by Mish

Balance sheet reduction hasn’t started yet, nor did the Fed even say when it would start. Since the Fed will announce the start date in advance, its eye would appear to be focused on December.

Once balance sheet reduction starts, the cap will be $10 billion a month rising to $50 billion a month, on a schedule not posted.

How to Build Up a Balance Sheet

The initial $10 billion cap on reductions is $6 billion in Treasury securities and $4 billion in mortgage bonds.

The maximum reduction rises to $50 billion a month, $30 billion a month for Treasurys and $20 billion a month for mortgage securities.

How Long Will It Take?

At $10 billion a month, $120 billion a year, it would take the Fed 29 years to reduce its balance sheet to $1.0 trillion from $4.5 trillion.

At $50 billion a month, $600 billion a year, it would take 5.8 years. If the Fed slowly ratchets up its cap, we are talking about a 10-year time frame.

Those are the absolute minimum and maximums assuming the Fed starts reduction and does not stop until it’s done.

Those timeframes are highly unlikely in actual practice because they presume the Fed won’t halt or reverse balance sheet reductions when the next recession starts.

From a practical standpoint, somewhere between 30 years and never is about right.

Build Me Up Buttercup

In honor of the next Fed asset build-up, I offer this musical tribute.

Mike “Mish” Shedlock

Spotlight on Fed’s Balance Sheet Plans

The Fed has had ample time to reduce its massive $4.5 trillion balance sheet.

Fed Balance Sheet Unwinding Expected “Relatively Soon”: Let the Debate Begin

As expected, today’s FOMC meeting came with zero surprises. In addition to its standard boilerplate about inflation, the Fed stated it would begin balance sheet normalization “relatively soon”.

Balance Sheet Reduction Starts October: Like “Watching Paint Dry”

As expected the Fed will begin balance sheet reduction in October.

Fed is Rethinking Its Balance Sheet Unwind: Expect Lower LT Rates, Higher Gold

The Fed is unlikely to keep its balance sheet reduction plan on target. There are significant consequences.

Paying Down Christmas Debt: How Long Will It Take

Consumers splurged this Christmas. GDP will rise. Hooray. But how long will it take for consumers to pay off their debt?

Fed Minutes Show Reliance on Consumer Confidence, Sentiment, Soft Data: Balance Sheet Normalization

Schedule Set (It Won’t Be Met). The Fed released the Minutes of June 13-14 FOMC meeting today.

Confident Dudley Expects Rate Hikes Will Continue, Hurricane Effect to Provide Long Run Benefit

New York Fed president William Dudley expects the Fed to proceed with its asset reduction plan at the September FOMC meeting.

How Long Will It Take for the ECB to Own All Sovereign Debt of Spain, Germany, France?

Huky Guru on Guru’s Blog posted a chart that answers the question: How Long Will it Take For the ECB to Own All Sovereign Debt of Eurozone Countries?

Diving Into Deutsche Bank’s “Passion to Perform” Balance Sheet

Deutsche Bank shares have collapsed to lows deep under crisis lows and collapse of Lehman in the Great Financial Crisis. What’s going on?