Monetary Policy Coming After Massive Money Supply Expansion?"},"content":{"rendered":"<aside class=\"mashsb-container mashsb-main mashsb-stretched\"><div class=\"mashsb-box\"><div class=\"mashsb-count mash-medium\" style=\"float:left\"><div class=\"counts mashsbcount\">26<\/div><span class=\"mashsb-sharetext\">SHARES<\/span><\/div><div class=\"mashsb-buttons\"><a class=\"mashicon-facebook mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/www.facebook.com\/sharer.php?u=https%3A%2F%2Fwww.conservativenewsdaily.net%2Fbreaking-news%2Fis-a-great-reset-of-monetary-policy-coming-after-massive-money-supply-expansion%2F\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Facebook<\/span><\/a><a class=\"mashicon-twitter mash-medium mash-nomargin mashsb-noshadow\" href=\"https:\/\/twitter.com\/intent\/tweet?text=&amp;url=https:\/\/www.conservativenewsdaily.net\/breaking-news\/?p=1619705&amp;via=ConservNewsDly\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Twitter<\/span><\/a><a class=\"mashicon-subscribe mash-medium mash-nomargin mashsb-noshadow\" href=\"#\" target=\"_top\" rel=\"nofollow\"><span class=\"icon\"><\/span><span class=\"text\">Subscribe<\/span><\/a><div class=\"onoffswitch2 mash-medium mashsb-noshadow\" style=\"display:none\"><\/div><\/div>\n            <\/div>\n                <div style=\"clear:both\"><\/div><\/aside>\n            <!-- Share buttons by mashshare.net - Version: 4.0.47--><p>In response to the coronavirus pandemic, the <a href=\"https:\/\/www.theepochtimes.com\/t-federal-reserve\">Federal Reserve<\/a> took extraordinary and unprecedented action to cushion the economic blows resulting from the global health crisis.<\/p>\n<p>Over the past two years, the central bank <a href=\"https:\/\/fred.stlouisfed.org\/series\/M2SL\">expanded<\/a> 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\u2019s history.<\/p>\n<p>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.<\/p>\n<p>The Fed didn\u2019t 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.<\/p>\n<p>In a March 2020 interview with \u201c60 Minutes,\u201d Neel Kashkari, president of the Federal Reserve Bank of Minneapolis,\u00a0<a href=\"https:\/\/www.bloomberg.com\/opinion\/articles\/2020-03-23\/coronavirus-fed-s-infinite-cash-tested-in-world-of-leverage\">noted<\/a> that the Fed has \u201cunlimited cash,\u201d assuring the public that the financial system possesses enough money.<\/p>\n<h2>Uncle Sam\u2019s Wallet<\/h2>\n<p>Critics charge that the Fed has enabled officials to embark upon enormous deficit-financed spending efforts by monetizing the debt. This could exacerbate America\u2019s finances, resulting in fiscal consequences for the federal government and the American people.<\/p>\n<figure id=\"attachment_4266993\" class=\"wp-caption alignnone\"><a href=\"https:\/\/img.theepochtimes.com\/assets\/uploads\/2022\/02\/09\/GettyImages-1369443665-1200x717.jpg\"><figcaption class=\"wp-caption-text\"><noscript><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-4266993\" src=\"https:\/\/img.theepochtimes.com\/assets\/uploads\/2022\/02\/09\/GettyImages-1369443665-600x359.jpg\" alt=\"Epoch Times Photo\" width=\"600\" height=\"359\" \/><\/noscript><\/figcaption><\/a> A Peterson Foundation billboard displaying the <a href=\"https:\/\/www.theepochtimes.com\/t-national-debt\">national debt<\/a> is pictured on K Street in Washington, on Feb. 8, 2022. (Jemal Countess\/Getty Images for Peter G. Peterson Foundation)<\/figure>\n<p>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 <a href=\"https:\/\/www.theepochtimes.com\/t-inflation\">inflation<\/a>.<\/p>\n<p>Last year, for example, the U.S. government <a href=\"https:\/\/www.treasurydirect.gov\/govt\/reports\/ir\/ir_expense.htm\">spent<\/a> 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\u2019s net interest costs are <a href=\"https:\/\/www.whitehouse.gov\/wp-content\/uploads\/2021\/05\/budget_fy22.pdf\">predicted<\/a> 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).<\/p>\n<p>In addition, debt can become a massive burden on the country when it swallows the nation\u2019s production. Economists warn that a country\u2019s red ink reaches a tipping point when the debt-to-GDP ratio surpasses 77 percent. Today, the debt-to-GDP ratio is about <a href=\"https:\/\/fred.stlouisfed.org\/series\/GFDEGDQ188S\">125 percent<\/a>.<\/p>\n<p>If there is a hint of concern surrounding the national debt, Treasury investors will demand higher compensation for the heightened risk. Moreover, this can threaten the greenback because the dollar\u2019s value diminishes if there is lower demand for U.S. bonds.