Since February 26, the Balance Sheet has grown by $2.56 trillion.
Where does it stop?
How Big Does It Get?
Mish
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The Fed’s Balance Sheet: How Big Does It Get?
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The issue no one seems to understand is that the Federal debt must be serviced.
Debt service was nearly 20% of current Federal Spending before it went on this massive public give away. It is obviously going much higher and simultaneously tax receipts are declining. Add to that the fact that States and Municipalities are going to need trillions in bail outs and the Federal debt service is going to skyrocket.
The last time this happened, was the great depression and the only answer was to raise tax rates dramatically. Top tax brackets went to 90%.
So do not fool yourself, those government checks are not free money, you will pay for them with higher future taxes many, many times over…..
The Fed is about out of ammo. There is a correlation between government debt and productivity, and the higher debt goes, the less production it achieves.
What people forget is that money is simply a way to keep score, but wealth is production.
The inflation scheme is supposed to keep people working paying off debt, much like the company store concept. The problem is as it progresses, it begins to reward people for speculating instead of working and producing.
Asset valuation get out of line with income and at some point people stop paying on their debts and the system collapses. That is where we are.
The next step is massive deflation to re-balance the system and then it will start all over…
At one point the US Treasury will just print the stuff, and forget to account for it as a future debt. A lot easier that way, and with the numbers we are seeing now, it seems a reasonable option…since everything else is crazy.
The only objective seems to be to prop up the stock market…
Supposedly the accounting in Pentagon is so bad, they couldn’t account for trillion dollar holes in their statement.
But don’t worry, as Mish likes to say, the US has the biggest gold reserve in the world.
There’s no way the count is wrong there.
Big enough to take ownership of everything…isn’t that the goal established in 1913???
The size of the Fed’s balance sheet doesn’t concern me. What bothers me is the cost to increase the balance sheet. What is that cost?
I don’t know of many private enterprises in this world that can build their balance sheets at little to zero cost…particularly on the scale and timing we are currently seeing.
Many global businesses subsidize their prices and costs of doing business in ways that aren’t readily apparent thus tricking consumers of their goods and services. Like Walmart using Medicaid for healthcare benefits for their employees. Pharmaceuticals using government money to do or fund their research then claiming exorbitant costs when consumer pricing (500X mark ups on medications like insulin that have been around for decades) or claim they aren’t making any money on vaccines when every corner market is advertising to inject w/o training or controls or immune testing.
But “the Fed” takes it to an exponential new level…
“Where does it stop?”
The 12th of never?
When we are saved by The Caliph.
It’s sad to think that the Fed will only stop with a revolution, and since there won’t be a revolution, the Fed will not stop.
Eventually, we (or more accurately our descendants) will be saved by the Muzzies. Evolution does eventually trump all. The fittest do eventually become the survivors, no matter how loudly the less fit may protest while trying to kick the can down the road.
Why did Fed assets increase between Sept 2019 and Feb 2020? Our economy was not in peril then. Was this reckless behavior to appease a President? Now we need it but what was their lame excuse for late 2019 asset expansion when assets should have declined? For now, we can get away with giant money supply expansions because everyone is doing it and we are still the reserve currency. I think the Fed will have to write off a lot of the debt it purchased if we want a viable financial future. Can they do that? That’s what I’m wondering.
Repo Madness
Federal Reserve hates free markets / capitalism.
Market rates of interest have been outlawed by the Federal Reserve.
Now, market prices on “securities” of all kinds (including JUNK bonds) have been outlawed as well.
Enjoy your centrally-planned financial/economic utopia – while it lasts.
Montana33
Perhaps this timeline might answer you question:
As long as we believe in the value printed on a piece of intrinsically worthless paper(or its digital version), evwythin gonna be awright, wonnit ?
Who knows?
I suspect at some point taxes will end in order to stimulate the economy and the entire budget, including local, will be QE’d.
It will only stop when our overseas trading partners stop accepting the $USD created by the Fed out-of-thin-air to pay for their goods.
Your guess is as good as mine when that point is reached. The US military’s job is to apply sufficient coercion/intimidation to delay that day of reckoning for as long as possible.
Since the Fed has declared war on value investing, I have been asking my financial advisor what are the limits to money printing. He assures me that there are limits. I still don’t see them. I’m interested to read the ideas here.
Perhaps it would help if every time we talk about the balance sheet we also mention why we care … so the Fed balance sheet is rising … so what?
it lasts until they stop accepting cash or debit cards at the strip clubs
Why does it matter what the balance sheet is ? It is all just computer money anyway.
This is an easy one.
Forever.
To infinity and beyond if our esteemed president and federal reserve have their way.
