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The Federal Reserve Has No End Game For Getting Back To “Normal"

Wednesday, November 6, 2013 - 6:32 AM
After building up its balance sheet to a record $3.84 trillion—including $2 trillion in Treasuries and $1.4 trillion in mortgage-backed securities—the big question, the one with much more impact in the long-term on the U.S. and global economies and financial markets—is how does the Fed sell these assets so it can cut its balance sheet back to normal? The startling answer that’s starting to emerge from studies by the Fed’s own economists is that selling these assets isn’t an option.

The Fed--and we--are stuck with a $4 trillion balance sheet | Jubak Picks
10
ShorebreakShorebreak2,694 posts since
Apr 6, 2010
Rep Points: 14,610
1. Wednesday, November 6, 2013 - 12:53 PM
Unfortunatley, probably holding to maturity is their only option and scenario two is probably the most likely outcome of such a policy.
Second, if the Fed doesn’t shrink its balance sheet substantially for a long period of time, it will reduce the resources it has to put to work in the next crisis.

 

And since the players don't seem to have learned any lessons from the The Worst Recession Since the Great Depression, the next crisis is a very scary thought, indeed.
5
ChrisCDChrisCD70 posts since
Nov 18, 2010
Rep Points: 457
2. Wednesday, November 6, 2013 - 7:04 PM
This is going to be Yellen's problem:

“The fundamentals story, as far as the dollar’s concerned, remains very strong,” David Woo, the global head of rates and currencies at Bank of America in New York, said in a Nov. 1 phone interview. “The biggest story in financial markets in 2014 will be about inflation, particularly about inflation divergence,” and “there’s no question that” the U.S. is “going to be the first one to tighten policy,” he said.

http://www.bloomberg.com/news/2013-11-05/dollar-bottom-detected-in-biggest-flows-since-2009-currencies.html
4
ShorebreakShorebreak2,694 posts since
Apr 6, 2010
Rep Points: 14,610
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