The Fed Is Now Levered 48 to 1 (Citi would be proud...)

So the Fed is now leveraged up 48 to 1 – most of this leverage a result of the Toxic Waste that it has either been bought from or taken over from banks. That is the “Expand the Balance Sheet” component of QE in action…

www.federalreserve.gov/releases/h41/Current/

I told you this would happen when the US Government refused to do what was difficult but right - force the Shareholders and Bondholders of the Banks to eat the loses via Default and Nationalization. Now, instead of the same crooks that created this mess losing their money, the US Taxpayer will lose his money.

The issue we will soon face (2012? 2014?) is that the US Government/Economy will choke on this debt and there will not be an entity large enough to “bail out” the Fed.

Here are your choices for getting rid of your debt –

1. Pay off your debt
2. Default and don’t pay it
3. Inflate the real value of the debt away

Choices #1 and #2 are unrealistic, because they would both result in the government no longer being able to spend – and that is all governments know how to do.

So, choice #3 is the only reasonable answer. That will mean either - rising inflation and a sharp rise in interest rates or rising inflation and a crashing US Dollar. Neither sounds very appealing to me, but when you elect a government that is incapable of making tough choices or is outright on the take from the criminals, you are forced to endure a lot of bad consequences resulting from the actions of the crooks.