Unwinding the Unwindable
The Fed’s thirteen-digit balance sheet is proving a little sticky:
“There is certainly an issue about unwinding the balance sheet” in a way that “is effective and continues to support the recovery without creating inflation,” St. Louis Fed Bank President James Bullard said in an interview in October. The central bank might have to “revisit” the 2011 strategy, he added.
The Fed is already buying $40 billion a month in mortgage- backed securities to boost the economy, and policy makers meeting Dec. 11-12 will consider whether to purchase more assets. John Williams, president of the San Francisco Fed, has proposed adding $45 billion of Treasury securities a month.
The bigger the balance sheet, “the riskier the exit becomes,” Richmond Fed President Jeffrey Lacker said during a Nov. 20 speech in New York.
Huh. You don’t say.
Hahahaha. That article is hysterical. The Fed isn’t going to “unwind its balance sheet”, and I think everybody knows it by now. There’s no way to finance $1.2T deficits (10% of GDP) without destroying the financial system, and the Fed’s overarching, though unstated, mission is to preserve the financial system.
From this point, it’s monetary expansion all the way down.
There is no exit. This fellow lays it out for us: http://seekingalpha.com/article/1052901-ben-bernanke-and-the-implications-of-the-great-monetary-hail-mary
He thinks the Fed will be history but many others think that the idea of fiat money itself will be swept away. I am not an expert by any means but my fiat money is on the latter.
$40 billion a month in MBS’?
Chicken feed compared to the amount of US debt they’ve bought up, how they going to unwind all that?