This was the Fed original design. World War I and II, of coursed, changed it. Politicians, not bankers, ordered the Fed to support (buy) US government bonds instead of CP. Unlike the private sector, the public rarely repays its debts. The continuous rollover of ever-expanding debts prevents the money supply from realigning with demand after each crisis. In other words, the Fed is forced to support a system that can only reset after systemic failure.
As expected, the finger of blaming will be increasingly pointed towards the Fed, because the majority no longer understands its original purpose. The Fed was never designed to be the buyer of last resort to support government largess.
Headline: Why the Fed Is the Root of Much Market Turmoil
Not long ago, this week’s Federal Reserve meeting looked like a nonevent. Having begun to raise rates in December, the central bank was expected to stand pat while signaling more hikes later on.
Now, after several bone-jarring weeks, many investors hope the Fed is having second thoughts.
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