The Federal Reserve should reveal its scheme for eliminating the massive volume of excess monetary reserves wrought by quantitative easing (QE) because selling those reserves, which now amounts to more than $2 trillion, will take years and have an unknown impact on America.

That's the view of noted economist Allen Meltzer, Carnegie Mellon University public policy professor and former member of the Council of Economic Advisors under Presidents John Kennedy and Ronald Reagan.

In a column for Project Syndicate, Meltzer wrote, "The Fed has printed new bank reserves with reckless abandon" during its rounds of QE, but that almost all of the reserves sit idle on commercial banks' balance sheet, earning the banks 0.25 percent.

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"For the bankers, that's a bonanza, paid from monies that the Fed would normally pay to the U.S. Treasury. And, adding insult to injury, about half the payment goes to branches of foreign banks."

Bank loans have started to increase, but instead of the loans going to individuals and small businesses, banks "consider it safer to lend to the government, large corporations and giant real estate speculators," Meltzer wrote.

According to Meltzer, 40 percent of U.S. government debt comes due within two years. "Rolling it over at higher rates of 4 percent to 5 percent would add more than $100 billion to the budget deficit." And that does not include the increase in the current account deficit to pay China, Japan and other foreign owners of America's debt.

"Instead of continuing along this futile path, the Fed should end its open-ended QE3 now," he stated.

"It should stop paying interest on excess reserves until the U.S. economy returns to a more normal footing. Most important, it should announce a strategy for eliminating the massive volume of such reserves."

In a new report from the Federal Reserve Bank of San Francisco, Vasco Curdia, an economist at the San Francisco Fed, and Andrea Ferrero, an economist at the New York Fed, estimated that the QE2 round of Fed easing in 2010 and 2011 boosted gross domestic product by only 0.13 percentage point and added 0.03 percentage point to inflation.

"Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation," the report concluded.

In congressional testimony last month, Fed Chairman Ben Bernanke said the central bank would keep "a high degree of monetary accommodation" in place for "an extended period" by keeping interest rates near zero even after Fed asset purchases end.

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