Courtesy of Pam Martens
Jerome (Jay) Powell, Chairman of the Federal Reserve Board
On July 29 the Federal Reserve released its Annual Report for 2020. The Appendix contains 13 statistical tables that would make most folks’ eyes glaze over.
Table G.5A., however, is worthy of a glass of good wine, a comfy arm chair, and some serious musing. That table provides a 36-year history of, among other things, the Fed’s deployment of Repurchase Agreements (Repo Loans) at the outbreak of a crisis; its Loans and Other Credit Extensions; and its Securities Held Outright – which have exploded since the Fed adopted Quantitative Easing (QE) in 2008. QE is the Fed’s wonky expression for it buying up trillions of dollars in notes and bonds to push interest rates down to near zero, thus forcing money in search of a return into the stock market, which is majority-owned by the top 10 percent of the wealthiest Americans. In other words, QE is a wealth transfer system in drag as monetary policy.
To keep our analysis of Table G.5A. as clear as possible, we’ve extracted in the charts below the first three columns of the table. Notice that Repurchase Agreements (Repo Loans) exploded from $30.37 billion at the end of 1998 to $140.64 billion at the end of 1999 – an increase of 363 percent in one year.
Now, this is the epiphany moment: year end 1999 was just 70 days away from the start of the Dot.com bust. The Nasdaq stock market would set a closing high of 5,048.62 on March 10, 2000. The Nasdaq then proceeded to lose 78 percent of its value over the next 2-1/2 years. Nasdaq reached a closing low of 1,114.11 on October 9, 2002.
If you were wise to the siren sound of the spike in Repo Loans at the Fed, you could have escaped that 4,000 points of carnage.
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