No, the Fed Doesn't Have a Plan. Yes, the Fed Really is Monetizing Government Debt

by Jeff Deist

Oh, what a difference a few years make.

After the Crash of ’08, the Fed entered a period of “extraordinary” monetary policy marked by large scale purchases of Treasuries and other (worse) securities from commercial banks. This process, termed quantitative easing, began in November 2008 as a supposedly temporary measure to provide liquidity (and thus operational stability) to the banking sector. A Wall Street crisis would become a Main Street crisis otherwise, the story went.

As recently as 2013, Fed officials spoke quite confidently about returning the size of the Fed’s balance sheet to “pre-crisis” levels. In other words, the unprecedented expansion of the monetary base — from less than $1 trillion to more than $4 trillion — would be reversed. The Fed had a plan!

Here is St. Louis Fed President James Bullard in 2010:

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