Evidence of the Fed Bailout

In my previous blog post, I wrote that the Fed has monetized through quantitative easing to shore up distressed large financial institutions. Courtesy of Global Research, here is evidence of how the Fed printed money to provide liquidity to the banks. Before the credit crisis, the Fed's balance sheet was under $900 billion, consisting mostly of high quality government bonds. However, in response to the credit crisis, the Fed's balance sheet expanded dramatically as it purchased mortgage related assets from the distressed financial institutions. Now with QE2, the Fed has been buying U.S. government bonds; ironically the bond yield has risen indicating that maybe the Fed is only few of buyers of U.S. Treasuries. These liqudity injections to the banking system, however, have not had any material impacts on the real economy as the banks hoarded money rather than lending it to the economy. Households have already maxed out on their debts and the future economic conditions are so uncertain that the banks are reluctant to lend. What is worse, they have their own problems to deal with - the toxic assets still sitting on their balance sheet and the need to be better captialized to meet the new Basel III requirement.

                                                            (Source: Global Research)