We are in the end time of an unprecedented era of financial expansion — the greatest expansion of the world’s money supply ever attempted, expansion of the Federal Reserve’s vast and unchecked powers far beyond what the Fed could do before the financial crisis, and super-sizing expansion of banks that were already way too big to fail.
I am calling this time in which we are now unwinding this monetary expansion the Great Recovery Rewind because I believe this attempt by the Federal Reserve and other central banks of the world to move us away from crisis banking is taking us right back into economic crisis. That is why this was the top peril listed in my Premier Post, “2019 Economic Headwinds Look Like Storm of the Century.” It is more potent in possible perils than all the trade tariffs in the world.
Even the CEO of one of the Fed’s largest member banks says no one knows what devastating effects the Fed’s unwinding of its balance sheet will cause. JP Morgan Chase’s Jamie Dimon warned that the Fed’s unwind is a massive experiment as untried as the quantitative easing that is being unwound.
“QE has never been done on this scale,” he said. “We cannot possibly know all of the effects of its reversal.”
Jamie Dimon, the chairman and CEO of JPMorgan Chase, is one of many prominent figures in finance who warn that this reversal of direction could send stock prices plummeting and derail the U.S. economic expansion. “I don’t want to scare the public, but we’ve never had QE [before]. We’ve never had the reversal [before]. Regulations are different. Monetary transmission is different. Governments have borrowed too much debt, and people can panic when things change….”
Earlier this year, noted bond fund manager Bill Gross expressed his own concerns about the effect of this unwinding. Last year former Fed Chairman Alan Greenspan warned of a massive bond market bubble that will be deflated in the process….
Former U.S. Treasury Secretary Lawrence Summers says, “tightening involves real dangers and needs to be carried out with great care.”
According to Peter Bockvar, the chief investment officer (CIO) of … Bleakley Advisory Group, “I believe the market … is headed for a brick wall the deeper quantitative tightening gets.”
Ray Dalio, founder of hedge fund Bridgewater Associates, observes that quantitative tightening is bound to produce effects entirely opposite to those from quantitative easing, namely, “higher interest rates, wider credit spreads and very volatile market conditions.”
Sounds like now.
Read the rest here: The Great Recession