In 2006, when I began writing my book on the coming economic collapse, I didn’t know what the Fed would do regarding liquidity. At the time, whether the Fed would raise or lower interest rates was a soon-to-be multi-trillion dollar question.
In the past, central banks walked a tightrope between higher and lower interest rates. Raise rates too high and economies would slow and/or contract. Keep rates are too low and inflation would result.
Today, the central bankers’ monetary tightrope has become a gangplank.
DROWNING IN AN OCEAN OF LIQUIDITY
On December 12th, Fed Chairmen Ben Bernanke announced the Fed would be doubling down on its bond buying program. Ostensibly in order to create more jobs, the Fed would now buy an additional $45 billion a month of US debt.
The bond buying announced today will be in addition to $40 billion a month of existing mortgage-debt purchases. The FOMC said asset buying will continue “if the outlook for the labor market does not improve substantially” and hasn’t set a limit on the program’s size or duration.
The reason for the Fed’s accelerated bond buying has only a tenuous connection with the US labor market. The real reason is that unless the Fed is the dominant buyer of US debt—which it now is—market forces (remember those?) would cause US interest rates to rise, eventually bankrupting the US Treasury.