Fed’s Inflation Cliff is Next

December 17, 2012 07:24

Hyperinflation or a brutal hike in interest rates — [could make] the present “fiscal cliff” look tame in comparison. – IBD



From IBD Editorials

The Fed has added some $2 trillion to its balance sheet since the end of 2008 (putting it at about $2.9 trillion, see chart) as it creates new bank reserves to buy bonds.


Its new program includes purchases of $45 billion in Treasurys and $40 billion in MBSs each month, which would boost its balance to $4 trillion by the end of 2014.


In the old days, this would lead to a burst of new lending and much more money in circulation. This time, the Fed has managed to avoid doing this — in essence, stuffing most of its new money into a very large mattress.


How long can this last? The economy continues to sputter four years into the Fed’s near-zero interest rate regime. Meanwhile, the U.S. government soaks up the global supply of credit with its insatiable borrowing.




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