Tuesday, September 26, 2017

How the Fed Plans to ‘Unwind’ $4 Trillion in Debt it Owns: "It could turn out badly"

By John Crudele 

All right, it’s official.

The Federal Reserve really, really, really is going to start to unwind the $4 trillion-plus in stimulus it put into the US economy to fight the Great Recession.

Really, it is.

The Fed said so last week. No more talk. It’s time for real action. Really.

The problem is, the Fed hasn’t yet disclosed how it is going to make disappear all the extra trillions in money it printed as part of quantitative easing and all of QE’s offspring.

And I’m sure Fed Chair Janet Yellen doesn’t appreciate people like me bringing up that point.

Follow the bouncing ball. The Fed printed those extra trillions so it could go out and purchase US government bonds. By using those trillions, the Fed pretended to be a real bond buyer (a shill, as it’s called) in order to keep demand and bond prices artificially high — and thus, yields artificially low.

Now, to get rid of the trillions, it has to put those currency-printing presses in reverse.

Yes, I know they didn’t really print paper money; it was all computer entries. But it’s the same thing except that some trees were saved.

To “unwind” — the popular term — what it has done, the Fed must either sell those bonds or wait until they mature to cash them in.

But that wouldn’t normalize, er, unwind, the Fed’s balance sheet. It would simply turn trillions of bonds into trillions in cash.

Read the rest here.

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