Well, were finally here: Federal Reserve Needs Bailout From the Los Angeles Times today: As stimulus tab rises for Fed, worries grow it may require a bailout The Feds bond-buying binge could put the central banks finances at risk if interest rates were to rise sharply, critics warn. Federal Reserve Chairman Ben S. Bernanke has said any losses incurred by the central bank probably would be offset by more than $300 billion in interest the Fed has earned on its expanded holdings in recent years. By Jim Puzzanghera October 29, 2013, 5:00 a.m. WASHINGTON — The Federal Reserve has taken unprecedented steps to stimulate the economic recovery from the Great Recession, but the tab has risen to such tremendous proportions — fast approaching $4 trillion — that some worry the central bank ultimately could require its own taxpayer rescue. The Feds total assets on its balance sheet have more than quadrupled to $3.8 trillion since 2008 amid a massive bond-buying effort. And there are few signs that the growth will stop any time soon. That could put the finances of the worlds most powerful central bank at risk if historically low interest rates were to rise sharply — something top Fed officials said they do not expect but that critics warn is very possible. It also could inhibit the ability of central bank officials to respond to future economic and financial crises. Its really pretty cut-and-dried as far as the arithmetic goes: If you buy bonds and interest rates go up, youre going to take a capital loss on those bonds, said James D. Hamilton, an economics professor at UC San Diego. The more they buy, the bigger their balance sheet, the bigger the loss theyre going to face. Federal Reserve policymakers meet Tuesday and Wednesday and are expected to continue purchasing $85 billion a month in low-interest-rate Treasury bonds and mortgage-backed securities as part of the Feds third and longest such program to stimulate economic growth. The continuing lackluster recovery from the Great Recession, combined with the economic hit from the partial federal government shutdown this month, have analysts predicting that theres little chance Fed policymakers will vote to scale back the program until early 2014 at the soonest. If thats the case, the Feds balance sheet would swell to more than $4 trillion. And as the number gets bigger, the risks also rise. The Fed stands to lose a lot of money, and by a lot of money, I mean hundreds of billions of dollars, said Rep. Mick Mulvaney (R-S.C.), who has raised those concerns with Fed Chairman Ben S. Bernanke. It is not hyperbole to suggest the next big bailout could be of the Federal Reserve. continued: latimes/business/la-fi-fe...z2j82vkdAz
Posted on: Wed, 30 Oct 2013 03:07:50 +0000
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