Lew Rockwell pointed out that in this article for Forbes, NYU professor Tom Cooley inadvertently telegraphs the probable trajectory of the final collapse of the Fed, which, by the way, he is blaming in advance on Ron Paul;

“…since September 2008 it has expanded its balance sheet dramatically from roughly $900 billion to over $2 trillion, as of May 6…The current plan is to continue to expand the balance sheet with… securities backed by credit card debt, auto loans, student loans, small-business loans and real estate loans…The presence of these assets on the balance sheet in such quantities creates another problem for the Fed that exposes it to intervention. First, these huge unborrowed reserves make some observers nervous about inflation, even though there is no evidence of it right now.”

No evidence? Look at gold, oil, and the stock market. Look at foreclosure figures, Or, better, look at the items in your grocery basket – prices are holding, but portions are shrinking and sales are tougher to come by.

“But if the Fed has to reduce the assets on its balance sheet to forestall an inflation threat it could be very disruptive to credit markets. Their complicated positions could be hard to unwind. If the assets they bought were liquid, the Fed wouldn’t have been buying them in the first place. This means it may be difficult to get the cash out of the economy before it is too late.”

It’s ALREADY too late. But extinguishing those excess reserves was never in the plan anyway. Frank Shostak had an interesting technical analysis that bolsters my case;

“It is tempting to suggest that perhaps this visible rebound since February could be the beginning of a new bull market. An important factor behind this strong bounce is massive monetary pumping by the Fed that has contributed to a large increase in monetary liquidity. We suggest that, while the Fed can create plenty of monetary liquidity, it cannot make the underlying real fundamentals better. If anything, the Fed’s policies can only make the fundamentals much worse.”