Popular Posts

Monday, May 06, 2013

"This Is A House Of Cards"

Last week at its regular policy-setting meeting, the Federal Reserve announced it would double down on the policies that have failed to produce anything but a stagnant economy. It was a disappointing, but not surprising, move.

The Fed affirmed that it is prepared to increase its monthly purchases of Treasuries and mortgage-backed securities if things don’t start looking up. But actually the Fed has already been buying more than the announced $85 billion per month. Between February and March, the Fed’s securities holdings increased $95 billion. From March to April, they increased $100 billion. In all, the Fed has pumped more than a half trillion dollars into the economy since announcing its latest round of “quantitative easing” (QE3) in September 2012.

Although many were up in arms when the Fed said it would buy $600 billion in government debt outright for the previous round, QE2, all seems quiet about the magnitude of QE3 because it doesn’t come with huge up-front total price tag. But by year’s end the Fed’s balance sheet could hit $4 trillion.

With no recovery in sight, where’s all this money going? It is creating bubbles. Bubbles in the housing sector, the stock market, and government debt. The national debt is fast approaching $17 trillion, with the Fed monetizing most of the newly issued debt. The stock market has been hitting record highs for the past two months as investors seek to capitalize on the Fed’s easy money. After all, as long as the Fed keeps the spigot open, nominal profits are there for the taking. But this is a house of cards. Eventually, just like in 2008-2009, the market will discipline the bad actions of the Fed and seek to find the real normal.

More

1 comment:

  1. We are printing BILLIONS of dollars every month (worthless paper is really what it is now) and then buying from ourselves. its not Bush's fault any more, but the effect will be the same. Recession, depression, hyperinflation, and finally, a reason for Homeland Security to start using their armored troop carriers and 2 billion rounds of hollow points. Bet the house its coming. Can't go any other way. Better be ready. If such a thing is possible...

    ReplyDelete

Note: Only a member of this blog may post a comment.