The Fed’s quantitative easing (QE) or asset purchase program, has managed to cause the Fed’s balance sheet to explode from under $1 trillion pre-crisis to an all-time high of $3.48 trillion. While this $2.48 trillion increase has sent people ranting about hyperinflation that has been just absurd. They fail to grasp the fact that there has been about a $7 trillion contraction in combination with the fact that the demand for dollars is no longer just domestic – the dollar is now the practical world currency no matter how much people refuse to admit that.
The Fed has pursued this strategy in order to bailout the banks in addition to the $700 billion check Congress wrote. The Fed has allowed the banks to maintain a huge spread between bid and ask unprecedented in history.The Fed has historically been powerless to determine long-term rates and the quantitative easing was the Fed’s answer to stimulus Keynesian style. But the problem is now how to back off without creating a monumental rally in long-term interest rates? This may prove to be even more impossible than before.
The Congressional hearing of the Inspector General back in May reveals that they have not done their job in auditing the Fed or the banks and claim to lack jurisdiction to really investigate where the money went, to whom, and at what price. This only raises more questions about the future because when the cracks begin to show after 2015.75, we may then suddenly discover that the Fed and its related central banks around the world are incapable to managing the economy exposing this Marxist-Keynesian era to an end.
