Friday, March 20, 2009

The Debt Ratio Is Where?


Yesterday’s announcement could easily balloon the Fed balance sheet to over $3 trillion. We expect that to go even higher by the end of 2009. These are "up to" numbers, mind you. So it may never happen. But the Fed did choose them for dramatic effect. Likewise, we thought we'd show you a chart of the Fed's balance sheet, if it ballooned as dramatically as last fall:
Lest you become as concerned as our Mr. Amoss, “The Committee expects that inflation will remain subdued,” reads the Fed’s statement. Phew.
“With the Fed now explicitly supporting the Treasury note and Treasury bond market,” Amoss continues, undeterred, “how will ‘bond vigilantes’ express their displeasure with the inflationary policies emanating from Fed/Treasury/Congress?
“Econ 101 tells us that government-imposed price floors (in this case, for Treasuries) lead to persistent gluts/surpluses... think of farm price supports during the Depression and dumped milk. So today's action will, unfortunately, only encourage the crooks in Congress to float even more Treasury bills for their pork projects.
“We're just that much closer to a banana republic after today. The only relief valve for today's decision that comes to mind is accelerated decline in the dollar's value against anything tangible. Then again, that might have been Bernanke's intent, given his ‘fight deflation at all costs’ mentality.”
Naturally, Treasuries had a historically big day yesterday. The yield on a 10-year note fell nearly half a percent, to 2.5% -- its biggest one-day move since 1987.

No comments: