The Fed is done. Finished. Kaput. It literally has nothing left in its arsenal save a massive QE plan. And that will only come if there’s systemic collapse or a major bank goes under (announcing a massive QE program without catastrophe will insure that everyone, including Congress turns against the Fed in a major way).
We’ve had ZIRP, we had QE 1, we had QE lite and QE 2. We now have the Fed trying to lower long-term interest rates… at a time when Treasuries are trading at all time highs.
This is akin to buying Tech stocks in late 2000 or buying Housing stocks in late 2007. The US debt market is officially in a bubble… and the Fed wants to spend $400 billion trying to make it bigger.
This will end the way all bubbles end: with a BANG. Only this time around the BANG will involve the US, the largest economy in the world, defaulting on its debts.
Bernanke will be the one they pin this on. He and possibly even the Fed itself are finished. Bernanke willfor certain be stepping down within 12 months. Whether or not the Fed is dissolved depends on how much the politicians try to pin everything on the Fed.
Remember, only one thing kept us back from the abyss in 2008. That was the Fed. The Fed is now out of ammo for this round of the Crisis. Indeed, one could easily argue that the Fed itself is insolvent: with $50 billion in capital and $2.8 trillion in assets, the Fed is leveraged at 56 to 1. Lehman Brothers was leveraged at 30 to 1 when it went bust.
Again, the Fed is finished. The primary backstop for stocks and the financial system in general is gone. We’ve already wiped out one year’s worth of gains in a matter of weeks. And this is just the beginning. The markets are realizing that it’s Game. Set. Match for Central Bank intervention.
What’s coming will see stock market Crashes, sovereign defaults, bank holidays and bank runs, civil unrest, and more. This mess is going to make 2008 look like a picnic.
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