Dear CIGAs,

You will hear a great deal this week concerning the ease with which the Fed can exit itself from the enormous explosion in their balance sheet to over two trillion dollars.

This will be classic MOPE to be gleefully received by the Money Bunnies and Dancing Clowns on financial TV. I can only imagine how the airwaves will blast out the good news that there is no inflation on the horizon because the Federal Reserve is firmly in charge.

The Chairman may say that since the Federal Reserve pays interest on Bank Reserves that it can easily raise short-term interest rates. The MOPE on that is that due to a lower dollar there will be upward pressure on rates that must be offset by QE in order to attempt to prevent a total economic implosion. These conditions are not likely to change for a considerable period of time, thereby preventing any move by the Fed to pressure rates even higher. That method is total nonsense under present economic conditions.

The other position is that it can easily shrink its balance sheet by letting short-term credit run off and sell longer term assets to the public.

The nonsense here is that the items purchased from the financial system are the toxic items that the banks had no real means of valuing for which no market existed then or now. Only a permanent Pollyanna would think that these items are in fact full value to the accounted for figure. Many may well never function. Therefore sell what to whom is the real question.

Let’s not forget the massive swaps with other nation’s central banks to fund the bailout of their banks, systemic to US banks, and the demonic OTC derivatives. Turning around those swaps would destabilize currency markets for non-US central banks, therein causing them trade related currency problems.

Regardless of claims to the contrary, there is no practical method of draining the huge international monetary stimulation undertaken by the US Federal Reserve.

The inflation on the horizon is not a “demand pull” inflation but rather a currency event that will cause cost push inflation.

The Fed is boxed in and can only MOPE.