On February 27, 2013, Ben Bernanke spoke to US Congress about how the Fed would unwind its balance sheet.
Bernanke said, We Have “Belts, Suspenders” to Unwind Balance Sheet .
Bernanke’s vague answer to Sen. Richard Shelby, R-AL, when asked how the Fed will deleverage the balance sheet, was this: “In terms of exiting from our balance sheet… a couple of years ago we put out a plan; we have a set of tools. I think we have belts, suspenders – two pairs of suspenders. I think we have the technical means to unwind at the appropriate time; of course picking the exact moment to do, of course, is always difficult.”
Belts and Suspenders Detail
Belts and Suspenders Synopsis
- Belt tightening took the Fed’s balance sheet from $4.46 trillion to $3.77 trillion.
- Suspenders took the Fed’s balance sheet from $3.77 trillion to $6.90 Trillion in just 9 months.
Tapering, That’s All You Get
Please recall the September 18, 2019 QE Debate: What Did Powell Mean by “Need to Resume Balance Sheet Growth”?
Powell’s Prophecy
“And we are going to be assessing the question when it will be appropriate to resume the organic growth of our balance sheet.”
More prophetic words have seldom been heard.
Some objected to my post because of the word “organic”. I commented.
The Fed may do a brief period of “organic” expansion (which by the way can mean anything the Fed wants), but I propose more QE is coming whether the Fed “intends” to do so or not.
Fed’s 2019 Interest Rate Expectations vs Market’s Expectations
Here’s a look at the Fed’s 2019 Interest Rate Expectations vs Market’s Expectations
I propose the Fed is wrong, again, as usual.
For discussion of today’s FOMC decision, please see Fed Cuts Rates 1/4 Percent, Three Dissents: Dot Plot Suggests No More 2019 Cuts
Dot Plot September 26, 2018
That’s quite a hoot isn’t it?
Even without Covid-19, the Fed was not remotely close to its expectations.
My Dot Plot comment at the time: “I side with those who expect more rate cuts.”
Clueless Wizards
Some people have immense faith in proven clueless wizards. Others think the Fed does nothing but follow market expectations.
However, this creates what would appear at first glance to be a major paradox: If the Fed is simply following market expectations, can the Fed be to blame for the consequences?
More pointedly, why isn’t the market to blame if the Fed is simply following market expectations?This is a very interesting theoretical question.
Fed Uncertainty Principle
I discuss the above paradox in If the Fed Follows the Market, Why Won’t Rates Go Negative?
Corollary number one stands for the for plot example above.
Corollary Number One
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.
In case you missed the post, please give it a look. There’s lots more in play regarding what the Fed knows and doesn’t.
Message From Gold
Another pair of suspenders is on deck.
Gold has that message. Do you?
Mish
Only those full of $hit would desire more suspenders when belt bound.
Assuming $hitting ones own britches is still undesirable, and not the new norm.
The truth it is a pension bailout. The Fed will continue to increase its balance sheet as necessary. It may deflate at times as well. As long as the Fed continues to encourage money into stocks, then people will continue to be able to retire. The Fed learned something from the deflationary spiral that occurred in 2009. There will be no asset deflation of any kind on their watch. Thank God for the Fed. Asset values and the stock market would have crashed along with more unemployment if Congress was in charge of the banking system.
RE: “There will be no asset deflation of any kind on their watch. Thank God for the Fed.”
No doubt the attitude of most of the wealthiest Americans who realize that they are effectively stealing money from the poorest Americans in order to pump up their own wealth. Mustn’t let Jeff Bezos lose any money … only the 30+ million recently unemployed among millions of others …
Must… Not… Go .. down…. Ever… Crash. Haha
The fact that people plan on interventionists policy is scary. Failure is the driving force of efficient markets. The decks gotta be cleared at some point.
What currency is gold traded in ?
US dollars, British Pounds, Euros, Swiss Francs, Yen, Canadian Dollars, and perhaps even Yap Island stones (although that would be highly illiquid).
At what point do investors wake up and smell the coffee with respect to the Fed’s sugar high? Or can the Fed just keep throwing trillions more at the problem in the hope that everything turns out rosy?
We have several more bailouts to go. Just look at Japan.
They say can throw hundreds of trillions to offset debt. They say even those amounts won’t cause inflation. But I guess at that point.. who knows. This is just the beginning. Your jaw will be on the floor when things actually heat up.
The FED knows exactly what it is doing. They are taking care of their primary shareholders. The citizens of the USA do not have a place on that board and so, in essence the FED is never wrong. They are doing exactly what they are designed to do under the laws of the United States of America (or close to it) take care of the bankers at all costs. They may be screwing all of us out here in the real world but that doesn’t matter until it does. It is up to us to bring about a change to the system.
