Does the end justify the means

It is remarkable to witness the may ways this administration is intervening the market with similar effects than QE (quantitative easing) without being QE. First, the Fed started late last year a program to buy $50Bn a month in Treasury Bills (less than 1 year), and because the securities have no duration, it’s not considered QE (??). This operation does have an impact on M2 (the monetary base), since in the absence of these purchases, the Fed balance sheet would be reduced. But the Fed categorically avoids calling it QE. Today, President Trump has instructed Fannie Mae and Freddy Mac, the Government Sponsoree Enterprises (GSEs) to buy $200 bn of mortgage bonds using the cash in their portfolios. This is not QE because it doesn’t involve creation of new money, but it does have the effect of QE because it’s an intervention in the market, initiated by the government. It’s becoming clear that this administration will use every trick on the book to ring fence the market, and announce the benefits of their actions. The means are being justified by the end, and in a bureaucratic government environment, it may be the only solution to get things done. But are we moving into a “too much power” situation? The US founding fathers were very strict about the checks and balances. Positive outcomes will defend their actions, but a failure, wether economic or geopolitical, will cost them the midterms.

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