Unprecedented – And Perilous

So this guy from the Fed named Andrew Huszar makes a splash with a piece in the Wall Street Journal.  And he gives us plebes a sense of just how extraordinary the Fed’s program of “quantitative easing” is:

In its almost 100-year history, the Fed had never bought one mortgage bond. Now my program was buying so many each day through active, unscripted trading that we constantly risked driving bond prices too high and crashing global confidence in key financial markets. We were working feverishly to preserve the impression that the Fed knew what it was doing.

And we get a little perspective on the paradigm shift involved:

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

And then the issue going forward, that being:  where is this all leading?  How will it “unwind”?  From Mr. Huszar’s CNBC follow up interview:

“I think the real issue is that the Fed has expanded its tool kit so dramatically, and really there are some real questions as to how potentially it unwinds, when it unwinds,” he said. “We saw this past summer there was this announcement of potentially a taper and the markets actually tanked, and after that the Fed backpedaled. What’s going to happen if we go on for months, years longer?”

The problem being, if Huszar is right we’re simply digging ourselves into a deeper hole.

Readers over here knew this already, though.  And know what the solution is, too.  At least a few of them do.


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