The Federal Reserve’s balance sheet just hit a new record, increasing to a massive $5.86tn. This is thanks to fresh new liquidity aimed to prevent markets from crashing during the coronavirus pandemic. As investors wonder what the end effects will be on fiat, Bitcoin breaks $7,000.
Federal Reserve Balance Sheet Breaks Records
According to Reuters, the US Central Bank’s balance sheet has ballooned by a massive $1.5tn in just three weeks since efforts to avoid economic catastrophe kicked in. Just to give that some context, that figure is the equivalent of more than one-quarter of the size of the entire country’s economy before the crisis hit and:
It will certainly grow larger in the weeks ahead as the Fed keeps piling on assets and the economy likely shrinks.
In a bid to keep markets functioning, the central bank is applying quantitative easing like never before. It is gobbling up mortgage bonds, Treasury securities, and other assets like a game of Pacman. Among its new purchases, Treasury holdings rose to $3.34tn from $2.98tn.
The central bank is also ramping up the use of its liquidity swap lines. These enable foreign central banks to exchange their local currencies for dollars. This figure rose from $348.5 billion to $206.1 billion in just one week.
Shortly after the U.S. Congress signed a $2tn coronavirus stimuli package, ex-presidential candidate Andrew Yang commented:
Where did we get $2 trillion? The American people are catching on.
— Andrew Yang
(@AndrewYang) March 26, 2020
But that was a whole week ago. Now, with the balance sheet nearing $6tn and more spending sprees on the horizon… is fiat headed to the brink of collapse?
Bitcoin Time to Shine
Many economists have warned about the bubble-like economy being on the brink of recession. However, no one predicted that the coronavirus would be the needle that would prick it.
The only choice governments may have is to increase their monetary supply. However, what will be interesting to watch is what happens at the end of the crisis.
After all, the same types of measures were taken in the 2008/9 crisis and the left-over increase in money supply went into asset classes. This time around the money is so much more. It’s possible that another stock market boom begins… But it’s also likely that this will lead to a round of defaults, currency devaluation, and significant inflation.
No one wants Bitcoin to benefit off the back of global suffering. But let’s not forget that Bitcoin emerged out of the ashes of the last global financial meltdown and now people have an alternative.
As billionaire investor Mike Novogratz pointed out yesterday, now, more than ever is Bitcoin’s time to shine as a hard asset that doesn’t debase.
As the Fed’s balance sheet mushrooms out of control, Bitcoin breaks $7k. It looks as if the smart money is already catching on.
What do you make of the Federal Reserve’s latest balance sheet figures? Add your thoughts below!
Images via Shutterstock, Twitter @AndrewYang