Oh yes, of course it will be printed. I really don’t understand how the Fed is planning to “soak up” the extra money it’s put out once things start getting inflationary.
Well, for the TALF and other bank bailouts, they can just call that money back in, if they wish. The central bank swap lines, once the credit markets look firm enough that the Fed doesn’t expect any large blow-ups, the central bankers can unwind that with little fanfare.
The two things I’m most curious about will be:
1. When the Fed starts pulling their direct-to-bank lending back, will we see banks blow up because there’s another wave of defaults they didn’t see coming any better than the first wave, and the Fed has to quickly step back in?
2. When the Fed stops buying Treasury debt, I’d expect a climb in interest rates. When the Fed starts SELLING the paper they’ve bought, I’d expect rates to go yet higher.
At the rate that the Fed is buying up RMBS paper, I don’t know how they’re going to offload that paper without putting up the mortgage rates. This might be why the Fed is seeking to hire their own trading team - they’re looking to use hedge fund techniques to unwind these positions quietly, so as to minimize the speculation around the unwind.
http://www.cnbc.com/id/32369139