2020: A Visual of the System

By: Robert Aro

The mechanism propping up (or holding down, depending on perspective) this apparatus known as the US economy can be visualized in a few charts, allowing us to see how fragile “the system” really is. In the last week of the year we see:

Total Assets

The Fed’s balance sheet now stands at an all-time high of $7.4 Trillion. Meaning over 3 Trillion digital dollars were created this year for the purpose of buying and lending to specific persons or organizations. “Liquidity” or “stimulus” are normally cited as the reason behind this expansion.

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Securities Held Outright: U.S. Treasury Securities

To provide more context of what the Fed bought with $3 Trillion this year, look no further than US Treasuries and Mortgage-Backed Securities. The Fed currently owns $4.7 Trillion of US Treasuries, making the Fed a significant holder of the US Government’s current $27.5 Trillion debt.

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Securities Held Outright: Mortgage-Backed Securities (MBS):

As for MBS, the balance currently sits at $2.1 Trillion, meaning the Fed created roughly $600 billion in order to subsidize the housing market this year.

A true elephant in the room, it seems, MBS purchases are seldom, if ever discussed, scrutinized or even written about. Despite the housing crisis apparently being resolved over a decade ago, it seems odd for the Fed to continually make monthly purchases to support this market. But as long as the housing market stays strong and rates remain low, it’s safe to bet that few people will ask questions.

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M2 Money Stock

Given the exceptional rise of the Fed’s balance sheet this year, some may be left wondering: What happens after the Fed expands the balance sheet?

It’s tough to trace several trillions of dollars; however, looking at the supply of money allows us to conceptualize its path from the Fed to entering the system. Here we see the M2 money supply now sitting at $19.2 Trillion.

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Looking at the data shows the money supply increased by nearly $5 Trillion for the year. Considering the newly created $3 Trillion from the Fed eventually entering the banking system, coupled with money creation by commercial banks, $5 Trillion seems as good a number as any. Also keep in mind, since March 26 of this year, reserve requirements at depository institutions were set to zero. So the money creation by the banks could have been a lot worse!

While this financial system may work well for many, like anything else which favors the rich and well connected, it works for them just a little bit more than everyone else. The advantage is given to those who get access to newly created money first.

Currency in Circulation

When the currency in circulation is compared to the M2, the fragility can be seen with a deeper perspective. At year end 2020, there exists $2.1 Trillion of coins/bills, of which approximately 10% was created in this year alone.

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Note the similar parabolic rise in all the above charts and understand that “parabolic moves” don’t normally end well. But when “the end” comes remains anyone’s guess. Nonetheless, to mention when people say our money is not really there, it’s very much true. To think, only 10% of our money exists in a physical form, while 90% is digital means this entire system could collapse, should a sizable amount of people simply ask for their money back. Of course, a bank run could never exist in a cashless society…

Perhaps that’s why it’s so important the population remains calm, trusts the systems, its central planners, academic influencers and the mainstream media. Especially in 2020 during this time of crisis, when the public looks for leadership, now more than ever, the role of the State becomes of paramount importance!

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