The US deficit this year is already over three-quarters of a trillion dollars, putting the first eight months of the fiscal year almost equal with the entire past fiscal year. It is also $200 billion above the previous record for this portion of the year, and this May’s deficit alone was 40% higher than last May’s.
The previous deficit record was set in the middle of the last recession, which means the government is already spending more than it did to try to pull us out of the last financial crisis. In spite of all of this fiscal stimulus, the economy appears to be receding on many fronts.
The government (Donald Trump) is now routinely begging the Fed for assistance and tweeting tantrums when the Fed sits on its hands. The stock market is begging the Fed for assistance, too, and will certainly throw a tantrum of its own if none comes. All eyes are on the Fed this week, but the Fed may no longer be up to the task.
QT is QE on the QT
I’ve laid out in earlier articles how the Fed’s member banks may already be feeling a liquidity squeeze that will force them to stop refinancing the government from their excess reserves, which are in excess no more, until the Fed restarts quantitative easing. (See “Liquidity Stress Fractures Begin to Show in the Federal Reserve System.”) I think that will play out next year, but for now the Fed is continuing to intentionally tighten the system.
Read the rest here: The Great Recession