Start of the meltdown

As of Tuesday, April 7, 2020

EDITOR, The Tribune

The United States have gone berserk. As the ancient proverb says, those whom the gods would destroy, they first make mad. From last September 2019 the Federal Reserve have put over US $ 500 billion in the banks for the Repo market. On March 15 , 2020, the Federal Reserve decided to put another $US 700 billion in the economy and the Fed recently announced $300 billion to keep credit following. Additionally, a 2 trillion bailout stimulus has been passed into law. The Federal Reserve has announced unlimited asset purchase or unlimited Quantitative easing (money creation). Currently, the Federal Reserve balance sheet is at US$ 5.6 trillion. Investors and foreign central banks are dumping US treasures at an unprecedented rate. The one-month Treasury bill yield closed at minus-0.112% and the three-month bill ended at minus-0.072%. We will have a lot of cash chasing few products. Prices will increase based on the law of supply and demand. The economic Security Act ( the CARES Act) authorize an additional US $ 4.5 trillion in additional debt. It is guaranteed that there will be additional creation of money by issuing debt to the US taxpayers before the year is out. This will accelerate the decline of its world reserve currency status. China, Russia, Turkey and Eastern European countries have been buying tons of gold. The US dollar is not backed by anything but confidence in the US government although the pedro dollar has forced the world to use the US dollar to buy oil. Oil is the most traded commodity in the world. I think sophisticated countries will not have confidence in the US dollar. The US dollar of foreign reserve has been steadily decreasing from a high of 71% in 2001 to a low of 62% in 2018 according to the IMF. Quantitative easing and low interest rate was to be temporary to get us through the 2008 Great Recession, but it has become permanent.

The Institute of International Finance data shows global debt to GDP hits a record high of 322% in 2019. The world central banks have created an additional US$ 7 trillion in debt for Covid-19 pandemic stimulus package. My advice is that the Central Bank of the Bahamas must buy gold to protect the country from inflation. This is just the beginning of an economic meltdown.

BRIAN E PLUMMER

Nassau

March 30, 2020

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Well_mudda_take_sic 4 years, 7 months ago

Fed is simply replenishing the many trillions of dollars of Mom and Pop wealth that has been permanently vaporized in the recent sell-off in the equity markets. Meanwhile the superwealthy and The Wall Street crowd who were fully hedged or sitting on cash are laughing all the way to the bank.

Porcupine 4 years, 7 months ago

Life will get increasingly difficult for Bahamians. We cannot print money like the US. As they say, "the music has stopped". Now what? The entire global economy has been shocked. Those at the bottom, will suffer the most, as they usually do. However, the chances for untold social upheaval is knocking on the door. How we channel this justified rage will determine the world of the future. I hope it is one radically different from the one we have now, and more equitable in every manner.