Portfolios are collections of various financial instruments that one is holding, and one always hopes that their value will head in the right direction over time. Given that none of us are endowed with an internal crystal ball, we don't know how something will perform until, well, it performs.
The Fed Claims Its Own "Portfolio"
- When the Fed wanted to increase the monetary base, it would purchase US government bonds in the secondary market and deposit the funds in the accounts of previous bondholders.
- However, when it wanted to decrease the base, the Fed would sell bonds from its portfolio and keep the money it gained from sale of the bonds out of circulation.
The Fed’s Response to the Crisis It Helped Create
- The Fed went on a buying spree, guided by laws passed during the New Deal years, when Congress decided to defer almost entirely to the executive branch
- Included among the private securities gobbled up by the Fed were more than $22 billion worth of shares of American International Group (better known as AIG) stock
- Although the Fed later sold its AIG shares and ended its purchases of private securities, it went heavily into the market for mortgage securities in order to reinflate the housing bubble
- Fed purchases artificially inflate these securities’ value
Conclusion
- Had the Bush and Obama administrations permitted the malinvestments that characterized the first housing boom to be liquidated or directed elsewhere, the initial recession would have been deeper than what the economy experienced in 2009
- A stronger recovery and an economically sound path for entrepreneurs and investors to follow
- In its efforts to create yet another temporary fix, the Fed kicked the proverbial can down the road, and now it is more difficult than ever to do what is necessary to right the ship.
https://mises.org/wire/feds-portfolio-nonexistent-fed-does-not-invest-it-destroys-investments
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