What has been missing in bailout discussions is a focus on businesses that EXPORT PART OF THEIR PRODUCTION, either from a region, or from the nation. These companies DRIVE the entire economy. Other businesses provide support, or service the economy. Think gas stations, grocery stores, hairdressers, bars, lawn services, dry cleaners, plumbers… When these businesses fail, another business soon replaces them.
With the above in mind, all support must be directed to building American exporters. Wealth is transferred with every import. With imports exceeding exports, there is NO FUTURE.
Throwing trillions at Wall Street, suppressing interest rates, giving loans to the liquor store up the street… are a waste of resources. The US must use this time to rebuild industries, stimulate innovation, improve supply chains…
Belt and Suspenders for the US. Belt and Road for China. Zero complains so far about the Fed turning Communist.
Yes, we want freedom, but freemoney is more important. Bunch of losers in the US.
Is it just me seeing a lot of Mish’s ‘Got Gold’ in recent posts. Maybe he’s trying to tell us something is ‘imminent’?
My 401k is doing quite well, thanks not only to the Fed’s actions, but for the creation of the belief that they will continue to act. I haven’t noticed that I am getting poorer due to a decreasing buying power of the US dollar.
Idealists can always clamor for an ideal world. Dream on.
Central planning.. great I can’t wait.
It is absolutely wild to me that so many are embracing the magical money tree. Of course, there’s a story about that.
Gold’s not getting the message. Down today, while the stock market roared again.
“which the stock market roared again.”
…
Uber dove and campaigning to be next Chair Kashkari speaks in a little while.
Gold’s been quite safe this year so far. At the beginning of the year I could buy a dollar with just over 20 milligrams of Gold, today it only costs just over 18 milligrams.
“Some people have immense faith in proven clueless wizards.”
…
More Bark than Bite.
I see quite a few people think Federal Reserve is / will “buy it all up”.
As it stands now. Federal Reserve – everyone sitting down? – has bought:
$4.3 billion in commercial paper – maturity out to 90 days.
$1.8 billion in corporate debt.
That’s it.
So you’re saying the bulk of the balance sheet increase is treasuries, and structured, bundled debt created by banks? That’s great.
The Fed has been very successful in driving up stock and bond prices. The Fed cannot help the average American. Only Congress can assist average Americans through direct means which is why Powell is going on 60 minutes and urging more stimulus payments.
“The Fed cannot help the average American.”
…
The Federal Reserve is not owned by the taxpayer.
The Federal Reserve is owned by big Wall Street banks (via preferred shares which pay 6% dividend).
With that knowledge, Federal Reserve actions make complete sense (at least to me).
But it turns out over 50% of Americans now own stocks. IMO the stock market is the fastest way to becoming wealthier in America. It has been for awhile now. The people that figure that out will end up better off. The people that try to just save will end up losers.
Prices will not spike in the United States for years, maybe decades. In fact, they are falling at record pace. So why talk about inflation? Why risk an economic depression and a painfully slow recovery over the improbable?
The obsession with inflation is here again. link to macromomblog.com
Been to the grocery store lately?
yeah sure, apart from useless gadgets, even rents, housing, medicines, healthcare, education, even food prices….everything DOWN…..like never before ….LONG LIVE deflation !
There’s going to be a lot more money printing this year. The banks hold a lot of bad debt or soon to go bad debt that they will unload onto central bank balance sheets. There’s no way the world governments will allow banks to fail or even give the appearance they might fail.
The Housing Vultures
Francesca Mari
June 11, 2020 Issue
Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream link to nybooks.com
Great link, thanks! I just wish the author didn’t resort to the use of illogical and divisive race references. What is a person of color? Is it the same as colored person? What is a Latina? Did the author check that she was born south of the border? Did he verify via a DNA test that she was an Indian and presumably, therefore, a person of color? Why the ignorant implication that Latin American origin equates with person of color? There are a few almost totally without color Latin American countries from which one would still be described as Latino or Latina, for example, Uruguay and Paraguay. Why not describe the Hickersons as Anglo-Americans? The bias and racism of libtards is frightening and disturbing.
I am more inclined to blame the politicians for not knowing what they are doing. If there was surplus funds (see Germany) the discussion would be a different one.
Germany practiced “gleichshaltung” (synchronization) in the 1930’s and now “mutualization” of European debt is discussed. EU in big trouble and Germany is the antagonist, but for a different reason now.
Belts & suspenders
Genius
nice analysis mish. thanks.
good take, mish. thanks for all your research and analysis.
Thanks
I think it’s a big expensive joke at this point.
The question is this – How many years before today’s fed balance chart is just a squiggle line at the bottom?