The Federal Reserve created a monster $4.3 trillion balance sheet, up by $3 trillion from 2008, through quantitative easing.
QE ends this fall. Now the Fed is trying to figure out what to do with this monster. Their thinking seems to be that they can maintain control over it by paying banks more money to not make loans.
So let's get this right. Households and businesses are attempting to borrow money from banks.
But the Federal Reserve may eventually pay banks $100 billion per year not to lend to Main Street. Politicians will have a field day with that.
The Fed's scheme could work in the short term, but its mechanism for controlling short-term interest rates and inflation will eventually end up in the wastebasket of politicians.
Since 2009, Fed officials have argued that QE was needed to encourage faster economic growth.
QE ends this fall. Now the Fed is trying to figure out what to do with this monster. Their thinking seems to be that they can maintain control over it by paying banks more money to not make loans.
So let's get this right. Households and businesses are attempting to borrow money from banks.
But the Federal Reserve may eventually pay banks $100 billion per year not to lend to Main Street. Politicians will have a field day with that.
The Fed's scheme could work in the short term, but its mechanism for controlling short-term interest rates and inflation will eventually end up in the wastebasket of politicians.
Since 2009, Fed officials have argued that QE was needed to encourage faster economic growth.
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