Attic
Diamond Member
- Jan 9, 2010
- 4,282
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For once, we agree. The Fed expanded operations & increased profits tremendously to meet market demand for liquidity. They have a unique ability to do that.
Under the circumstances, it was a wise business move and a wise move wrt the economy.
I find this a bit stunning to champion fed profits if we consider how the fed makes a profit.
Do we not know what the sole driver of the massive increased profits the fed remitted to the treasury was?
The fed increased profits by printing a book from 800billion to over 4 trillion. Of course profits increase when you print money to buy performing debt assets. Helps to when what you are buying with printed money is bid up by your continued printing and buying spree. The fed may deserve accolades for it's choices, but not for it's profits FFS. The fed has a unique and very precarious option to print money to achieve it's dual mandate, their profit is related to their printing efforts. After they pay a 6% dividend to private owners the Fed remits the rest to the treasury as a bit of a check against it printing itself out of control. This is more a slight of hand though as the Fed's printing efforts obviously benefit the gov so there is incentive to print as far as treasury is concerned.
QE1 was undertaken at the time with the important consideration that the book purchases would not only be wound down but sold back. So not only would the fed balance sheet stop increasing as it has continued to do since 800billion, but it would move back down to 800billion. 5 years later we are at 4.1trillion and growing. This was the main concern, a required growing book once the initial effort was undertaken. Let's see if the taper gets to a point where the balance sheet actually stops growing. Winding down the balance sheet is another ballgame. The fed will have to let it's book mature. It can't sell unless it does so at a loss and this would beget larger losses. This was not the stated goal or intent when QE was initially undertaken. When you buy up a bunch of debt with cheap coupons and then rates start to climb up what happens? The fed is currently at nearly 500billion of LOSES if it sold it's book today, not considering that added downward pressure on it's book if it started selling instead of accumulating debt assets. I doubt we'll see the fed balance sheet ever go under 4 trillion again, mainly due fiscal issues presiding in the economy that are not going away, but important independent of that as well as it has ushered in a new era of central banking.
Beyond that, the results during the period of QE are clear. The wealthy got a lot more wealthy, everybody else got more poor. Using the "it could of have been worse" to rationalize such an outcome is the common method of those who were primary beneficiaries of the Feds printing spree.
The GFC was a stunning option for a change from the status quo. We got, the same old same old. Crony capitalists were bailed out at everybody else's expense and it means a consolidation of power in large corporations will continue despite Obama's or those who share his vision of an empowered middle class best intentions..
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