“Since the 2008
meltdown, the Fed purchased many financial instruments including
mortgage-backed securities to arrive at the current $4 trillion balance
sheet. It seems to us that the cornerstone of an exit strategy would be
to securitize the mortgage-backed securities, and sell those back into
the retirement and endowment funds.
A recent estimate of
the total retirement assets just in the U.S. tallied close to $17
trillion. Packaging up those securities and distributing back into the
system would go a long way toward a major reduction in the Fed’s balance
sheet and make room for the continuing monetization of the budgets
deficits which are sure to accelerate as the onslaught of unfunded
liabilities hits the public and private sectors.
Rising interest rates
would impact the value of those securities, but the Fed could easily
make it so that buyers could value them at par for reporting purposes.
Given the mortgage rates are only likely to continue higher, the
likelihood of significant refinancing affecting the pools of mortgages
is very low.
KWN readers should
not be surprised if the idea outlined above will also be part of the
plan going forward. This would offload tremendous liabilities off of
the Fed’s balance sheet and open up their ability to print even more
money. All of this is extremely positive for hard assets.”
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Eric King
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