The Federal Reserve has today announced plans for the unlimited purchasing of US Treasuries as well as mortgage backed securities. This drastic measure has another term by which it is known, unlimited quantitative easing.
Since the 2008 Financial Crisis central banks throughout the world have used quantitative easing to help prop up a weakened economy. The process involves central banks printing money in the hope that this stimulates economic growth.
Critics on both sides
There have been critics of the process from both the left and right of economic ideology. The left has argued that the stimulus has never “trickled down” to those most in need. Instead, it has increased the wealth gap in many western nations.
The right argue that this is the debasement of national currencies and has artificially inflated stock markets around the world.
Federal Reserve announces extensive new measures to support the economy: https://t.co/k5T0cvNFdm
— Federal Reserve (@federalreserve) March 23, 2020
Extreme measures
The US Federal Reserve had already taken aggressive action last week as the crisis engulfed economies throughout the world. Both the FTSE and Dow Jones, in the UK and US respectively, have seen massive losses in the past few weeks. Circuit breakers, rarely ever seen on the US markets, have been triggered numerous times already.
The UK Chancellor of the Exchequer, Rishi Sunak, also used the daily press conferences in the UK last week to announce sweeping plans. However, there has been criticism that he still hasn’t done enough for many workers, particularly the self-employed.
Worryingly, since the opening of the US markets today, stocks have continued to slide. If the prospect of unlimited QE doesn’t help turn the market then questions will soon be asked as to what actually can?
Bitcoin and gold set for lift off?
The extreme money printing has made Bitcoin believers extremely bullish. Extreme money printing has historically caused hyperinflation such as in Weimar Germany after World War One.
Their view is that Bitcoin should react well in the long run to such policies due to the cap on 21 million Bitcoin to ever be created. Gold similarly should perform well too. Again, this is due to the cap on how much can be produced.
Bitcoin’s price was boosted coinciding with the Federal Reserve announcement, jumping $400 in an hour, and is now trading above $6,000 once more.
The next three months will be a testing time for citizens throughout the world and the economies that they depend on.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.