How the Fed Became the Lender of Last Resort

[Inside Wall Street with Nomi Prins]( Welcome to Inside Wall Street with Nomi Prins! It’s the only daily newsletter featuring the insights of renowned author and former Wall Street insider, Nomi Prins. Every day, Nomi shines a light on a massive wealth transfer she calls The Great Distortion. That’s the true cause of the permanent disconnect she sees between the markets and the real economy. And she shares ways you can come out ahead, if you know where the money is flowing. You’ll find all Nomi’s Inside Wall Street issues [here](. If you have questions or comments, send Nomi a note anytime [here]( or at feedback@rogueeconomics.com. How the Fed Became the Lender of Last Resort By Nomi Prins, Editor, Inside Wall Street with Nomi Prins Last week, I [called former Fed chair Ben Bernanke’s Nobel Prize win ridiculous](. One Inside Wall Street reader, Christopher H., took it even further. He wrote in, saying Bernanke “should be awarded a jail sentence, not the Nobel prize.” Under Bernanke’s leadership, the Federal Reserve took it upon itself to become the lender of last resort – on steroids. As a result, the Fed more than doubled the size of its balance sheet through asset purchases between 2008 and 2010. But, more importantly, Bernanke’s Fed set a precedent… lots of money, no responsibility. Let me show you what I mean by that, and the implications for your money today. Recommended Link [Reclusive trader scores 20 straight years of winning trades. Learn how]( [image]( After 35 years as a successful trader, Market Wizard Larry Benedict is pulling back the curtain and finally stepping into the limelight to share his trading secrets. And he gives you the name and ticker of the one stock that could put you on the road to financial success. [Watch his debut video now.]( -- Bernanke Helped Create a Beast In 2010, Congressman Ron Paul asked Bernanke whether he would ever shrink the Fed’s balance sheet again. Bernanke replied that he would bring the balance sheet back to under $1 trillion. The Fed’s balance sheet had already grown to about $2.3 trillion by that time. And it never came down during the rest of Bernanke’s time as Fed chief. Fast forward to 2020, when Covid-19 slammed the world, and governments panicked. The Fed cut short-term interest rates back to zero and pumped money into the financial system. The aggressive intervention – along with massive government spending – stemmed from [policies Bernanke put in place](. [Featured: “You can follow the money… all the investors are smelling it.” - Nomi Prins]( The Fed’s balance sheet exploded. Since the Fed’s pandemic intervention started in March 2020, its balance sheet has more than doubled. If we look further back, to 2008, the Fed’s total assets have increased nearly 10x since then. You can see this in the chart below… [Chart] Even with the Fed shrinking its balance sheet a little bit this year, it’s still close to $9 trillion. Meanwhile, inflation is now close to 40-year highs. So the Fed has been scrambling to raise rates to bring down inflation. But now, we are seeing what happens when the Fed slams the breaks on its monetary stimulus. Stocks are selling off, and so are bonds. The markets have become addicted to all forms of Fed stimulus, low rates, and QE. When any of these are disrupted, markets exhibit more volatility, and they sell off. With higher interest rates, borrowing becomes harder and costlier for consumers. Same goes for businesses, which then pass on those higher costs to consumers. And so as debt becomes more expensive, at the end of the month, many Americans have less left over. Despite this, as I’ve written here and said publicly, the Fed can’t do anything about some of the major causes of that inflation – fuel and food. Here’s the bottom line. These actions are coming at a steep cost to American people… all because of things Bernanke had a major role in creating and cheerleading. Recommended Link [Former Goldman Sachs Exec: “5 billionaires are betting Elon Musk is dead wrong.”]( [image]( Elon Musk calls [this the key to “Tesla’s future.”]( And no, it’s not a new electric car. It’s a giant factory called a “Gigafactory.” Musk spent over ten billion dollars building multiple Gigafactories around the world. All to profit from an emerging trend Forbes reports will be worth over $130 trillion dollars. But after visiting the Gigafactory in Austin, Texas… Former Goldman Sachs executive Dr. Nomi Prins says the real story is NOT these huge factories. Because she’s discovered five billionaires are betting against Elon Musk… By backing a tiny $4 company that’s set to dominate this $130 trillion dollar trend. And she’s put together a short, 30-second demonstration to show you why. [Click here to watch the 30-second demo.]( -- What This Means for Your Money So, what are the investment implications in light of what the Fed is doing today? As I write, the assumption is that the Fed will keep “taking forceful and rapid steps” to fight inflation, as current Fed chief Jerome Powell put it. But I still believe the Fed will have to [start pivoting soon, beginning with smaller rate hikes](. As you may recall, the Fed had already signaled it might return to a more dovish stance sooner than the markets expected. The reason why that hasn’t happened yet is because the recent U.S. monthly inflation numbers came in at 8.2%. (That was higher than the expected 8.1%.) But with the S&P 500 already down about 22% year to date, the Fed is bound to start easing off on its “War on Inflation,” despite all the tough talk. And we already have a precedent for this from across the Atlantic. [Featured: Wall Street “loser” becomes the trader for the Top 1%.]( Last month, the Bank of England (BoE) became the first major central bank to pivot to “restore market functioning.” On September 23, the BoE announced it would begin purchasing U.K. government bonds to stabilize its bond market. The move came just days before the central bank was set to begin quantitative tightening policies. Instead, it did a 180 and started quantitative easing… again. Much like the Fed, the BoE had been hiking interest rates in hopes of taming out-of-control inflation. But then it ran into issues in the foreign exchange markets… and potential solvency issues with U.K. pensions, caused by plunging bond values. This forced the Bank of England to flip. 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[Click Here To Get The Name of The Stock, FREE.]( -- Right now, the Fed may have more wiggle room than the Bank of England. But it will have to face the music eventually. Consider this: At writing, U.S. federal debt stands at about $31 trillion. It costs $678 billion to maintain the debt. That’s 13% of the total federal spending. And it’s about $57 billion a month. If the Fed keeps hiking rates aggressively, the interest payments alone will put the government in the poorhouse. Bottom line: Sooner or later, the Fed will flip. In the meantime, we can expect some choppy action as the markets try to figure out what it will do next. Regards, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=Inside Wall Street Feedback). --------------------------------------------------------------- MAILBAG More readers are responding to Nomi’s recent essays on Bernanke [catch up [here]( and [here]( and his precedent of bringing cheap, easy money policy to the Fed… I totally agree with your assessment of Bernanke and the Fed back then. I think you could add that during the Clinton Administration they popularized the notion that we need to get those on lower income scales a home also. So they coerced Congress, banks, and mortgage lending institutions to loosen their restrictions, and open their coffers for those who did not previously qualify, nor have the means or attitude to pay off their loans. – Paul M. The Fed is a non-profit that pays its net income to the government. Have you calculated the difference between these payments and the interest the government pays the Fed? Those who speak of the cost of the Federal Government's borrowing never seem to take into account the income from the Fed, which has other sources of income as well as the Federal Government. The net cost is much lower than the apparent cost. I got lost trying to figure this out on the Fed's website. Thanks for your work. – Tom S. And another reader expresses their admiration for Nomi’s content… Just wanted to say that I love your content. Keep up the good work. My friends recommended your website to me. – Abigail S. Do you agree with Nomi’s prediction that the Fed will flip sooner or later? If Bernanke’s actions helped create a situation for the American people today where they have less money left over, why was he awarded a Nobel Prize? Write us at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: How the Fed Became the Lender of Last Resort). 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