How the Pandemic Affected the Federal Reserve Balance Sheet, Federal Treasury, and Incited a Recession

“Certainly, a very interesting time. We’re all in this together, but I know we’re going to get through this.” ~ Brent Hillerich || This blog will give you many details on How the Pandemic Affected the Federal Reserve Balance Sheet, Federal Treasury, and Incited a Recession.

How has the pandemic affected all of us?

Updates:

• Investment Portfolio – predominantly, no adjustments need to be made at this point.
• We’ve crossed over that 5 million mark of COVID cases, and around 160,000 Americans have passed. Worldwide, it depends on what they’ve done and what practices they’ve put in place. *Please note: some statistics may have changed since videos were recorded.

Where has this led us?

The Federal Reserve Balance Sheet

What’s fascinating is looking back at the 2008-2009 Federal Reserve balance sheet during the last recession. In November 2008, a QE1 program put $1.4 trillion on the Federal Reserve balance sheet.

Two years later, in QE2 of 2010, about half a trillion was added. Then with the QE3 program in 2012, another $1.6 trillion was added.

We started with a huge Federal Reserve balance sheet from the last economic downturn. What’s concerning is that we printed money to pay for different things to stimulate the economy.

Looking at QE4 that started March 23 and at about four or five months in, we’re already approximately $3 trillion from the balance sheet. It’s good that Congress acted quickly, but this is a substantially significant number.

How are we going to pay for all of this in the future?

The Federal Treasury

The Federal Treasury is at a record low—at 40 basis points or so. It’s astronomical how low that yield on the 10-year Treasury yield is at this point. Now, people are worried about inflation. Look at what’s happened to gold—it’s skyrocketed to over $2,000 an ounce.

People are concerned about fixed income and how can the last 30-40 years—is it going to have the ability to have that same capacity to provide a safer investment in the future? Maybe gold is the answer, but most likely not a large part of our portfolios, but certainly something to look at in the future.

The economy

Consumers have a huge impact on GDP. At one point in time, dining out was down 100%, and TSA traveler traffic was down almost 100% as well. It’s gotten better, but not much.

What’s gotten better is consumer debt. At one time, it was down 40% and now is about one-quarter of that. We’ve also seen a considerable increase in refinancing mortgages because of the 10-year note.

So, where has this led?

In 1950 we had some hiccups, then again in 1980. The 2008-2009 stuff is nothing relative to where we are. In 2020 Q1, down 7%; then in Q2, we’re down an astronomical 35% consumption. These are historical numbers never seen before.

Without a doubt, this has led to an economic recession in the United States. The last recession, which was the Great Depression, was back in the 1920s, but the financial recession lasted just under two years, down at about 4%.

This time, at four months in, we were down almost 11% in real GDP, which creates a big impact, and we don’t know how long it will last.

We knew we were going to be here, but we can’t predict whether the Q3 or Q4 numbers will be positive or not.

Navigating through a recession

Technically, we are now in a recession. So, you might wonder how the market can keep going up.

In almost 25 years of being in business, there’s never been a greater fundamental disconnection between economic data and how the market reacts to it.

For example, how can airline travel peak and airline stocks do well when air travel is down 79% from this same time last year? That’s a concerning number, but even more of a concern is that the market seems to be reacting to very short amounts of time.

We’re in a pandemic, and the fundamentals don’t look good.

Maybe you’ve lost your job or still have a job, but are unsure of the future. Keep this thought in mind—you’re going to get through this and be okay, just like the last time.

Has the pandemic affected you? What can you do when in a recession? Here are three things to think about:

1. Have a plan
Develop a plan with your spouse, family member, advisor, or friend. Have plans in place for personal finances, investments, jobs, health, and family time.

2. Monitor expenses
Think about what you need vs. what you want. Cut down or cut out the “want” stuff, especially if you’re dealing with financial hardship. Come up with ways to cut back.

3. Stay engaged
Read a book, master a new language, advance your computer skills, create a profile on LinkedIn, look for ways to network. Being engaged in other parts of your life can improve your marketability.

For more information about How the Pandemic Affected the Federal Reserve Balance Sheet, the Federal Treasury, and Incited a Recession:

Crescent Wealth Partners would love to help you by talking through these things and moving forward with a plan. Call us at 941-923-3663 or visit us online to get the conversation started.

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