Understanding the Federal Reserve's Balance Sheet Expansion
In the latest episode of Macro Markets, analyst Marcel Pechman sheds light on the United States Federal Reserve's balance sheet and its implications. Pechman explains how the Fed inflated its assets by a staggering $5 trillion from December 2019 to April 2022. Interestingly, this expansion coincided with a significant 38% crash in the S&P 500 index. Additionally, the Federal Reserve's balance sheet surpassed the $8.9 trillion mark just as the stock market index reached its all-time high of 4,800 points.
Pechman raises concerns about the U.S. Treasury Department's large deficit, as the government spends more than it generates through revenues and taxes. As a result, it becomes necessary for the government to start rolling over some of its debt rather than letting it expire. This change in approach means that the Fed may no longer be able to continue reducing its balance sheet, a practice that has played a crucial role in lowering inflation.
According to Pechman, the real impact of these actions will be felt in inflation. As the Federal Reserve is inevitably forced to expand its balance sheet once again, inflation is likely to rise. In light of this, Pechman advises individuals holding valuable assets like Apple shares, land, gold, and Bitcoin (BTC) not to be fooled by the current period of reduced inflation and to hold on to these assets tightly.
Dangers of Deflation in China
Turning to China, Pechman highlights the issue of deflation, which economists believe is a significant concern. Domestic consumption in the country is declining, and there seems to be an expectation that the central bank's expansion of the balance sheet will serve as a miracle solution.
Pechman argues that there are numerous red flags emanating from China, and their implications extend beyond the country itself. If you are curious about Pechman's views on the risks this poses for international economies and what it means for stock markets and Bitcoin, be sure to watch the latest episode of Macro Market on the Cointelegraph Markets & Research YouTube channel.
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