The Federal Reserve has been sneakily increasing the number of dollars in circulation over the last week. The latest injections look set to add as much as $162 billion to the total U.S. money supply — but the central bank is adamant that this is not a return to quantitative easing.
The U.S. Federal Reserve has denied that the latest round of money creation is permanent — instead claiming that it is a temporary measure. According to the Federal Reserve, it will be engaging in what it calls ‘temporary open market operations.’ The bank is essentially creating money to loan to other financial institutions.
A report in SeekingAlpha claims that, in the last week, the Federal Reserve issued temporary open market operations (TOMOs) to the tune of $30 billion. They are due back on October 8, $60 billion on October 10, $49 billion on October 11, and $22.7 billion that was supposed to be paid back today.
The report states that two different banks received the loans but does not give the names or the amounts received by them. It also goes on to say that, although these open market operations are deemed temporary, they are “endlessly renewable.”
The Federal Reserve has a history of turning these TOMOs into so-called POMOs (permanent open market operations). Without receiving the loan back, the funds stay in circulation and effectively devalue all other dollars in existence.
The sheer scale of these open market operations should concern all those holding large amounts of cash. If not repaid in a timely manner, the TOMOs issued last week would add an amount of dollars into circulation greater than Bitcoin’s entire market capitalization. This highlights just how small Bitcoin is relative to other markets and, therefore, just how early those invested could be in this experiment in decentralized finance.
The TOMOs issued by the Federal Reserve in the last week are not the only aggressive measures designed to stimulate the economy. Coupled with the heavy cuts to interest rates, as championed by President Trump, many Bitcoin analysts believe the fixed-supply digital asset might benefit as a result of such brazen attacks against savers.
With lower interest rates and the value of the dollars look set to decrease as a result of failed repayments by the banks receiving loans, the idea of Bitcoin’s hard monetary policy may well become an appealing — with the crypto asset serving hedge to those wishing to protect their wealth over the long-term.
What do you think about the Federal Reserve’s efforts to covertly print more money? We’d love to read your thoughts on the matter below.