Robert Murphy explains why the Fed cannot extricate itself from the money creation mess it initiated. Here is a brief comment from the article:
The M1 measure of the money stock is currently $1.9 trillion, meaning that even if the Fed stopped inflating tomorrow, the banking system would have the potential to increase the money stock by a factor of six. Even if the demand for dollars remained constant in such an environment (which it wouldn’t), that could mean oil prices above $600 a barrel.
Mr. Murphy provides the answer to a question asked by many:
I’m often asked whether Bernanke will be able to “pull this off.” Specifically, can the Fed gracefully exit from the huge hole it has dug for itself?
Unfortunately my answer is no. In the present article I’ll go over three possible exit options, and explain the flaws in each.