US Fed Balance Sheet Jumps $7 Trillion & Congress Passes $3 Trillion Relief Package

While the money printing may restrict equity bear, “it's a prime catalyst to relaunch bull markets” in Bitcoin which is likely to sustain higher as a global recession approaches.

On Friday, House Democrats passed a $3 trillion coronavirus relief package.

This bill includes a second round of $1,200 direct payments to individuals, up to $6,000 per household. Almost $1 trillion are for cash-strapped local and state governments while $200 billion for essential workers’ hazard pay.

It further involves $600 per week for federal unemployment insurance benefit, $175 billion in rent, mortgage and utility assistance, and $10 billion in emergency small business disaster assistance grants.

The repeal of the $10,000 cap on state and local tax deductions for tax years would be most beneficial to higher-income taxpayers.

Economy facing “significant” vulnerabilities

Elsewhere, the US Federal Reserve’s balance sheet has reached $7 trillion, growing by $213 billion in the week ended May 13 which equals a record 32.2% of US GDP.

Before the Fed started its bold emergency action on March 15, the assets stood at $4.31 trillion.

The Fed also warned this week that the financial sector faces “significant” vulnerabilities due to this pandemic.

The coronavirus pandemic continues to wreck the country with the US having more than 1.48 million cases and more than 88,000 lost their lives to this virus.

Already, over 36 million people have filed for jobless claims since the crisis started.

Deflation not inflation the bigger risk

Fed and Congress injecting trillions of dollars into the economy might feel like preparing for inflation with easy money floating in the economy. But Bank of America is expecting deflation.

Core CPI prices that have historically fallen both during and after recession dropped 0.45% in April, the weakest point since first created in 1957.

A drop in producer prices, another indicator of near-term deflation has also fallen 1.5% over the last two months. BofA wrote,

“Items that are most in demand due to the shutdown – groceries, cleaning products, PPE etc. have risen in prices. Less visible [to consumers] are the numerous falling prices.”

As such, the COVID crisis and policy response to it are “deflationary” — a bigger risk in the next couple of years than inflation.

Social Capital CEO Chamath Palihapitiya shares the same opinion as he said, Fed’s stimulus policies risk “accelerate a really bad deflationary supercycle.”

Central-bank liquidity prime catalyst to relaunch bull markets

The risk of deflation is why the likes of macro investor Paul Tudor Jones are looking at bitcoin, which is an uncorrelated asset. Currently trading around $9,400, BTC has risen 144% since its bottom and is up over 28% YTD.

According to Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence bitcoin would also be the one to sustain its higher prices given that it has a supply shock recently while continuing to see an increase in demand.

Meanwhile, the likes of Billionaire hedge fund investor David Tepper believes the stock market is overpriced, the most since 1999.

And although the bottom might be in, they can still “fall significantly” from their current levels.

“The market is too damn high,” tweeted Palihapitiya earlier this week. Since their bottom on March 23, both Dow Jones and S&P 500 are up nearly 28%.

Some meanwhile also believe stocks are “absolutely on the brink of an epic meltdown.”

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AnTy
AnTy
AnTy has been involved in the crypto space full-time for over two years now. Before her blockchain beginnings, she worked with the NGO, Doctor Without Borders as a fundraiser and since then exploring, reading, and creating for different industry segments.

[Alert] Use the author's self-conducted information at your own risk, do you own research, never invest more than you are willing to lose.

[Disclosure] The published news and content on BitcoinExchangeGuide should never be used or taken as financial investment advice. Understand trading cryptocurrencies is a very high-risk activity which can result in significant losses. Editorial Policy \\ Investment Disclaimer

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