Earlier today I noted my skepticism of the Fed’s plan to start printing money and buying treasuries. Yves Smith at Naked Capitalism has a detailed post that puts numbers behind my statement “Don’t get me wrong, the steps that they have announced thus far are not large enough to really change things one way or the other. This is merely a $300 billion (well $1 trillion with mortgages) test balloon to try and influence people’s behavior.”
She notes that the size of the Federal deficit far outweighs the scope of the program and that the decrease in global trade has significantly reduced the trade deficit, weakening the demand for treasuries from abroad. The numbers suggest that the purchases need to be at least three times larger to mop up the increase in supply, and that’s not even counting the increased inflation expectations that I mentioned in my post. The Fed has its work cut out for it.