The Federal Reserve is now leveraged 53-to-1

Quite a interesting fact and astounding feat the Federal Reserve has accomplished. The Federal Reserve is so leveraged and has expanded its monetary base so much it is now at 18% of the GDP. The Fed now has $52.6 billion in total capital backing $2.79 trillion in assets. Who wants to invest in that bank? Is it any wonder the Chinese are dumping everything they can while they can. What this means in real terms is the Fed Funds rate will soon be 0.002%. And the Fed is discussing QE III.

Graph prepared by John Hussman of Hussman Funds

The US Dollar continues its slide hitting 73.601. “The head of the international payment department at theChinese forex regulator also warned about the risks of excessive holdings of U.S. dollars.” Translation he is betting the Federal Reserve unveils QE III soon. I would think the Federal Reserve would want to protect its assets and let the economy back into a recession but that might not be a political option.

On a somewhat humorous side note Obama has stopped receiving daily economic briefings. I guess it is pretty tough being a economist around the White House these days. I mean with all that “liquidity” the GDP should be a blistering hot $19.7 trillion by now. I guess even the president realized the Keynesians surrounding him was telling him a bunch of English fairy tales.

Will the dollar permanently go into exile. I think there will be one last rush as Europe collapses and they scurry to a “safe” haven in America. Then the long slide into oblivion with the current economist running the show. Of course we the people could hire some real economist, but that will never happen.

Not the best of times for the US dollar

As reckless and caviler as Bernanke is I do not think he and his board will allow him to go ahead with QE III. If the Fed does that they will be committing financial suicide that would require a tax payer bail out which would be political suicide. Are they willing to risk that? Can anyone imagine Obama and the Democrats going up for re-election in 2012 with another trillion dollar bail out hanging around their neck?

Bernanke knows he is probably out of a job if a Republican wins in 2012. Will he roll the dice on QE III and the hopes of another Keynesian bubble that does not burst until 2013? Will his board let him gamble away any last shred of credibility the Fed has?

This is where the action is, Monetary Base up 200% in last three years