They will use the hammer regardless of who is president or which party is in power – and regardless of whether the problem is a nail or an intricate collection of gears and springs…
They will use it and continue to use it for as long as they can because it’s the only tool they have left in the box.
Or maybe the only tool they know how to (mis)use.
Well they are limited by Congress and the Treasury. Trump probably sleeps with sheets made out of dollar bills because he loves the Fed that much now. Real estate magnates love low/no interest rates.
This doesn’t matter as we fly past 100k deaths.
I am feeling more and more like this is a plan. The virus is real(and terrible) but man the timing has been great. Repo blew up in September. Virus shows up oct/nov.
Now politics collides with law and the Obama administration is about to get an information dump.
This virus has been a godsend for the powers that be. Public support wouldn’t have allowed this money printing if it hadn’t been for the virus.
Does Obama still have an administration?
That’s boilerplate.
6.5T + 4T+3T +3×2T= $19.5T.
Well, the Bank of Japan has grown its balance sheet to a size larger than that of the underlying economy (measured by GDP) while holding interest rates at zero, without any apparent ill effects (so far) and without significant growth or inflation to boot.
That will probably provide (false) comfort to our own Fed that they can at least mimic what Japan has done, right or wrong.
I think we have a long way to go, but most of the increase in the Fed’s balance sheet will be monetizing our escalating national budget deficit.
“….without any ill effects “
….aside from imminent extinction…..
Please explain?
Look at their demographics.
Then ponder what happens to a population of animals if old, infertile ones are forever protected from having to ever give up any of an environment’s resources to younger, still fertile upcomlings. All in some idiotic attempt to “save face” by reducing the perfectly normal and non-destructive generational handover of resources facilitated by bankruptcy.
I’d argue that their demographics are a result of failed economic policies that resulted in their 80’s asset bubbles bursting and ongoing stagnation they call “The lost Decade”(probably should call it the lost 2.5 decades) that resulted in few of the older generations having kids in the 90’s/2000’s unlike previous generations because the economy never recovered.
You can see the same type of thing in Italy- and coming to the US soon if not already.
“but most of the increase in the Fed’s balance sheet will be monetizing our escalating national budget deficit.”
Yes, but we got tax cuts!!
Economic stagnation is certainly an outcome. Let’s remember also that Japanese households hold much higher percentage in bank deposited “cash” in savings and at a much higher overall savings median rate ($93,000+ in 2011) versus Americans ($11,700 in 2018) via all instruments.
“How Big Does It Get?”
…
As big as necessary.
Ben Bernanke evolved when performing QE. First iterations had $$ amount and duration. Of course, Mr Market preferred no constraints … and would throw tantrum when needed. Bernanke learned to leave QE open ended until some (at times moving) objective met. In other words, appease Mr Market … no matter that it screwed Main Street bottom 80%.
Bernanke was The Market’s B!tch … and now Powell is … until campaigning for the job Kashkari bends over Main Street.
Bernanke, Yellen, and Powell.
Wouldn’t be surprised to see Kashkari next, he came from G Sachs.
“Blessed are the young, for they shall inherit the national debt.”
― Herbert Hoover
Is the only reason to shrink the balance sheet so that they don’t end up in a situation like Japan where there are limited assets to purchase? Why is it a problem if they buy assets and the issuer defaults?
The Fed buying up trillions in assets has created an asset bubble. It is no wonder millennials feel priced out of homes. Prudent investers are worried about stocks at these valuations, but don’t want to buy bonds near zero percent interest rates either.
I understand the problems with buying the assets in the first place. I’m just wondering why it’s a problem once the assets are already there and why it matters whether they are performing or not.
It’s not really an economic issue. It’s a moral issue. It allows corporate boards to make very unsound decisions, overpay CEOs, take on too much debt, put the company and employees in danger with essentially no repercussions.
Besides what Jon Sellers said, the other side of the equation with the Fed propping up Zombie corporations with asset purchases is that it rewards riskier investors and discourages prudent investors — and thus encourages the Fed to bailout more Zombies to save the increased investors.
Some, including most here and Mish, would argue that we should have a fair and honest market where fundamentals matter and there is such thing as price discover. This Fed action only benefits speculators, and encourages speculation on nothing more than buying into bullsh!t unsustainable over-levered risk assets is the best thing to do, because the Fed is going to buy that up and give them a big profit. What about reasonable people who might have sold or even shorted the crap? They lose.
And those Fed dollars will doubtlessly devalue the currency
Since hyperinflation chances are zero. The correct answer is obviously 25 trillion and above.
Sky is the limit as Neel kashkari said ” your ATM is safe, your banks are safe. There’s an infinite amount of cash at the Federal Reserve.”
…not cash….but computer bits – i.e. 1’s & 0’s on the computer.