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All right thanks so much.
Ben Bernanke's spoke before the senate today as you just -- -- -- faces questions from the house financial services committee.
Congressman Michael Grimm as a Republican from New York is a member of that committee and he joins us now things happen all.
Congressman thanks so much for joining us what is your first question.
Both the first question for the chairman is what is the overall exit strategy putting in context.
That we've already increase the balance -- the Fed.
By two trillion dollars over the last five years but a lot of that is not what the Fed is done traditionally normally the Fed buys a lot of the short term T bills.
We are now having the Fed that is buying the longer term debt.
And as interest rates eventually rise what is their exit strategy we still don't know what that is I think that's extremely dangerous for the US economy.
No absolutely and a lot has been made that lately is sort of when you get out and we see the market turned against the federal court says it as everybody sort of realizes that they're getting out a lot of estimates state.
The -- could be on the hook for about half a trillion dollars that -- taxpayers on the -- And does that concern you.
Well that's a huge concern but let's let's go a step further do you realize that as interest rates rise -- -- have -- this long term debt instruments on their balance sheet.
They can't sell it at some point you know you realized they could start losing money.
And once they reach a point where they can't sell those debt instruments well now they are no longer a position to fulfill their main mission.
Which is affecting monetary policy so would actually -- the Fed and hamstring them from from.
Accomplishing their mission and if there is a slight one on the bond market we're done that you that you all these discussions of sequestering all these other things.
All the relevant if there's a slight run on the bond market and the Fed is not in the position to affect monetary policy which are coming in try to shore up that bond market.
Then everything we're talking about on Capitol Hill is -- relevant because the economy is gonna be so crushed.
That austerity measures are gonna look good to the United States so.
That's really interesting without fear questions -- I would love to hear the answer about -- -- you specifically said what happens -- the market turns against you and you can't exit is that realistic possibility.
And and what would you do in that case I mean I would bet that he would -- That's not a realistic possibility that wouldn't happen I don't know and I are you -- -- what specifically would you think he's gonna say hey.
Here that's exactly what -- -- ask and I'd I'd I'd I'd have to disagree with the chairman it's an extremely realistic possibility look.
Interest rates are all time lows because we have been printing money right that's that's what it's fourteen trillion dollars comes from QE3 so we print money.
We -- all these long term debt instruments and it keeps pressure to keeping interest rates low you can only do that for so long and every -- knows that including the chairman.
As these interest rates rise and they are stuck in these positions in can't sell.
They really can affect monetary policy doing -- supposed to.
And I don't know how the chairman's gonna answer this question because I know deep down he has to be extremely concerned about this.
This is the whole -- this is really the part of our economy.
And we are teeter tottering on a very very teachers dangerous area right now.
-- are you comfortable with the fact you know of course the Fed said back of the December meeting that that now they've decided they're gonna target unemployment that the gonna keep.
Monetary policy loose and where it is until we see unemployment.
Fall below six point 5% I mean that's new uncharted territory for the Fed to say that they're targeting that are you comfortable about.
Now but I think it's historically anyone here that's listing that's ever looked at projections that the Fed has put out again historically.
They've never been right they've never even been close to the -- so I think it's a very unrealistic goal and again most of the time what they've been doing historically to deal with.
Is -- shorter term T bills that has the most immediate effect on the economy.
Then then they're barely doing that now because they're focusing on.
Good -- one because interest rates are so low they don't need to so again I just don't think that their own policies have kinda put them.
In a position where their back -- to the war and they don't have as many tools in their toolbox and as interest rates rise -- gonna have less than last to a point where they become ineffective.
And that is a calamity there's no question about any efficacy question situation and it's it's a big problem.
Congressman I look forward to your turns -- to be sitting by -- popcorn listening waiting and it gets are basically -- -- preview we appreciate it.
You're very welcome thank you.
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