<\/p>\n<p>Market analysts purport that the Fed is performing a juggling act: fighting inflation while maintaining economic growth. But there might be another feat the central bank needs to accomplish: combatting higher prices without severely hemorrhaging the federal government\u2019s finances.<\/p>\n<p>Suffice it to say, the more the national debt grows\u2014it\u2019s forecast to hit approximately $40 trillion over the next decade\u2014the greater the challenge for the Fed to raise rates exceeding inflation levels.<\/p>\n<h2>Is the Debt Sustainable?<\/h2>\n<p>Experts have been ringing alarm bells about unsustainable debt levels.<\/p>\n<p>\u201cNational debt may be sustainable in the short run, but at some point, rates will rise and deficits and debt will have to be tackled through spending cuts or tax increases,\u201d Meera Pandit, the global market strategist at JPMorgan Chase, wrote in a January 2021 <a href=\"https:\/\/am.jpmorgan.com\/us\/en\/asset-management\/adv\/insights\/market-insights\/market-updates\/on-the-minds-of-investors\/When-will-us-debt-become-unsustainable\/\">note<\/a>.<\/p>\n<p>Before the COVID-19 public health crisis, Fed Chair Jerome Powell <a href=\"https:\/\/ca.finance.yahoo.com\/news\/us-debt-unsustainable-path-192804468.html\">told<\/a> Congress that the national debt was on an \u201cunsustainable\u201d path.<\/p>\n<p>\u201cThe U.S. federal government is on an unsustainable fiscal path,\u201d Powell told the Senate Banking Committee in November 2019. \u201cDebt as a percentage of GDP is growing, and now growing sharply \u2026 And that is unsustainable by definition. We need to stabilize debt to GDP. The timing the doing that, the ways of doing it\u2014through revenue, through spending\u2014all of those things are not for the Fed to decide.\u201d<\/p>\n<p>During a webinar sponsored by the Economic Club of Washington, D.C., in April 2021, Powell <a href=\"https:\/\/private-wealth.us.cibc.com\/blog\/-\/blogs\/simmering-on-the-back-burner-the-national-debt\">explained<\/a> that the economy could handle the elevated debt load. However, he warned that the long-term trajectory of the U.S. budget is unsustainable.<\/p>\n<p>Powell also <a href=\"https:\/\/www.kennedy.senate.gov\/public\/2022\/1\/kennedy-to-powell-how-much-debt-is-too-much\">told<\/a> Sen. John Kennedy (R-La.) earlier this year that debt can\u2019t grow faster than the national economy indefinitely.<\/p>\n<p>But the central bank chair noted the U.S. government should only grapple with massive debt levels once the economy has stabilized.<\/p>\n<p>According to the Congressional Budget Office (CBO), the federal debt is projected to top 180 percent of the gross domestic product (GDP) by 2052. The budget watchdog warned that if policymakers refuse to act, the soaring debt will weigh on long-term economic growth, prevent crucial investments, accelerate a fiscal crisis, and stop officials from responding to unforeseen events.<\/p>\n<p>\u201cThe benefits of reducing the deficit sooner include a smaller accumulated debt, smaller policy changes required to achieve long-term outcomes, and less uncertainty about the policies lawmakers would adopt,\u201d the CBO <a href=\"https:\/\/www.cbo.gov\/publication\/58340\">wrote<\/a> in its 2022 Long-Term Budget Outlook.<\/p>\n<h2>What About the Broader Economy?<\/h2>\n<p>Since the Fed\u2019s tightening cycle began this past spring, money supply growth has been flat. But has the damage already been done to the U.S. economy?<\/p>\n<figure id=\"attachment_4126261\" class=\"wp-caption alignnone\"><a href=\"https:\/\/img.theepochtimes.com\/assets\/uploads\/2021\/11\/26\/Rates_NYSE-2021-11-26-1200x913.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"lazy size-medium wp-image-4126261\" src=\"https:\/\/www.theepochtimes.com\/assets\/themes\/eet\/images\/white.png\" data-src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/08\/Rates_NYSE-2021-11-26-600x456-1.jpg\" alt=\"Stock NYSE\" width=\"600\" height=\"456\" \/><figcaption class=\"wp-caption-text\"><noscript><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-4126261\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/08\/Rates_NYSE-2021-11-26-600x456-1.jpg\" alt=\"Stock NYSE\" width=\"600\" height=\"456\" \/><\/noscript><\/figcaption><\/a> Traders on the floor of the New York Stock Exchange look on as a screen shows Federal Reserve Chairman Jerome Powell\u2019s news conference after the Federal Reserve interest rate announcement, on July 31, 2019. (Brendan McDermid\/Reuters)<\/figure>\n<p>The 8.5 percent annual inflation rate is the highest it has been in 40 years. The Producer Price Index (<a href=\"https:\/\/tradingeconomics.com\/united-states\/producer-prices-change\">PPI<\/a>) is still hovering near levels unseen since the 2008\u201309 financial crisis. The growing cost of living has consumers transforming their buying habits, from consuming less to altering their demand patterns.