Fearing Losses, Bernanke Considers Canceling QE Exit StrategyMarch 11th, 2013
In a previous post, we called attention to reports that demonstrate the fact that, due to the heavy load of toxic assets recently purchased by the Federal Reserve, any effort it takes to raise interest rates will cause the private central bank itself to lose money. Ordinarily, the Fed issues a portion of its profits each year to the Treasury.
This unfortunate side effect of quantitative easing was not expected by Bernanke and his crew of market manipulators, who are now considering scratching their plan to sell off toxic assets after interest rates return to normal levels. The Fed’s plan was to unwind the stimulus at just the right moment to prevent an inflationary crash. However, this potential strategy change seems to make that outcome impossible. Are troubling times ahead?
What’s Going on Over at the Federal Reserve?
For a century, the Federal Reserve has profiteered off the manipulation of the US currency supply. Now, its current Chairman risks losing money for the first time in the bank’s history. None of its recent strategies have stimulated real economic activity. However, the Dow Jones Industrial Average is pushing record levels of fake paper while consumer spending and job growth figures remain dismal.
Economic experts are questioning the Fed’s methods on a recent bank stress test, as the central bank’s results differ strongly from other credit rating organizations. The Federal Reserve weighed bailout recipients like Citigroup, Inc ahead of more resilient firms like JPMorgan Chase and Co. When one considers that quantitative easing was planned based on figures that presumed the Fed would still post profits after raising interest rates, it’s clear that the program was built on faulty math.
Quantitative Easing Now Has No Exit Strategy
The Fed has been buying worthless assets and stimulating bond purchases by promising to buy them even when no one else will. This means that the bank’s balance sheet is buoyed by assets that are falsely listed above their true value. Selling them would expose their reduced value, and the losses would have to be written off. Since the Federal Reserve is a private bank beholden to the interests of secret shareholders, it has a natural conflict of interests with the concept of losing money.
Will this new turn of events cause the Fed to keep the stimulus pump going too long? If inflation begins to kick in as interest rates rise, consumers could be facing serious trouble. Reduced credit access would make life very difficult for cash-strapped households facing rising prices. As more and more experts begin to notice imperfections in Bernanke’s plan, the market draws closer and closer to a “pay no attention to the man behind the curtain” moment, when investors will discover that all this alleged stimulus was just smoke and mirrors all along.