Already the mortgage portfolio has likely seen paper losses because of rising interest rates. If the Federal Reserve was required to mark their portfolio to market, like every other asset manager, I’m guessing you’d see losses higher than the money returned to the federal government. If the Federal Reserve was required to mark those securities to reality, the losses might be catastrophic, with investors losing confidence in the reserve bank’s ability to act as a “reserve” bank in case of a crisis. Thats because they’ve already acted as a “reserve” on poor fiscal policy habits by the government. “This mix could induce a bias toward slower exit or easier policy, and be seen as the first step toward fiscal dominance,” said economist Frederic Mishkin, a former Fed governor. “It could thereby be the cause of longer-term inflation expectations and raise the risk of inflation overall.”
Posted on: Fri, 14 Mar 2014 15:47:45 +0000
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