The Chairmen Part 2

In my blogpost of March 26th this year, The Chairmen, I wrote about the importance of watching the actions of the Federal Reserve of the United States.

The United States Federal Reserve System is the central banking system of the USA and it controls money supply in the US economy. Look for the seal of the Federal Reserve in the middle left hand side of the US $100 bill.

The Federal Reserve has three key objectives: maximizing employment, stabilizing prices and moderating long term interest rates.  It is very rare that a Chairman of the Federal Reserve grants an in depth interview.  The Chairman, Ben Bernanke did so with 60 Minutes in 2008, and the current Chairman Jerome Powell gave an interview March 26th, 2020 with the Today Show.  When they give these interviews it is to speak with the general public, not investment professionals.  They give these interviews so that the overall investing public can wake up and pay attention.

So… wake up… pay attention… Chairman Powell was interviewed again by 60 minutes on Sunday May 17th.   It is important for anyone investing to watch this and understand that money is being “printed” in the US on a massive scale.

Please look out for the following quotes. And when you do hear them, ask yourself what happens to asset prices when there is more money in the system one day to the next?

The following is the Q & A from the 60 minutes piece that ran on Sunday, May 17th.

PELLEY: Fair to say you simply flooded the system with money?

POWELL: Yes. We did. That’s another way to think about it. We did.

PELLEY: Where does it come from? Do you just print it?

POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds for other government guaranteed securities. And that actually increases the money supply. We also print actual currency and we distribute that through the Federal Reserve banks.

PELLEY: In terms of size, Mr. Chairman, how does what the Fed is doing right now compare to the unprecedented action it took in 2008?

POWELL: So the things we’re doing now are substantially larger. The asset purchases that we’re doing are a multiple of the programs that were done during the last crisis. And it’s very different this time. In the last crisis, the problems were in the financial system. So they were providing support for the banking system. Here, really, the problems are in what we call the real economy, actual companies that make and sell goods and services. And what’s happening to them is that many of them are closed or just not having any revenue.

And we’re trying to do what we can to get them through this period where they’re perfectly good companies that have had, you know, sound financial condition as recently as February, but now they have no business. And they have fixed costs. So we’re trying to help them get through that period.

PELLEY: What we’re seeing is the federal government borrowing trillions, upon trillions of dollars to try to dig us out of this hole. How long can that go on?

POWELL: Well, if you take a longer perspective, the U.S. has been spending more than it’s been taking in for some time. And that’s something we’re going to have to deal with. The time to deal with that, the time to get on a sustainable fiscal path, which really just means that the economy is growing faster than the debt, and that means you’ve got to control the growth of the debt — the time to do that is when the economy is strong. When unemployment is low, when economic activity is high, that’s when you deal with that problem. This is not the time to prioritize that concern.

Please reach out to me if this is of interest and you wish to discuss.



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