Were not these exit strategies supposed to be easy and painless? Maybe they are, except having no exit strategy is all the more easy and painless.
The title of his post is Will the major central banks evolve into mega-hedge funds? But perhaps the title should be, will the major central banks ever give up their mega-hedge fund activities?
In the wake of the financial crisis, the Fed has decided that credit allocation is too delicate and important to be left alone. The financial crisis did to the Fed what the 9-11 attacks did to national security agencies. I think that the chances that central banks will decide that they no longer need to behave like hedge funds are about as high as the chances that our national security apparatus will decide that they no longer need to treat terrorism as a major threat.
The trivial calculation that has been shown many times that we’ve lost more lives than 9/11 just by making air travel worse shows that they are wrong. But easily identified counter-productivity doesn’t count for beans to the government. I just can’t figure out if it is because Bryan Caplan is right about voters, or because I’m right about things like we can’t do Democracy if the President commits fraud.
In case anyone doubts it, my 5 second Google rule yielded this:
http://thestatsblog.wordpress.com/2008/01/16/fear-of-flying-after-911-led-to-increase-in-auto-deaths/
Researchers at Cornell University found that because more people drove instead of taking a plane in the three months after 9/11, there were an additional 725 fatalities from car crashes than during the same period in the previous year. A study by Michigan’s Transportation Research Institute took a different tack and came up with a higher figure -1,018 more traffic fatalities than would have been expected based on earlier trends.
That is allocated to the “fear” of flying but for 1 year. I can’t find the study that showed TSA killed more than 3000 people because I will not break my 5 second Google rule for any man (or woman).
Under Janet Yellen’s leadership, The Fed Reserve will be developing an exit strategy; it will be one of Financial Stability.
Out of soon coming credit crisis and global financial system meltdown, coming from the rise of the Interest Rate on the US Ten Year Note, ^TNX, as well as derisking out of debt trades, and deleveraging out of currency carry trades, Money Market Funds, such as Vanguard’s VMMXX, Regional Banks, KRE, such as HBAN, and Asset Managers, such as STT, BLK, will be integrated into the government, and become known as the Government Banks, or Gov Banks for short. Please note that said fund charges a fee in excess of its yield, in order to maintain its constant one dollar value.
The Primary Dealers, who hold Interest Rates Swaps, that they were literally gifted under POMO, and thus are short Treasuries, and whose customers are short 10 Year US Government Notes, TLT, will likely be forced into becoming Gov Banks as well.
The first step in developing the Exit Strategy will be an exit charge, that is an exit levy, on withdrawing funds from bond funds as well as money market funds.