The Fed

The Fed, has since 2008, swelled their balance
sheet with huge chunks of assets.
The day of reckoning is when they have to dispose of it.

They have difficulty selling it off, becos they own so much.
It's possible tho, but provided impairment has not chewed
thru those assets.

Instead, their stated plan is to do never-ending repos of their assets.
Force commercial banks to take the assets for a short
time in return for giving up liquidity.

It works well enough in theory.
But i'm skeptical of the Fed's policy.
Now, the Fed bailed out the commercial banks.
But it seems to me that it is the least of the commericial
banks concerns to bail out the Fed, if ever needed,
especially if it hurts business.

Also, the numbers involved are just staggering.
The amt of assets and reserves are just unprecedented.
Trying to create and destroy so much money on such a
mass scale just has not been tried.
It cld be potentially destabilising.

Assume the Fed gives a generous haircut on those assets.
They do this because their is definitely some sorta
impairment and they have to make it attractive to the commercial banks.
That wld imply it cannot clear up half the liquidity.
Alternatively, they arm-twist the banks to release
as much liquidity as possible.
This could work, but if ppl come to know abt it, the Fed
will lose its credibility.
Either way, it seems to suggest the I-monster rearing
its ugly head.

Obviously, the Fed isn't going to admit any of this.
They can't do that.
But it does not change the fact that they have attempted
to solve a "too-hard" problem hoping to avert an economic
disaster. One hopes they did not merely postpone it.