It’s going to be interesting watching how the Fed goes about extracting itself from the position it now finds itself. Essentially, if they raise rates it’s going to cost the Fed a lot of cash flow and probably also cause a huge hit to their portfolio of long bonds as well. We could be talking hundreds of billions of dollars if rates just go back to 4-5% on the short end.
In fact, I believe that’s one of the reasons that the Fed has dithered so long on raising rates. It is likely to cost them a lot of money when they do so.
And the longer they wait, the worse it’s going to get.
“It’s going to be interesting watching how the Fed goes about extracting itself from the position it now finds itself. Essentially, if they raise rates it’s going to cost the Fed a lot of cash flow and probably also cause a huge hit to their portfolio of long bonds as well. We could be talking hundreds of billions of dollars if rates just go back to 4-5% on the short end. In fact, I believe that’s one of the reasons that the Fed has dithered so long on raising rates. It is likely to cost them a lot of money when they do so.”
They have been frozen in place by stimulus and the federal debt. Had Obama balanced the budget (or at least tried), we would have had a sharp, nasty contraction and a lot of banks would have gone out of business. A lot of people would have lost their money.
But it would have been over by 2010 and our economy would be humming.
Instead, the fed can’t act because the debt and deficit are too big, the home sale market continues in the crapper and the banks and their derivatives all depend on mortgages not defaulting. Higher interest rates bring the whole house of cards down. There are one of two courses:
a. Obama just freezes in place and lets the R’s take the fall for what’s coming in 2016. The more likely course, in my opinion.
b. Obama brings about the crash during his term and will use the chaos, poverty and unrest that accompanies it and uses it to justify truly fundamental transformation.
It’s unclear to me whether anything the Fed does ever costs it’s anonymous members anything.