Wait – the Federal Reserve owns $6.7 TRILLION in securities, and that’s what’s propping up the stock market?

Photo above - Incoming Federal Reserve chairman Kevin Warsh. Forced to resign from the federal reserve in 2011 by then-chairman Ben Bernanke. Warsh has a Harvard law degree and has been a university guest lecturer for the past 15 years.

I plead guilty to being continually mesmerized by the US National Debt ($39 Trillion). I can’t see how I can cover my personal share, as a taxpayer ($357,000). There’s no way I can save that much, and I doubt if I could survive while paying another $357,000 in taxes before I die. (full disclosure - we won't have to repay it - inflation will destroy our savings and living standards instead).

But that’s not today’s story. I just found out (yahoo finance link below) that the only reason the stock market is hitting new all-time highs every week is that the Federal Reserve has been propping it up since the mortgage crisis. The Fed has $6.7 Trillion in "assets” which it purchased over the past decade or so. The Fed's balance sheet went from less than one trillion to $6.7 trillion today. About a 1,000% increase. Talk about a spending spree! But what the heck are these “assets”?

More than half are the Fed’s own T-bills. These are SUPPOSED to be owned by private investors and foreign governments. But the Fed is printing trillions of them every year, and then claiming them as assets. This is sort of like you or me using a xerox machine to create $1,000 bills, then claiming them as savings. Most of the rest of the $6.7 trillion is mortgages issued by various banks and agencies.

How does this prop up the stock market, and make continual new all-time highs? Because that $6.7 trillion in Fed assets would have come out of the stock market to buy those securities if the Fed hasn't increased it's holdings 1,000%. Imagine an immediate drop in the S&P 500 index if real investors, with real money, had to buy that Fed stuff.

If you think your future doesn't depend on those S&P stocks, then you haven’t looked at your 401K, IRA, pension (police, teachers, unions, municipal workers etc.)

Incoming Fed Chair Kevin Warsh (confirmed last week) has a plan. He wants to sell off most of the Fed’s “assets” to normalize the balance sheet. Like the Fed was for most of 113 years since it was created. Not have the Fed be a hilarious distortion of the financial markets.

Warsh also wants to reduce the interest rate on treasury bills. To placate President Trump, who has been carping at for years that the Fed is holding rates too high.

Here’s where it gets crazy:

If Warsh sells off that $6.7 trillion, then the market is flooded with unexpected treasuries and mortgage debt. Too much supply, and not enough demand. And if Warsh tries to issue new T bills with lower interest rates, this will also flood the market.

I’m all in favor of affordable mortgages, and less monkey business where the Fed prints pretend money then claims it as magical assets. Yes, let’s fix both problems. But how can this happen, since both policies seem to be in conflict with each other? Do any of the 53 republicans and 1 democrat who voted to confirm Warsh understand how this would work? Or is this confirmation just another example of a straight party-line vote to by morons terrified of Trump's revenge?

I’m just askin’ . . .



New Fed Chair Kevin Warsh Wants to Blow Up the Playbook That's Kept Stocks Rising for 15 Years. Here's What Investors Should Do Now.

https://finance.yahoo.com/economy/policy/articles/fed-chair-kevin-warsh-wants-081400913.html

Central Bank Balance Sheets: Expansion and Normalization - LegalClarity

https://legalclarity.org/central-bank-balance-sheets-expansion-and-normalization/