Quantitative Easing etc.

Prof. Hamilton at Econbrowser has a fantastic post explaining the Federal Reserve’s balance sheet.

Here I survey how we got here, where things currently stand, and what it all means.

Let me begin by reviewing some first principles of what the Fed is all about. How did the cash currently in your wallet get there?

The bottom line is that Bernanke has made a gamble with something approaching 2 trillion. If the gamble wins, taxpayers owe nothing. If the gamble loses, taxpayers are committed to borrow a sum equal to any losses and start making interest payments on it.

The article is somewhat long and technical.  Read it anyway.

Steve Waldman at Interfluidity recommends it, too.  He adds a few comments of his own.

Despite all this, I am becoming rather Zen about the Federal Reserve lately. I have some sympathy: They are dancing to a tune that they no longer call, struggling to keep pace with an accelerating beat. The Bernanke Fed is clever and inventive, delightful as spectator sport. So many trillions of dollars have been spent or committed or guaranteed, that the amounts have gone meaningless. I think that the current financial system and the Fed itself are quite doomed, and I’m less inclined to get bent out of shape by the particular ordering of the death throes. There will be a great crisis. Hopefully it will only be a financial crisis. I’d prefer it to be an inflationary rather than a sharp deflationary crisis, both because I think that a great inflation would be less destructive, and because that’s the way my own portfolio tilts. So really, I should root for the Fed. Let the printing presses turn and the helicopters fly, but please don’t confiscate my gold.

If you cannot stand reading and want to watch a video instead, try this one from Marketplace.  They lack the snark and skepticism, but they do make nice whiteboard doodles.

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