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Was their massive balance sheet expansion a flop?

October 17, 2014

Central banks around the globe have undergone the greatest monetary experiment of all time. What we must be asking — and finally a few are asking — is what if our central bankers actually didn’t know what they were doing? While the Fed balance sheet, shown below, reflects just how grand this experiment has been (more than a fivefold increase), we should remember that this is actually only a small part of our central bankers’ market distortions.

Remember ZIRP, “too big to fail” and essentially replacing free markets by dictating where the flow of funds should go through their discriminating policies? Yes, the Fed has created some economic activity, but mostly they have generated financial activity — Wall Street activity. Certainly NOT Main Street activity. They have encouraged more debt, more risk-taking and more leverage, and have rewarded poor financial practices with their policies while taking credit for saving the economy.

Will this be the day of reckoning for central banks’ ill-conceived policies? I haven’t a clue. But, I do believe there will be such a day. And how that plays out might be the most significant economic event in history.

Balance Sheet

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