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Here's a Quick Check as to How the Fed's Balance Sheet Helps Spur Lending

A number of people including the Fed think its balance sheet spurs lending. Let's do a quick check.
Fed's Balance Sheet, Bank Deposits, Bank Loans 2021-07

Fed's Balance Sheet, Bank Deposits, Bank Loans Detail 

Fed's Balance Sheet, Bank Deposits, Bank Loans DETAIL 2021-07

Bank Loans and Leases

Bank loans and leases (yellow line) had an initial surge in April and May of 2020 but that was entirely due to paycheck guarantee programs. 

I could easily have gotten a loan, paid myself salary and had it discharged for free, but I didn't. Much of this money was fraudulent.

Since May of 2005, bank loans and leases have been in a steady decline despite a rip-roaring surge in the Fed's balance sheet (red line).

Commercial and Industrial Loans 

Commercial and industrial loans tell a similar story. The peak was also May of 2005. 

Mortgage Loans

The above picture does not tell the full story because banks have largely gotten out of the mortgage business. 

The Fed did goose housing and the stock market via interest rate suppression. What the Fed will do for an encore is a mystery (except for more of the same).

Negative Demand For Deposits


Once again, banks do not lend from deposits. Nor does the Fed's balance sheet represent money on deck waiting to be spent.

However, that does not imply QE is harmless. 

For discussion, please see There is a Negative Demand for Deposits to the Tune of 1.1 Trillion Dollars


Fed's Balance Sheet 2021-07-18

The Fed is discussing tapering, reducing its balance sheet. However, at the rate discussed, it would take 42 years for the Fed to unwind its sheet.

We may be well into another recession in a couple of years, with the Fed reversing course.

Regardless, don't hold your breath waiting for meaningful balance sheet reduction.

For discussion, please see A Word About Tapering and Who the Fed is In Bed With

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