QE programs not only help to juice markets higher through dollar devaluation, they expand the Federal Reserve’s balance sheet to record breaking levels. The central bank’s balance sheet is already nearing $3 trillion and could hit $4 trillion by the end of 2013 if more QE is announced on Wednesday. Francisco Blanch, a global investment strategist with Bank of America, believes the Federal Reserve will maintain bond purchases until the end of 2014, a move that could send the central bank’s balance sheet skyrocketing to $5 trillion.
The exploding balance sheet at the Federal Reserve will also make it extremely difficult, if not impossible for the central bank to exit its current monetary easing stance. “There is certainly an issue about unwinding the balance sheet that is effective and continues to support the recovery without creating inflation,” explains James Bullard, president of the St. Louis Fed, according to Bloomberg. JPMorgan Chase, a member on the board of directors at the New York Fed, estimates that a $40 billion QE program to replace Operation Twist will cause the Fed to be “effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets.”
Naturally, the Federal Reserve’s massive presence in the market has caused many investors to become cautious. True safe havens such as gold and silver have outperformed the market over the past decade, as investors seek protection in an asset that can not be printed at will and has stood the test of time.
Investor Insight: True Safe Havens Needed as Fed Monetizes Uncle Sam
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Disclosure: Long EXK, AG, HL, PHYS