This story should send icy slivers of fear for the future shooting through the gut of all Americans who care about the future of this country.
The latest round of extraordinary Federal Reserve stimulus is risky and leaves little room to maneuver should another crisis hit, economist Lawrence Lindsey told CNBC’s “Squawk Box” on Wednesday.
Lindsey said that with the Fed purchasing at least $40 billion a month in mortgage debt through QE3, “they are buying the entire deficit.”
…Lindsay said he agreed with the Fed’s first two rounds of quantitative easing. Now, with the economy now growing closer to its trend rate, “doing something that’s really out of the ordinary is risking things.”
He added, “If this becomes the new ordinary, it’s hard to imagine the Fed’s maneuvering room” should another crisis hit. (Read More: Why Fed Policy Just Like the NFL Refs: El-Erian.)
In other words, the FED has been trying to get the economy moving by printing more money. It has been failing. Now, it’s going to continue down the same path, but it’s cutting a crucial signal from the marketplace out of the process. If our country tried to get other nations and entities to finance our debt at bottom-of-the-barrel interest rates, we probably wouldn’t be able to do it. So, what would happen? We’d have to raise the interest rates to attract buyers — and that would send a shockwave through the whole system. Higher interest rates mean bigger deficits, a greater risk of seeing our credit rating drop, and a very loud, very clear signal that there are serious consequences to what we’re doing. Rather than risk that, we’re going to buy our own debt. That actually increases the risk over the long-term, but it hides it from the public. This is how nations fall to pieces one step at a time, without catching the attention of the general public, until the rot is so huge that it can’t be easily fixed.