If the FED must buy $1.1 trillion in bonds over the next 12 months, as now seems likely, why will it stop next year? It won’t.
Forecasters are incredibly naive. They make a forecast about FED policy over the next 12 months, and then say nothing about 12 months after that.
If the FED has to be the buyer of last resort for Treasury debt for the next 12 months, we can be sure that it will be the major buyer for the next 24 months.
If the FED stops buying, long-term rates will rise. Mortgage rates will rise. The housing market will falter.
If the FED stops buying, net, then the pathetic economy recovery will get even more pathetic.
What is the FED’s exit strategy? There is none. The FED could not maintain its tight money policy in 2012. It started buying Treasury bonds and Fannie/Freddie bonds by the end of the year.
If there were an exit strategy, stabilization would have worked in 2012. Exit strategy? The FED cannot even maintain stability.
Any talk of the FED stopping the expansion of Treasury purchases is wildly speculative. It flies in the face of reality. Bernanke & Co. know only one policy: monetary inflation.
Bernanke has an exit strategy: personal. In one year, he will leave his office as Chairman. If Obama offers to reappoint him for four more years, then he is really desperate. If Bernanke accepts, he is even more economically blind than I think. He can stay on the Board until 2020, playing second fiddle. I don’t think he will bother. He will go back to Princeton or to some other safe and sound position that will pay for his name.
Woe unto the poor soul who follows him.