I’m betting the Federal Reserve’s next move is buying $1 trillion worth of stocks in the open market.
Ten years ago, Fed governors rarely got airtime on financial media. Twenty years ago, we only heard from the chairman occasionally. These days, the Fed is all we hear about.
Most average investors still don’t know that there are 12 Fed banks. Each has a president. However, the New York Fed is the only one that matters. It holds all the power.
It’s the New York Fed that bought trillions of dollars’ worth of U.S. Treasurys after the 2008 crisis.
The idea behind gobbling up Treasurys was to stabilize the U.S. government’s funding market. Federal Reserve primary dealer banks bought up Treasurys during government auctions. They then flipped them to the Fed days later.
Normally, government revenues fall during a recession. With this scheme, congressional funding kept growing right through the downturn. Government rarely shrinks.
Here’s the problem… Like a dope fiend who swears he’ll ease himself off the hard stuff, the Fed and its enablers in Congress said they’d return the system to normal after it stabilized. The truth is, they will never turn the money system back over to the markets.