Pimco Doubles Down On All In Bet Fed Will Monetize MBS

The current solutions to the debt crisis seem to involve either extending more credit or moving bad debt onto someone else’s balance sheet.    Cynical bloggers refer to this strategy as “extend and pretend.”  Clearly, this is not a sustainable system.  Another round of tequila may delay a headache, but will not lead to sobriety.

In this case, it looks like the Fed might be buying the “bad stuff” and replacing it with real money that they printed. This expands their balance sheet. The Fed can absorb the losses from the mortgages, because they can print whatever money they need.

Everyone wins, right?

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2 Responses to Next Steps for the Fed?

  1. Did you hear about the Brazilians buying condos in Miami because it’s cheaper than in Rio (not to mention safer), with luxury goods and electronics also being cheaper for them. Argentina after years of 25% inflation comes to an impasse, their particular brand of faux-populist monetary policy reminds me of what the USA would be (or perhaps, will become) if their economic hinterlands only extended to the rockies, instead of the entire world.

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