Sooner or Later the Fed Music Stops

Federal Reserve Chairman Ben Bernanke talked about the tremendous size of the central bank’s $2.1 trillion balance sheet at a recent conference. He openly recognized that the current measures he’s taken to support the economy simply cannot go on forever.

In his words, “At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road.” His reasoning would indeed make sense if the “economic recovery” we are in the midst of experiencing were in fact genuine.

Of course it’s important for the Fed to figure out how it’s going to extract itself from its current money pumping and near zero interest rate strategy. However, it’s going to be a difficult road to go down because the current “recovery” is based on false hope ushered in by unnatural stimulus. In this respect it would be in the best interest of the US to start immediately rushing for the exit on an already errant strategy as soon as possible.

More particulars are available from MoneyNews in this article on how Fed support cannot go on forever.

The Daily Reckoning