When parsing the banking crisis, don’t forget easy money

Bloomberg/Bill Dudley/4-19-2023

“Quantitative easing also played a role. When the Fed purchased trillions of dollars in Treasury and mortgage-backed securities to push down longer-term interest rates, it flooded the banking system with deposits, which banks often invested in the same longer-term securities at extremely low yields. This all but ensured that when the Fed later tightened, causing yields to rise and prices to fall, it would generate large mark-to-market losses at the banks.”

USAGOLD note: An usually strong indictment of the Fed’s easy money policies from the former head of the Federal Reserve Bank of New York – the traditional linchpin of Fed policy implementation. Can the Fed ever step off the QE treadmill? That is a question every investor must address in his or her long-term investment planning. To ignore it, is to ignore the central economic issue of the times.