This time it is much worse, and for stupid reasons.
The US government funded its huge balance sheet expansion mostly by short term obligations. When rates in long term debt were at historical lows… it chose a to go in on short term instruments (because interest rates never rise!)
As that short term debt becomes due and it needs to be rolled over, it will face a much higher interest rate, severely impacting the federal budget.
The last crisis was smoothed over because the fed stood in as buyer of last resort. It’s not clear it will be able to afford to do so this time.
> not clear [the Fed] will be able to afford to do so this time
The Fed is fine. Its limits are inflation and unemployment. The latter is proving incredibly forgiving right now. A single-mandate central bank would be tempted to plunge the economy into recession right now to cure the inflation.
The US government funded its huge balance sheet expansion mostly by short term obligations. When rates in long term debt were at historical lows… it chose a to go in on short term instruments (because interest rates never rise!)
As that short term debt becomes due and it needs to be rolled over, it will face a much higher interest rate, severely impacting the federal budget.
The last crisis was smoothed over because the fed stood in as buyer of last resort. It’s not clear it will be able to afford to do so this time.