<\/p>\n<p>Many economists note that the labor market has been fractured: real wage growth is still in negative territory, productivity is tumbling, the number of people quitting remains elevated, job openings continue to be above 10 million, and 7.5 million Americans work two jobs.<\/p>\n<p>Asset bubbles have been the next notable consequence of the Fed\u2019s historic monetary expansion. From stocks to cryptocurrencies, these assets reached record highs before crashing into a bear market. It\u2019s uncertain if the latest gains are part of a bear market rally or if the bottom has been touched and a bullish cycle has started. But the equities arena is hanging onto every word from the Federal Reserve, be it Powell or St. Louis Fed Bank President James Bullard.<\/p>\n<p>The consensus on Wall Street is that the U.S. economy will slip into either a sharp or mild economic downturn, if it hasn\u2019t already. The country slipped into a technical <a href=\"https:\/\/www.theepochtimes.com\/t-recession\">recession<\/a> after two consecutive quarters of negative GDP growth. If economic conditions worsen, there is an expectation that the Fed will reverse its hawkish tightening campaign and begin to <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2022-08-18\/fed-may-need-to-raise-rates-above-3-to-cut-inflation-daly-says\">cut interest rates<\/a>.<\/p>\n<p>Fed officials have stated that this isn\u2019t happening. Instead, they aver, the institution will likely lift rates and leave them there until there is concrete evidence that inflation is substantially coming down.<\/p>\n<h2>What\u2019s Next for the Fed?<\/h2>\n<p>Will the present monetary system remain intact, or will it experience an overhaul?<\/p>\n<p>Many developments are unfolding that could result in long-term consequences for households, policymakers, and geopolitical pursuits.<\/p>\n<p>Countries are partaking in a de-dollarization initiative. The Fed is assessing a central bank digital currency. Higher inflation and rising borrowing costs are weighing on consumers. <a href=\"https:\/\/www.axios.com\/2021\/04\/05\/federal-reserve-poll-low-trust-poor-public\">Trust<\/a> in the Federal Reserve has eroded considerably over the past couple of years.<\/p>\n<p>Whether the central bankers hit the reset button on the monetary system remains to be seen. But the pandemic might have ushered in a new era for the economy and fiscal and monetary policy, one that Powell\u2019s successor might facilitate and install into the fabric of the Fed\u2019s infrastructure.<\/p>\n<div class=\"author_wrapper\">\n<div class=\"one_author_block round\">\n<div class=\"top_row\">\n\t\t\t\t\t<a href=\"https:\/\/www.theepochtimes.com\/author-andrew-moran\"><img decoding=\"async\" src=\"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-content\/uploads\/2022\/07\/WEB_AndrewMoran.jpeg\" alt=\"Andrew Moran\" \/><\/a><\/p>\n<p>Follow<\/p>\n<\/div>\n<p>Andrew Moran covers business, economics, and finance. He has been a writer and reporter for more than a decade in Toronto, with bylines on Liberty Nation, Digital Journal, and Career Addict. He is also the author of &#8220;The War on Cash.&#8221;<\/p>\n<\/p><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>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<\/p>\n","protected":false},"author":1,"featured_media":1619707,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[],"tags":[],"class_list":["post-1619705","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"_links":{"self":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1619705","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/comments?post=1619705"}],"version-history":[{"count":0,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/posts\/1619705\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media\/1619707"}],"wp:attachment":[{"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/media?parent=1619705"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/categories?post=1619705"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.conservativenewsdaily.net\/breaking-news\/wp-json\/wp\/v2\/tags?post=1619705"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}