We all know that the Fed printed $3.7 trillion of new money between 2008 and 2014 under the banner of “quantitative easing,” or “QE,” as part of a failed monetary experiment by former Fed Chairman Ben Bernanke. The Fed also held interest rates at zero for seven years from 2008 to 2015 to subsidize bank earnings at the expense of everyday American savers.

The money that was printed by the Fed was used to buy government securities, mostly U.S. Treasury notes and some government-guaranteed mortgage-backed securities. Now the Fed is slowly unwinding those two efforts by gradually raising interest rates and not purchasing new government securities when the old ones mature.

The problem is that this process of normalizing rates and the balance sheet may not be completed in time for the next recession or market panic. In that case, the Fed may have to go back to QE.

As this article shows, some experts are anticipating a new round of QE with a twist. Olivier Blanchard, former chief economist of the IMF, has suggested that a new round of QE could be used to buy stocks instead of U.S. Treasury notes. That policy would print money and boost the stock market at the same time.

The Bank of Japan and the Swiss National Bank already pursue this policy of buying stocks and bonds with their printed money. Unfortunately, the evidence is that this policy is a black hole that does not boost the economy but does contribute to stock market bubbles that are impossible to unwind without a crash.

The Fed hopes a new round of QE never comes to pass. But a recession that arrives before the Fed has raised rates enough may lead directly to that policy. If so, the stock and bond market bubbles we have today may just get bigger until they crash on their own once and for all.

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