Can Bernanke and the Fed unwind “quantitative easing” without destroying the Dollar?
*Reuters, by James Saft, July 23, 2009:
“Federal Reserve Chairman Ben Bernanke may discover that having an
exit strategy from quantitative easing is one thing, having the power
and will to implement it is quite another.
Financial markets were much impressed by Bernanke's recent detailing of
the tools he would use to unwind the trillions in quantitative easing
the bank has employed to avoid deflation and restart credit markets.
Bernanke will press the right button, these investors reason, perhaps
the one labeled ‘avoid massive inflation’ and the blimp that is the
Federal Reserve's swollen balance sheet will glide gently to earth.
The issue, however, is not whether Bernanke and the Fed have the tools
- the mechanisms are surely in place - but will they have the guts and
the will to buck the inevitable political pressure to keep the
fountains gushing.
Even more to the point, if Bernanke is not reappointed to serve another
term when his current one expires at the end of January, he may never
get the chance to try.
We are facing a long and hard recession, and recovery when it comes
will not be the electrifying type that makes it easy to ease up on the
gas; it will be slow, grinding and accompanied by continued high
unemployment.
Unemployed people vote and the people they vote in and out of office
will want the Federal Reserve to err on the side of profligacy. They
always do.
There is no doubt that - perhaps for very good reasons - the role the
Fed has played in the crisis has made it subject to more political
interference, not least because it has strayed into areas of fiscal
allocation that are traditionally, and best, left to elected officials.
After all, when the Fed decides to buy a mortgage rather than a
corporate bond, or anything else, it is making the kind of capital
allocation decision that in the U.S. has traditionally been left to
Congress.
The Fed was used, essentially, as a source of oversight-light funding
for Fed-Treasury bailout plans, another factor which will leave it open
to more political control when Congress inevitably tries to wrest its
powers back.
Desperate times have arguably justified extraordinary measures, but it
is impossible to pretend that those measures don't bring risks also.”
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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