The Federal Reserve’s balance sheet hit a high of $9 trillion at the height of Bidenomics and the COVID pandemic in December 2022.
As the Fed’s balance sheet expanded from under $1 trillion in 2007 through massive asset purchases (bailouts via quantitative easing, QE, or aka money printing) to an astronomical $9 trillion, some of the assets are of questionable quality and have consequences that are only now becoming apparent when it’s time to sell them. This process is called quantitative tightening, QT.
Yesterday, at 2 p.m., Chairman Jerome Powell’s Federal Reserve cut interest rates by 25 basis points. Powell also announced the end of QT, that the Fed would be making a duration adjustment to the yield curve profile, and that this may be the last cut of 2025.
One may only infer from Powell’s actions that he and the “groupthink” voting members of the Federal Open Market Committee are more concerned with politics than with their mandate to ensure price stability and full employment.
Let’s have a quick review of the Fed’s track record.
Do we all remember how the consecutive Federal Reserve chairs — Ben Bernanke, Janet Yellen, and Powell—hoodwinked the public? For example, Bernanke assured the public that the “subprime mortgage crisis is contained.”
This was totally untrue and caused the Great Financial Crisis, which led to the bankruptcies of Bear Stearns and Lehman Brothers.
After misdiagnosing the subprime crisis, Bernanke kept telling us that the bank bailouts and the Federal Reserve’s balance sheet expansion were “temporary emergency measures that would soon be reversed.”
As my chart below, which illustrates data from the Fed, shows, the real surge in the Fed’s balance sheet reached $9 trillion in 2022. In 2022, Fed policies and Bidenomics saw inflation surge to 45-year highs of 9.1%!
Bernanke’s assurance on temporary emergency measures was a lie. Not only that, but all of the above Fed chairs assured the public, “inflation is transitory,” which was yet another blatant lie.
The Federal Reserve, its 24,000 employees, and its annual budget of nearly $9 trillion are not good value; in fact, the Fed is not fit for purpose and needs to be abolished or restricted.
Powell is overseeing nearly $3 billion on renovations to the Federal Reserve complex, and the mainstream media’s silence is deafening. President Trump builds a ballroom in the White House for zero taxpayer dollars, and it’s all Washington is talking about.
The Fed's Policy Achievements
Fed policies since 2000 have created the most significant wealth inequality gap in history.
In addition to the Fed’s enabling moral hazard, its permanent balance sheet expansion, along with Bidenomics, have created grotesque asset bubbles in the equities, property, and credit markets.
It appears the latest everything AI bubble has now become more than a bubble; it’s a mania.
With NVIDIA’s market cap exceeding $5.2 trillion today, we are seeing extreme irrational exuberance, driven by retail and FOMO (Fear of Missing Out). This will end badly, and Trump will be blamed. NVIDIA’s market cap surge this month is greater than the sum of the market value of Morgan Stanley, Goldman Sachs, plus adding in a few Starbucks at $93 billion each.
As detailed in my book Planet Ponzi (Glacier USA, 2012), I warned that markets could not absorb these assets.
An additional problem is the Treasury’s current financing needs, as the interest alone on our massive debt now exceeds $1 trillion — about 20% of our Federal revenue.
The US debt is a massive problem, given that China has been a net seller of U.S. Treasuries rather than a net buyer.
My questions: Who will buy our bonds and at what interest rate? How will that impact our status as the world’s reserve currency?
This is why I remain optimistic about commodities — from uranium, copper, and all the precious metals.
Fun fact: seven stocks account for more than 35% of the universe of nearly 3,500 traded US equities. The speculative volatility in these seven stocks is extraordinary. Today, Meta lost almost $300 billion in an hour; that loss in market capitalization is more than the market caps of Lowe’s Companies Inc., Target Corp, Best Buy Inc., and Dell!
In closing, retail buyers of exchange-traded funds, stocks, and options have created a mania that will not end well. Valuations have stretched to the point of irrational exuberance. Retail buying of the Mag Seven has become a dangerous mania.
Be cautious, be nimble, and be warned: No, it’s not different this time, next time, or anytime — this time, like last time, it will end badly, but until it does, many are partying like it’s 1929!
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Mitch Feierstein knows the financial industry inside out. For the past four decades he consistently created opportunity and value where others have failed to look. He is a successful investor and CEO of the Glacier Environmental Fund Limited. Prior to Glacier, he was Senior Portfolio Manager of the Cheyne Carbon Fund, part of one of the largest and best-respected hedge-fund groups operating in Europe. He has acted as a consultant for a number of governments in their disaster and contingency planning. He is the author of Planet Ponzi, the only insider's account of the credit crisis detailing; How we got into the mess, what happens next, and what you need to do to protect yourself. He divides his time between London and New York.
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