No Way Out

In 2010, Ben Bernanke claimed quantitative easing was temporary, a statement now proven false. The Federal Reserve has effectively ended quantitative tightening, halting the reduction of its asset portfolio. The Fed's balance sheet, inflated by mortgage-backed securities bought at low yields, is now underwater, causing daily losses. Selling these assets would crash the housing market and lead to significant losses for taxpayers, creating political risk. Consequently, the Fed is trapped between inflation and insolvency, unable to raise rates without worsening losses or cut rates without reviving inflation. The system's dependence on cheap liquidity makes withdrawing support risky. The Fed has essentially become the market, making a clean exit from its interventions impossible. The author believes the Fed is in policy entrapment rather than demonstrating policy mastery. Assets like gold and silver, independent of the Fed's actions, are preferred. The author contends Bernanke's promise was wishful thinking, and the consequences of the Fed's choices are unavoidable.