“The Federal Reserve and other central banks will never take steps to rein in the inflation-fueling liquidity stemming from their loose monetary policies, and they also won’t reduce their balance sheets that have swollen via easing measures designed to jolt the economy, says Marc Faber, publisher of the Gloom, Boom and Doom report.
The Fed has cut interest rates to near zero and has also bought assets from banks in order to increase the amount of money in circulation with the aim of improving the economy.
That tool is called quantitative easing, and the Fed has done it twice, with the first round, known as QE1, involving the purchase of $1.7 trillion in assets from banks, namely mortgage-backed securities.
A second round of quantitative easing, known as QE2, wrapped up in June of 2011 and involved a $600 billion purchase of government bonds from banks.
Other central banks around the world have taken similar steps, and they should now focus on writing down those assets and take steps to mop up the excess liquidity in the economy, although they likely won’t, Faber says.
“I do not believe that the central banks around the world will ever, and I repeat ever, reduce their balance sheets. They’ve gone the path of money printing and once you choose that path you’re in it, and you have to print more money,” he tells chrismartenson.com, a finance site.
Furthermore, Federal Reserve officials base their decisions with not enough real-world experience.
“The Fed is about the worst economic forecaster you can imagine. They are academics. They never go to a local pub. They never go shopping — or they lie,” Faber says….”
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